Good Practices in Labour Administration

Settlement of individual labour disputes

The case of Chile

Extrajudicial conciliation by appearance

In an effort to speed up the settlement of individual labour disputes and therefore to allow employees whose contracts have been terminated to receive their wages and compensation quickly, the Chilean labour administration offers employees the chance to make a claim with the labour inspectorate before the case goes to court. This practice is known as extrajudicial conciliation and involves the conflicting parties being summoned to appear so as to seek an agreement or a negotiated solution.

This practice, the procedures of which are not subject to explicit legal regulations and which results from the interpretation of various national labour law provisions, has proved to be not only judicious but also swift and economical both for employees and employers, as well as the labour courts. It has produced significant results in that 75 per cent of disputes are settled amicably, thereby reducing the number of cases brought before the courts.

This practice has been established by the labour inspectorate which has set up hearings units for this purpose and has issued a Procedural Manual for claims and appearance hearings.

In Chile, the role of labour administration in settling individual labour disputes is based on a large number of regulatory mechanisms stemming from national labour legislation. These mechanisms enable problems that are likely to arise during the execution of or after the termination of labour relations between an employer and an employee to be settled and to prevent these difficulties from being brought before the courts. Extrajudicial conciliation by appearance is one such mechanism, according to which the labour inspectorate may summon the employer and the employee to appear. This activity falls under Article 29 of legislative decree No. 2/1967 relating to the creation and organization of the Labour and Social Welfare Ministry. This article stipulates that "the Labour Directorate and its officials may summon employers, employees, trade unions or representatives thereof to appear (...) in order to find a solution to cases that may be assigned to them in the course of their duties or which would ensue from the implementation of legal or regulatory provisions, or to prevent possible disputes".

Extrajudicial conciliation by appearance has been established as a result of an internal practice of the Labour Directorate stemming from interpretation of the aforementioned Article and of a certain number of provisions of the Labour Code and provisions governing the functions of the Labour Inspectorate ⁽¹⁾. This practice has been formalized in a Procedural Manual for claims and appearance hearings drawn up by the Labour Directorate ⁽²⁾ . Although there is no precise standard establishing it as such, this procedure consists of extrajudicial administrative conciliation ensuing from a specific activity, the summons to appear before the labour inspectorate being absolutely obligatory for the parties who, once they have received the summons to appear, must present themselves before the labour inspectorate in order to reconcile their points of view. Absence from this appearance is liable to an administrative fine.

With this practice, the Labour Directorate hopes to arrive not only at a better application of labour legislation, but also to help redundant workers receive their salaries and compensation more rapidly after termination of their contracts, and to substantially reduce the number of cases brought before the courts. In the long-term, the aim is to streamline user services and to develop a culture in which workers know how to interpret the law governing their work relations themselves and can "find the applicable law on their own".

Article 168 of the Chilean Labour Code holds that an employee whose contract has been terminated for one of the reasons indicated by the Labour Code and who believes that the application thereof is unjustified, unwarranted and inadmissible, or whose contract has been terminated with no mention of the legal causes, may submit a claim to the labour inspectorate before the matter is taken to court. This claim is aimed at verifying the situation surrounding the redundancy, the circumstances in which it has occurred and, consequently, ensuring that the rights of the worker have been respected. It is therefore a method of control and as such makes it possible to note offences and to apply the sanctions laid down by legislation.

The claims are investigated by hearings inspectors acting within the boundaries of the "Hearings Units" of the services of the labour inspectorate. In Chile, the labour inspectorate comes under the Labour Directorate, which is a decentralized public technical service which enjoys the status of a corporate entity in its own right. This directorate is under the administrative authority of the Under-Secretary for Labour and its organizational structure is laid down by legislative decree No. 2/1967 concerning the creation and organization of the Labour and Social Welfare Ministry. The services of the labour inspectorate have welcome offices that are open to the public and which to provide information and set up consultations with users concerning national labour law provisions and to direct those persons wishing to make a claim. These claims represent approximately 10 per cent of all enquiries made by people consulting these welcome offices. Moreover, "legal aid organizations" ⁽³⁾ provide free assistance to employees wishing to defend their claim through the courts. These cases concern a (non-quantified) fraction of the twenty five per cent of claims that are not settled during the appearance hearing.

