On May 15, 2026, the Santiago Court of Appeals issued a judgment in Docket No. 749-2025 and ruled that nullity of dismissal does not apply when the employment relationship is recognized only in the judgment and the employer never withheld contributions. The ruling matters for any company or entity facing claims for declaration of an employment relationship arising from fee-based contracts, because it limits the most severe economic exposure of the litigation.
What the Court ruled
A person provided services to the Municipality of Renca for 9 years under a fee-based contract. At the end of the relationship, they sued before the 1st Labor Court of Santiago, exercising three actions: declaration of an employment relationship, indirect dismissal (art. 171 of the Labor Code, alleging serious breach of art. 160 No. 7), and nullity of dismissal. They invoked three breaches: failure to put the employment contract in writing, failure to grant legal vacation, and non-payment of social-security contributions.
The first-instance court upheld the claim in its entirety. It declared the existence of the employment relationship and ordered payment of severance for years of service, compensation in lieu of prior notice, and the legal surcharge, the payment of the social-security contributions owed, and granted the nullity of dismissal.
The Municipality filed a nullity appeal before the Santiago Court of Appeals. The appeals court, moreover, made use of its power to annul on its own motion on the point of nullity of dismissal. It maintained the severance arising from the indirect dismissal but reversed the order to pay contributions and dismissed the nullity of dismissal.
The central reasoning of recital six: the judgment declaring the employment relationship has a declaratory nature. The Municipality operated under the conviction that the relationship was a fee-based contract governed by art. 4 of Law No. 18,883. In that scenario, there was never any withholding of contributions without payment —the precise situation that triggers the sanction of art. 162, paragraphs 5 and 7, of the Labor Code. Without prior withholding, the infringement offense is not configured.
The operative rule of the ruling: there is no nullity of dismissal when the employment relationship is recognized in the judgment and the employer did not withhold contributions because it was acting under the conviction of a civil/commercial engagement.
Why it matters
Nullity of dismissal is the most severe economic sanction in this type of litigation. It obliges the employer to pay the wages accrued from the date of dismissal until the contributions are cured, a period that in long lawsuits can extend several years. Eliminating that item from the award changes the magnitude of the risk.
The ruling provides a concrete and articulated argument to resist that sanction when three conditions are met: (i) the employment relationship was not previously recognized —neither by written contract, nor by inclusion in the payroll, nor by administrative action—; (ii) the judgment is the one that declares it for the first time; and (iii) the employer acted under the conviction of a different engagement and, for that reason, never withheld contributions in order not to pay them.
There is an important nuance. The case involves a municipality governed by Law No. 18,883, which has its own regulation on fee-based contracts in the public sector. That regulated conviction of the public employer does not automatically transfer to the private sector, where the standard of diligence and the regulatory framework are different. The usefulness of the precedent for private companies depends on being able to prove an equivalent reasonable conviction about the non-employment nature of the relationship.
Could you prove that reasonable conviction today if one of your fee-based providers sued? Documenting the civil nature of the relationship before the lawsuit makes the difference between resisting the nullity of dismissal or bearing the most severe sanction of the litigation. Schedule an assessment of your exposure.
What you can do
If your company or entity maintains fee-based contracts with people who provide services under conditions that could be read as subordination and dependence —fixed schedule, employer instructions, effective integration into the workforce— the underlying risk does not change: the declaration of an employment relationship and the payment of severance remain in force. What this ruling modifies is the exposure to nullity of dismissal. Three concrete actions:
- Audit the active fee-based contracts to identify which ones show indicators of subordination and dependence that could give rise to a declaration of an employment relationship in court. The goal is to know the real exposure before the problem reaches the court.
- In ongoing lawsuits for declaration of an employment relationship, where the relationship was not recognized administratively or contractually, assess with your legal team whether the criterion of Docket No. 749-2025 can be invoked as a defense argument against nullity of dismissal. For public-sector entities governed by Law No. 18,883 the argument is direct; for private companies, the evidence of a reasonable conviction of non-employment must be developed.
- Update the labor contingency provisions. If there is active or probable litigation in this matter, the quantification of the liability must contemplate the possibility that the nullity of dismissal is dismissed on appeal. The difference between the two scenarios can be substantial.
If any of these points raises questions, a 30-minute diagnostic session is enough to size up your gaps in fee-based contracting. Schedule here.
If you need to review the situation of your fee-based contracts in light of this ruling, assess the exposure to ongoing claims for declaration of an employment relationship, or calibrate your labor contingency provisions, schedule a meeting with our team.
This content is informational and does not constitute legal advice.