Labour relationships in Argentina are governed by the Argentine Constitution, international treaties and conventions and, in most cases, by the Labour Contract Law No. 20,744 (‘LCL’).
The Argentine Constitution contains the overriding principles governing labour relationships. The basic principles in the Argentine Constitution include freedom of employment; the right to work in a dignified and equal manner; to earn appropriate wages that cannot fall below a minimum declared by law; to be entitled to paid breaks and vacations; and equal remuneration for equal work. The LCL is the minimum statutory threshold and governs every aspect of labour relationships, such as remuneration, termination, vacations, timetables, leave of absence, etc.
For litigation, issues related to employment contracts and conflicts are decided by the ordinary justice of each province and of the City of Buenos Aires. In broad terms, there are two main court structures, one involving mainly oral arguments and a second one involving mainly written documents.
The provinces have mainly adopted the oral procedure and the provincial tribunals usually consist of more than one judge (i.e., three members) and of a sole instance or stage. For example, in the Province of Buenos Aires, the tribunals consist of three judges, and any appeals may only be filed before the Supreme Court of Justice of the Province of Buenos Aires.
When the procedure is mainly written, there are two instances or stages, the first before an individual judge and the second before a three-member tribunal. For example, in the City of Buenos Aires, there are 80 first instance Labour courts. Any appeals against the decisions of these Labour courts must be filed before the National Labour Court of Appeals (‘NLCA’). The NLCA is divided into 10 chambers, each of which is formed of three judges.
No court has the power to control another, but only to review, in some cases, appealed decisions. In principle, case law does not create binding precedents. The only exception to that principle is a full-bench judgment, in which all the judges of the NLCA participate. These judgments determine legal doctrine and the criterion adopted by the NLCA in that case is mandatory for 10 years for all of its 10 chambers and for all first instance labour courts sitting in the City of Buenos Aires.
Appeals against judgments rendered by the NLCA or by the Superior Courts of each province, may be filed as extraordinary appeals before the Argentine Supreme Court of Justice (‘the ASCJ’). The extraordinary appeal before the ASCJ, is an exceptional appeal aimed at preserving the supremacy of the Argentine Constitution and is only applicable in very specific situations.
II YEAR IN REVIEW
Employment law and the power of the unions depend on the political party in office at the time. A pro-union or pro-employee government is different from a market government, because it tends to enact laws granting increased powers to the unions which, in turn, support the governing party, as well as enacting more employee-protective regulations. In recent years, Argentina has had a pro-employee government. However, very recently the Argentine government has discreetly distanced itself from certain very representative unions and union leaders, especially after the governing party won re-election in October 2011.
Judges have increased their tendency to be protective of employees as a consequence of the pro-union politics and legal practice has been affected by claims from managers taking advantage of judges’ interpretation of the law, which has dramatically increased the amount of cases for both blue-collar and white-collar employees.
It is noteworthy, however, that, despite the pro-employee bias evidenced by the labour courts and labour legislation, one of the major topics of last year, the bill on profit-sharing for employees, has been publicly postponed by the Executive Branch. This is consistent with the government distancing itself from certain union groups, as mentioned above.
In fact, the bill was introduced by a member of the House of Representatives aligned with the ruling party and widely promoted by the head of the Workers General Confederation (‘WGC’), and it consisted of the enactment of a law that would recognise the granting of a percentage of companies’ profits to employees. Nonetheless, the Executive Branch, in a political and diplomatic move aimed at delaying the matter for now in order to maintain good relations with businessmen, put off the initiative. Thus, the implementation of this law will not be discussed until at least 2012.
Another bill that was introduced this year is related to the call centre activity. Within the past few years, many companies have established call centre offices in Argentina, mainly dedicated to online services for telecommunication companies’ clients. The bill is aimed at reducing the working hours of call centre employees and generally improving the working conditions of the workers, especially regarding daily rest and health and safety conditions. In fact, the bill’s sponsors consider that the services rendered by the call centre employees are unhealthy and therefore, due to the fact that they are obliged to answer calls without a rest, they believe that these particular tasks need a special regulation. The bill has not been discussed in the current year’s sessions, and it is expected to be discussed next year.
Probably one of the main reasons why these and many other bills has been postponed is related to the fact that presidential elections took place in 2011 and the economical and political agenda is yet to be defined.
In relation to employee’s salaries, in 2011 the minimum wage has been modified by the Wage Council, a group that brings together workers and employers in order to review periodically wage costs in relation to the economic situation. In this sense, the monthly salary has been raised from AR$1,840 up to AR$2,300.
On the other hand, the amount of litigation and collective negotiations have continued to increase, indicating that 2012 will surely be a year of conflict in employment law. The amount of collective negotiations in the past year is detailed in the following chart:
III SIGNIFICANT CASES
The issues described above have been analysed by Argentina’s administrative and court authorities.
Further, the National Labour Court of Appeals has recently stated2 that an employer should not withhold income tax from the severance paid to an employee. In fact, the case was filed by an employee who was claiming compensation for the amounts deducted by the employer to the severance pay. The plaintiff’s argument was that the payment was not periodical or regular and therefore should not be subject to withholdings. The NLCA finally acknowledged that opinion and said that the main issue was whether compensation was subject to withholding due to the periodicity of the payment, and since severance for specific items was not habitual it should not be subject to deductions.