The Hearings Units devote most of their time to receiving and processing the claims that they receive with the aim of "obtaining reconciliation as the main method of settling differences or controversies that arise in relation to individual labour relations and, in general, overseeing rigorous application of labour and welfare provisions once labour relations have been terminated", according to the Procedural Manual for claims and appearance hearings. The other objectives laid down by the Labour Directorate are: 1) amicable settlement of the majority of claims; and 2) reduction of the average time limit between submission of the claim and the appearance hearing by rendering the summons procedure more flexible and optimizing resources (this time limit was 15.5 days in 1997).

The involvement of the Hearings Unit is triggered by the claim, by means of which the former employee requests the intervention of the labour inspectorate to ensure that he receives the sums he believes owing to him by his former employer following termination of the working relationship. The hearings inspector, who has complete autonomy, sets the date and time of the hearing and summons the parties to appear (the employee is automatically summoned to appear when he files his claim). The employer's summons indicates the documentation that he should bring to the appearance hearing for examination by the inspector and also indicates that he may instead send a representative who, in these conditions, should be provided with a simple proxy giving him the right to make a deal and to make commitments in the name of the employer. In line with the aforementioned procedural Manual, the hearings inspector should base his actions on the information provided by the parties concerning their rights and obligations, attempt to persuade them of the benefits of a rapid solution and of the disadvantages of lengthy litigation, and then complete the appearance procedure by sending the file to the court. The Hearings Unit is charged specifically with:

• evaluating whether social and welfare obligations have been respected by employers who become the subject of claims by former employees;
• reconcile the parties concerned by explaining their rights and obligations and persuading them of the possibility of a rapid solution to the disagreement; and
• sanctioning violations of labour and welfare provisions discovered during the processing of the claim.

During this procedure, a number of facts are first ascertained, such as the date when the working relationship began in order to determine the length of service. This helps to determine the seniority allowance and to verify that payments for the period preceding the termination of services have been paid correctly and social security contributions paid for the entire working period, as well as to ensure the payment of other responsibilities and benefits such as entitlement for bank holidays due to the employee.

During this claim, the labour inspectorate may intervene to formally instigate the "final discharge" ⁽⁴⁾, a document in which the parties determine the sum of allowances due and put an end to reciprocal claims, and which has full legal force. This means that once it is signed the obligations and rights that could be claimed will be extinguished. In order for this "final discharge" to have a legal effect, the formalities indicated in the standard document must be fulfilled. Once they submit their "final discharge" to the labour inspectorate and confirm what they have agreed therein, the employee and employer carry out the formalities necessary for this instrument to become legally binding and for it to be able to cancel the obligations between the parties. This condition of ratification is aimed essentially at ensuring that, thanks to practical controls, the inspector may effectively ascertain that the rights of the worker are protected. This procedure is therefore part of the so-called protection of social rights incumbent upon the State.

The report drawn up by the hearings inspector is binding, when, according to established jurisprudence criteria, the obligations that it covers are enforceable legally or by virtue of a contract, provided that the nature of the debt is determined fully and clearly without possibility of error, the method of payment for the compensation claimed is clear and that said compensation is liquid or liquidable. If the hearings inspector notes that labour or welfare legislation has been violated, he is required to apply the appropriate administrative sanctions to the employer ⁽⁵⁾. In this case, the inspector may also draw up a report detailing the welfare debts.

Concerning human resources management, the Department of Human Resources of the Labour Directorate has had at its disposal since January 1998 a document defining the description of the post of hearings inspector, based on jurisdiction. This document indicates that "the hearings inspector should pursue the following aims:

• contribute to solving working differences by means of mediation and agreement between the parties, in a just and equitable manner;
• allow working differences to be settled without initiating legal proceedings;
• ensure that social and welfare standards are respected throughout, whether this be by establishing controls or levying sanctions".

The qualifications required to be a hearings inspector are: sound knowledge of labour and welfare legislation, of administrative jurisprudence (decisions taken by the Labour Directorate) and a basic knowledge of accountancy. In addition, the appearance inspector must be able to integrate and express the result of the appearance hearing and have a good aptitude for drafting personal reports. A hearings inspector must also be polite and courteous towards the parties, act fairly in relation to the interests at stake and be able to assert himself so as to draw conclusions and establish agreements.

