When Michelle Bachelet, of the Partido Socialista (PS) and larger Nueva Mayoría alliance, came to power in March 2014, she did so with nearly 63 per cent of the vote, although low turnout deprived her of a commanding mandate for change. Nonetheless, President’s Bachelet ambitious legislative agenda included major educational, taxation, electoral and labor reform.
Educational reform and alterations to Chile’s infamous binomial electoral system were always going to be difficult given the requisite constitutional majorities, but yesterday, President Bachelet’s hard-fought labor reform was halted in its tracks by Chile’s constitutional court. The Court, with 6 in favour and 4 against, ruled that the legislation, which was designed to aid organized labor in a country that saw labor weakened during the period of market reform, was unconstitutional.
The reform, which was only passed by the Senate in April and which caused divisions in the ruling coalition, Nueva Mayoría, sought to establish labor unions as the principal agent for collective bargaining. In effect, it was an effort to overturn the alterations to the labor code undertaken by the military dictatorship of General Pinochet in 1979, which saw Chilean organized labor significantly weakened and side-lined. Members of the conservative right-leaning opposition opposed the legislation however, and filed a motion challenging aspects of the reform with the Constitutional Tribunal.
It was specific codes of the new provision that the Court objected to: the stipulation that companies must negotiate only with labor unions during wage talks; the prohibition on the extension of negotiated benefits to non-unionized works; and compulsory intercompany trading. Although opposition legislators hailed this decision as a victory, unsurprisingly, the government and labor unions were harshly critical of this outcome, with unions suggesting it could lead to labor unrest.
This comes at a bad time for President Bachelet. She has been seeking support for her larger legislative agenda, and her popularity has plummeted a long way from the eighty plus rating that she enjoyed towards the end of her first term in office. Her administration has been beset by a number of corruption scandals, one of which involved one of Chile’s largest corporate entities, Penta Group, and the right-leaning Unión Demócrata Independiente (UDI). More significantly however, one of the scandals involved the President’s own son, Sebastián Dávalos. Dávalos was accused of using his political influence to arrange a US$10 million bank loan for his wife’s firm, Caval, which then used the funds to purchase land in central Chile that was promptly resold for a profit. This has left the Chilean electorate generally dissatisfied and unhappy with the political elite and the institutions of the state.
So what happens now? The government has two options: they can either withdraw the legislation altogether or they could effectively veto the Court’s decision. The Court has until May 9 to return the legislation, with their recommend changes, to the government. President Bachelet will then have 30 days to send the now altered legislation back to Congress, or to veto the alterations of the Court and re-send the original bill back to the house. In this scenario, the opposition could of course then challenge the legislation in the Court once again.
This means that this dispute could rumble on for quite a while unless some form of compromise is found.
 See for example, the chapter by René Cortázar in Labor Markets in Latin America, edited by Sebastian Edwards and Nora Lustig.