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Declaration of a Single Employer and Infringement of the Company's Freedom of Contract
At the beginning of March 2022, and in a divided decision, the Constitutional Court declared the unenforceability for unconstitutionality of part of Article 3 of the Labor Code (case No. 11124-21). The latter provision regulates the conditions under which two or more companies may be considered as a single employer for labor and social security purposes, the key element being the existence of a common work management. The declaration of a single employer means that the companies are jointly and severally liable for compliance with labor and social security obligations, individual contracts and collective agreements. Additionally, it allows the workers of the companies to form one or more unions (including inter-company unions of the group), and that these can bargain collectively with all or each of the companies included in the declaration.
In the specific case submitted to the Constitutional Court, a company (INALEN S.A.) had been sued before a labor court by former employees for unjustified dismissal and collection of labor benefits and compensation. The plaintiffs jointly requested that INALEN S.A. and other companies be declared a single employer.
Before the Constitutional Court, INALEN S.A. argued that not only was its business model different from the other companies involved, but that it also had a different administrative and commercial structure, a different variable remuneration system, and that each company maintained individual and collective contractual conditions according to its own circumstances. In the case of the collective agreements, INALEN asserted that the conditions negotiated with the company's union were very different from those of the other respondent companies.
In the opinion of the majority vote, the application of the entirety of Article 3 of the Labor Code to the specific case would be disproportionate, considering the objectives pursued by the lawsuit filed by the former employees. In particular, the majority vote found that in order to guarantee the payment of the benefits and indemnities claimed by the former employees, it was neither reasonable nor necessary that the companies be declared jointly and severally liable for compliance with the collective agreements, nor that they be considered as a single employer for the purposes of the formation of unions and collective bargaining processes.
In the view of the majority vote, this disproportionality leads to the application of the entirety of Article 3 of the Labor Code being contrary to the right to free contracting, recognized by the Constitution. In particular, the freedom of contracting would be affected with respect to essential elements that the parties freely agreed upon in a collective agreement with a determined scope and meaning, without having considered in such negotiation that the terms could be extended to other workers by virtue of a judicial decision. In addition, it was considered that the management capacity of the companies affected by the declaration would be affected, to make decisions about their current and future performance.
Consequently, it was resolved to declare the following paragraphs of Article 3 of the Labor Code unenforceable for unconstitutionality in the specific case:
- The sentence of paragraph 6° which establishes the joint and several liability of the companies for the fulfillment of collective agreements.
- The entirety of paragraph 8, which allows workers to form one or more unions (including inter-company unions of the group), and which empowers unions to bargain collectively with all or each of the companies covered by the declaration of a single employer.
The practical consequence of the ruling is that even if INALEN S.A. and the other companies are declared by the labor court to be a single employer, this will only be for purposes of the payment of severance and benefits claimed by the former employees, but not for the enforcement of collective agreements, nor for the formation of unions and collective bargaining processes.
The question is whether after this ruling, the Constitutional Court will initiate a jurisprudential trend with respect to similar cases, or whether it will be more of an exceptional judicial pronouncement.