The first thing an employer should do when uncovering employee fraud is evaluate whether or not the company is obliged by law or by its internal policies to conduct an investigation. Prior to initiating any sort of investigation, the employer should consider, for example, the magnitude and relevance of the fraud, the seniority and position of the affected employee, etc.

If an investigation process is conducted (without infringing an employee's constitutional rights) and is successful, depending on the seriousness of the events and provided there is enough evidence of the employee's actions, the employer may dismiss the employee with cause based on "lack of probity of the employee in the performance of its duties" (Article 160 No.1 of the Labour Code).

In order to dismiss an employee for cause, the improper conduct constituting a fraud must be serious and duly proven. Furthermore, Labour Courts have added the following requirements to admit this ground of employment contract termination for cause: (i) the lack of probity must be attributable to the employee, current, related to the employment relationship, and linked to the employee's lack of honesty; and (ii) it must have caused a relevant damage to the company.

If an employer wants to terminate an employment contract for lack of probity, it has to deliver to the employee, personally or by certified mail, a dismissal letter informing the employee of the employment contract termination, the effective date of termination, the legal ground on which it is based, and a detailed description of all the facts that constitute the fraud.

It is very important to highlight the existence of conclusive and legitimate evidence against an employee in order to proceed with a termination for cause. This is due to the fact that, following a dismissal for cause, the employee will almost always sue the company for unlawful termination. The company has the burden of proof to demonstrate the fraud, and in so doing it may only allege and provide evidence in connection with the facts set out in the termination letter. Chilean Labour Courts are quite protective of employees and, thus, they impose a very high standard of proof for employers regarding lawsuits for unlawful termination.

Chilean law also expressly prohibits presenting evidence that has been obtained through unlawful or illegitimate means, especially if it was obtained in the course of violating the employee's fundamental rights (e.g., privacy and honour). An employer, therefore, should be prepared to present in court legitimate and conclusive evidence against an employee to demonstrate the existence of the conduct constituting the fraud and, as required by the Courts, the damage it caused to the company.

Finally, in addition to the employment termination and depending on the nature and magnitude of the fraud, the employer may (and in some cases it will be actually advisable to do so) take criminal or civil actions against the employee.

What process and rules should employers follow when conducting an investigation; what are the risks when they don't?

The internal investigation must be documented in writing; it also must be discrete, conducted in private, and guarantee that the affected employee is heard. The employer must also ensure the respect of employees' constitutional rights to honour, dignity, and privacy of communications and private life.

Once the investigation is completed, the company shall share the findings with the affected employee. If the evidence shows that fraud actually existed and the employee is effectively responsible for such conduct, the employer shall adopt the applicable measures and sanctions, which may include dismissal for cause without severance (except vacation payments). The employer should act promptly or the offense may be deemed forgiven by the Labor Courts.

If the employer conducts an investigation that goes beyond legal limitations, there are several possible adverse consequences for the company:

a) The means of proof that were obtained through an illegal investigation procedure could be declared entirely invalid by the Labour Court.

b) The company may be exposed to a lawsuit for infringement of fundamental rights either during the labour relationship or during the dismissal.

(i) Should the infringement of fundamental rights occur during the labour relationship, the company may be liable to pay damages, including pain and suffering, as well as administrative fines, and be barred from entering into contracts and to participate in tenders with the State of Chile for a two-year period.

(ii) Should the infringement of fundamental rights of the employee occur during the dismissal, the company may be liable to pay the employee an additional severance equal to 6-11 monthly remunerations (uncapped), as well as damages, including pain and suffering, and administrative fines. It will also be barred from entering into contracts and to participate in tenders with the State of Chile for a two-year period. Furthermore, if the Labour Court determines that the dismissal was discriminatory, it could order the employee reinstated to the company if the employee wishes so.

Is it necessary to have a "cause" in order to dismiss an employee? What are the consequences if a Labour Court finds a dismissal to be illegal or abusive?

Chilean Labour Law establishes that an employment contract may only be terminated based on the grounds and according to the formalities set forth in the Labour Code. Such grounds are limited and can be divided into two groups:

a) Grounds that do not give the employee the right to severance pay:

(i) Those where there is no fault of the employee (article 159 of the Labour Code):

  • Agreement of the parties;
  • Resignation of the employee;
  • Death of the employee;
  • Expiration of the term of a fixed-term employment contract;
  • Completion of the specific work or service for which the employee was specifically hired; and,
  • Act of God or force majeure.

(ii) Those where the employment contract is brought to an end due to serious fault of the employee (article 160 of the Labour Code):

  • Lack of probity in the performance of duties, sexual harassment, physical aggression or injury against the employer or other employees, verbal aggression against the employer, labor harassment, and serious immoral conduct affecting the business;
  • Carrying out certain acts in the same line of business as the employer where such acts have been expressly forbidden in the employment contract;
  • Absences from work with no justified cause during two consecutive days, two Mondays in a month, or a total of three days in a month, as well as unjustified absence (or without previous notice) if in charge of an activity, work, or machinery wherein abandonment or paralysation constitutes a serious disturbance to the development of the work;
  • Abandonment of work, which entails: (a) unreasonable or unjustified departure from the workplace during working hours without the employer's permission; and (b) failure to perform the work agreed in the contract without justified cause;
  • Acts, omissions, or fearless imprudence that affects the safety or functioning of the business or the safe performance of work by other employees or their health;
  • Intentional material damage caused to the facilities, machinery, tools, products, or goods of the employer; and,
  • Serious breach of obligations in the employment contract.

b) Grounds that give the employee the right to severance pay:

(i) Business necessities;

(ii) Dismissal at will of the employer; and,

(iii) Bankruptcy of the company.

In case of a dismissal for cause due to lack of probity in the performance of an employee's duties, the exposure of the company includes the following.

a) If the Court rules in favour of the employee, the employer will have to pay severance in lieu of prior notice and the severance per years of services, the last one with 80% surcharge. The surcharge could even be 100% if the dismissal is declared frivolous (carente de motivo plausible).

b) Additionally, it has become increasingly common that, together with suing for unlawful termination, employees are claiming violation of their fundamental rights. This claim is resolved through the Tutelage Procedure before Labour Courts. If this claim is presented jointly with a lawsuit for unlawful termination, the company is liable for the additional severance and subject to the sanctions outlined above.

Previously published by The Employment Law Alliance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.