The services of the labour inspectorate are financed solely by the public Treasury. Labour Directorate officials with access to computer equipment will use, from 1999 onwards, software enabling them to register the debts ascertained by the hearings inspectors in relation to agreements ultimately concluded between the parties.

The activities of and the results obtained by the Hearings Units are evaluated internally by means of statistical mechanisms and externally by means of studies and inquiries carried out either at the request of the Labour Directorate or by public evaluation organizations. Statistical data is collected monthly.

Internal evaluation

The results of processing claims received by the labour inspectorates are grouped statistically into three categories: "settled", "unsettled" (sent before the courts) and "unfounded, withdrawn and abandoned claims". This last category, which each year represents approximately 20 per cent of all cases, groups situations that are contradictory but which have one thing in common: no appearance hearing takes place.

The number of claims filed increased from 78 504 in 1990 to 101 182 in 1997. Seventy five per cent of cases giving rise to an appearance hearing regularly end in conciliation between the parties. In a quarter of cases only, the inspector recommends that the employee pursue the case through the courts. Between 1995 and 1997, the sector of economic activity in which conciliation was the least successful was the transport sector with a total of 72.3 per cent of claims being settled, whilst the sector in which conciliation was most successful was the financial sector in which more than 79.8 per cent of cases leading to an appearance hearing were settled. Claims are generally filed as a result of non-payment of redundancy money, unpaid salaries, sums owing for unrecognized bank holidays, non-payment of welfare contributions (which are deducted from each salary) and the failure to make available documentation (which in the majority of cases corresponds to the inexistence of the "final discharge").

The labour inspectorate registers only the total sum paid to employees as a result of appearance hearings. In 1997, the total paid to employees as a result of 59 672 claims resulting in conciliation was US$ 10 530 313 322. To enable a stricter analysis of the results of extrajudicial conciliation, the Labour Directorate intends, in 1999, to install software for registering debts obtained by the labour inspectorates in relation to agreements ultimately concluded between the parties.

External evaluation

As part of an external study launched by the Labour Directorate in 1995 (Ramírez y Jofré) to evaluate extrajudicial conciliation, some thirty legal aid corporations were consulted concerning their opinion of the conciliation carried out by the labour inspectorate and the opinions of 32 magistrates with jurisdiction over labour disputes were gathered concerning the work carried out by the inspectors on the basis of the cases referred to them.

In general, the aid corporations have a good opinion of the work of the inspectorate brought to their attention. Given the fact that the product of this work, of which the corporations are aware, consists of the reports established during the appearance hearings, overall unfavourable opinion was shared by only 26.7 per cent of people questioned. A large share of the criticism (46.7 per cent) concerns the fact that the inspectors do not provide employees with clear information concerning the time limits, deadlines and jurisdictions involved in judicial proceedings; it is also indicated (36.7 per cent) that they are exceedingly brief and that errors occur in the identification of the defendant (26.7 per cent). In the case of employees who request assistance from these legal aid corporations and for whom the intervention of the labour inspectorate ended in an unfavourable result (since these employees failed in their attempt to assert their claims during the appearance hearing), it is interesting to note that, for 36.7 per cent of corporations, these employees had an average or good image of the labour inspectorate. Naturally, the majority have an unfavourable image of the inspectorate; 46.7 per cent of criticisms report that the employees perceive the appearance hearing as a useless formality and 10 per cent affirm that employees question the integrity of the labour inspectors.

The opinion of the magistrates shows an overwhelming majority in favour of the activities of the labour inspectors. In 71.9 per cent of responses, the appearance reports are held to be generally average or good and negative opinions are expressed in only 6.3 percent of responses. The most frequent criticism levied against these reports (25 per cent) is the lack of clarity or errors, other criticisms being less frequent. Amongst magistrates, 18.8 per cent even claim to have found no faults whatsoever with these reports. As with the legal aid corporations, employees calling on the courts have an unfavourable image of the activities of the inspectorate. Only 40.6 per cent of magistrates believe that employees have a good or average opinion of the labour inspectorate.

