Insights

Prior to the new law, the Chilean legal framework governing public procurement provided that an employer or company convicted of anti-union practices or violations of workers’ fundamental rights faced a severe and inflexible sanction: being completely barred from contracting with the State for a period of two years. 

This harsh measure sought to ensure that state contractors met high ethical standards. However, it also generated controversy, especially regarding its constitutionality and the proportionality of the sanction. 

Critics of the rule argued that it violated fundamental principles of the Chilean legal system (especially the principle of equality before the law) by imposing a disproportionate and indiscriminate sanction. They also argued that the rule violated due process, given that the provisions on disqualification did not include clear mechanisms for appeal or review, and further that it violated principles of economic freedom by (among other things) limiting the capacity of companies to compete in the public market. 

With the entry into force of the new law in December 2024, important modifications were introduced that make this prohibition more flexible, allowing the strict sanction of a two-year bar to be mitigated. Specifically, the law provides that the disqualification from contracting with the State “may be applied for up to two years.” 

In other words, prior to the new law, if the employer or company was convicted of an anti-union practice or a violation of fundamental rights, the prohibition of contracting with the State was automatically and absolutely applied for two years. In contrast, the new law allows a court to impose disqualification for a period of less than two years, and further provides that disqualification is not to be applied when it may cause “serious social and economic consequences or serious damage to the community, or is harmful to the State.” 

In this way, the new law addresses several of the existing criticisms regarding disqualification, and seeks to overcome them by allowing judges to evaluate on a case-by-case basis the appropriateness and degree of the sanction, considering factors such as the legal right violated, the magnitude of the infringement in relation to affected third parties, the repetition of the conduct, the public interest, and the proportionality of the economic effect that its application would have. 

Now, if a company or employer is faced with a labour protection lawsuit or allegations of an anti-union practice, it has new tools to defend itself and advocate for a reduction of the period of disqualification, or it can directly request that this sanction not be applied at all when it entails serious social or economic consequences for the community and/or is harmful to the State. 

This change to the rules for disqualification is of utmost importance for companies that, for example, contract mostly or exclusively with the State, where this sanction clearly has a much more severe effect as compared to companies that do not enter into contracts with the State or do so only in small volumes. Under the new law, these companies may request a grading (or even elimination) of the sanction, taking into account the public interest and the proportionality of the economic effect that it would have.