Chile Government Moves to End Mandatory Severance Payments for Workers

The Chilean administration, three months into President José Antonio Kast’s term, is advancing a labor reform package presented by the newly created Mesa de Reactivación Laboral. The 22‑measure plan proposes removing the statutory indemnización por años de servicio, replacing it with a fund financed through an additional unemployment‑insurance scheme. Under the proposal, employers would no longer be required to pay severance directly, giving them broad discretion to dismiss staff.

The reforms are justified by the government as a way to boost formal employment, citing an unemployment rate of 9.1 % for February‑April 2026 (10.5 % for women). Critics argue the changes would dismantle long‑standing worker protections and could lead to arbitrary dismissals.

The proposal has sparked strong opposition from trade unions and social organizations, which are urging nationwide strikes to defend labor rights.