The difference of opinion between the magistrates and the legal aid corporations is based on several factors. A first explanation lies in the fact that the magistrate, who relies not only on the report but also on a certain number of other means of information, including his own opinion, takes into account the content much more than the form of the hearings report, whist the aid agency that has to prepare the claim is also extremely concerned by the formal aspects. In the case of the magistrate, although the appearance report is not invested with the legal features of presumption concerning its content, it is evaluated together with other evidence included in the file (testimonies included), whilst for the aid agencies, this report is very often the only document used to prepare the lawsuit and establish the claim.

A study of national socio-economic characteristics (CASEN) carried out in 1996 by an independent organization at the request of the labour administration sought to explain the development of claims and to analyze the correlation between the growth in the number of claims per region ⁽⁶⁾ and a certain number of features that could be important in each of these regions. The following variables were checked: percentage of salaried employees; percentage of contractual salaried employees; percentage of the working population having had a basic or inferior education; percentage of the working population employed by companies with less than ten salaried employees; percentage of the population above the poverty line; percentage of unionized workers in relation to salaried employees; percentage of unionized workers in relation to the total working population. The results of this study showed a significant correlation (equal to -0.5) only between the increase in claims and the number of contractual salaried employees, that is to say that the feature corresponding most to the filing of claims by salaried employees whose working relations have been terminated is the actual precariousness of these working relations. This study likewise showed that the level of education, poverty and unionization of salaried employees had no bearing, whether positive or negative, on the development of claims.

Finally, another external study carried out in 1997 - the CEPAL - (Estudio Económico de América Latina y le Caribe, 1996-97) showed that the most significant economic growth between 1994 and 1997 took place in the transport (23.5 per cent), commerce (22.1 per cent), mining development (19.9 per cent) and construction and building sectors (18.2 per cent), sectors in which development differs in terms of the increase in claims. Growth in production was weakest in the services (5.5 per cent), agriculture (7.5 per cent) and electricity (8.7 per cent), which are precisely those sectors where the greatest differences were noted in terms of claims. Moreover, the relative frequency of the problem claimed is almost constant over the two periods comprising the period for which statistics are available; only a minor above-average increase can be registered concerning the non-respect of bank holidays and the handing over of documentation, whilst there has been a remarkable drop concerning unpaid social contributions. This last result is particularly significant, since, although Chilean legislation permits the employer not to declare and pay social contributions deducted from the employee immediately, breaches of social welfare legislation account for 34 per cent of all breaches registered by the labour inspectorate over the whole of its activities.

The analysis carried out by the author of this case study ⁽⁷⁾ concerning the attitude of the hearings inspectors with regard to current practice reveals the existence of two apparently contradictory bodies. The first body emphasizes the value of the appearance hearing as a means of ensuring that social and welfare legislation is respected and even talk about a "monitoring of office activities". According to this vision, the main task appears to be that of registering the sums due in a strict manner, leaving any chance of agreement essentially between the hands of the parties. The other body places emphasis on the actual conciliation work, which does not mean that the sums due are not registered, but that the inspector is given a much more active role in seeking an agreement between the parties. This last concept, which conforms more to the aims pursued by the Labour Directorate, is the more widespread amongst the hearings inspectors. The fact that 75 per cent of claims dealt with at the appearance level end in conciliation shows clearly that the Chilean labour inspectors are extremely effective as conciliators.

In short, the extrajudicial conciliation work carried out by the Chilean labour inspectorate plays an important role in providing an alternative, rapid and economic solution to legal disputes that may occur during working relations between an employer and a salaried employee. This conciliation activity has filled and will continue to fill a very significant function in favour of salaried employees during and following the termination of their working relations. It also relieves the labour courts of an enormous amount of work.

1. These provisions make it possible to exercise control and issue orders, to indicate obligatory reforms with immediate application and to apply sanctions and other penalties.

2. A study carried out in 1995 by two consultants (Ramirez and Jofré) in order to obtain the opinion of users and partners of the Labour Directorate concerning the activities of the labour inspectorate in matters of conciliation proved favourable to the Labour Directorate with regard to the procedure of extrajudicial conciliation by appearance.

3. "Las Corporaciones de Asistencia Judicial".

4. The final discharge is governed by Article 177 of the Labour Code.

5. In Chili, the inspector applies the sanction himself, it being possible for the subject to file a claim through administrative or legal proceedings.

6. Between 1990 and 1997, the number of claims filed increased from 78 504 to 101 182.

7. Interviews were carried out by the author with a representative sample of appearance inspectors.