As we have mentioned above, a particular case does not create a binding legal precedent for the other chambers; however, from the rules set forth by this case we can predict repercussions in future decisions.
IV BASIC OF ENTERING AND EMPLOYMENT RELATIONSHIP
i Employment relationship
The LCL establishes that all labour contracts are, in principle, for an indefinite period. For indefinite employment relationships, there is no obligation to execute an employment contract in writing. It is advisable, however, to execute a contract in which the parties set forth the obligations of the employer and the employee, and the conditions and terms of the relationship. There are other types of contracts, such as fixed-term contracts, contracts for extraordinary or special service, part-time contracts, and seasonal contracts, which the parties must execute in writing pursuant to the LCL with specific requirements. An employment contract may be amended in writing at the parties’ discretion. However, the employer is only permitted to unilaterally introduce changes if such changes are reasonable, only affect non-essential labour conditions and do not cause moral or financial damage for the employee. If such damage exists, even with the employee’s consent, further claims are viable under the ‘no waiver of labour rights’ principle.
ii Probationary period
All indefinite-term labour contracts begin with a trial period of three months, which allows either party to terminate the relationship during such period without an obligation to make any severance payment and with only a 15-day prior notice or payment in lieu thereof. If the labour relationship continues once the trial period has been completed, the trial period will be computed as part of the contractual period for all purposes.
iii Establishing a presence
Argentine labour law and the LCL are applicable to any employee working in Argentina, including individuals from a foreign country. In certain situations expatriate employees may be exempt from social security payments, provided they prove that they are protected or covered by a social security system in their home country.
All employees who render services in Argentina must be registered in Argentina. Argentine law requires the existence of an Argentine employer registered with the Argentine Tax Authority (‘AFIP’). To obtain such registration with the AFIP, the employer, if it is a foreign company, must establish either a branch or a subsidiary in Argentina and then register such entity with the AFIP, thus obtaining a tax identification number (‘CUIT’).
Once such registration is complete, the branch or subsidiary shall be entitled to hire employees, who may thus be registered in full compliance with Argentine labour, social security and tax regulations. Pursuant to Argentine labour and social security laws, employers and employees have certain obligations to make social security contributions for family allowances, medical services, pensions and unemployment benefits.
Furthermore, the employer will also be required to withhold amounts for income tax payable by the employee. Withholdings and contributions are amounts calculated as a percentage of the individual employee’s remuneration. They must be deposited in the relevant accounts which the AFIP maintains in most banks in Argentina.
* Depending on activity and annual turnover
An employee’s contribution to the monthly basis for calculating social security withholdings and contributions is capped at AR$16,213.72. Employer’s contributions, on the other hand, have no cap and therefore must be calculated over the whole employee’s remuneration.
iv Independent providers
The employer may maintain relationships with different providers of services, consultants or independent contractors. Argentine law, however, has broad criteria to determine whether a labour relationship (registered or unregistered) exists. To determine whether a person is considered an employee of a company, the factual reality, the nature of the services, the existence of compensation and the manner in which services are rendered, among other facts, must be considered, rather than the formal identification that the parties may give to the relationship. Consequently, a foreign company may validly engage an independent contractor or hire employees through an agency but, if the foreign company is proved to be the actual beneficiary of such employees’ services, a labour relationship could be deemed to be incorrectly registered, leading to labour, social security and tax consequences.
In addition, an independent contractor performing services for a foreign company may actually be considered to create a permanent establishment and branch of the entity, in which case it could be considered to be performing a permanent business in Argentina without proper registration. Performing a permanent business in Argentina without proper registration may trigger penalties from the tax authority, debts for unpaid taxes and interest on unpaid taxes.
V RESTRICTIVE COVENANTS
An employee has a duty of loyalty to the employer and is barred from engaging in competitive activities during the period of employment. Contractual stipulations providing that the employee will not compete after the termination of the labour contract are of doubtful validity, since they may be considered to conflict with the provision in the Constitution that provides that all persons have an unfettered right to work.
In the case of key employees, however, it is quite common for them to undertake not to compete with their former employer after termination of their contract in consideration for receiving monetary compensation from their former employer. This type of agreement has, in certain cases, been accepted as valid by the Argentine courts provided a time limit and monetary compensation was provided to the employee.
i Working time
The workday not only includes the time effectively worked but also the time the worker is at the employer’s disposal.
The workday may not exceed eight hours a day or 48 hours a week. A shorter workday may also be established.
A workday may be established in any of the following ways: limiting the workday so that it does not exceed eight hours per day, as long as work duties on Saturdays end at 1pm; or uneven distribution of the 48 hours among the working days of the week, when workdays of one or more days last less than eight hours. The extra time on the other days may not exceed an hour a day and activity on Saturdays must still end at 1pm. Night shifts, which are defined as those worked between 9pm and 6am, may not exceed seven hours and employees who work shorter night shifts must collect the same salary as employees who work the longer day shifts.
Time worked in excess of the allowed workday should be paid as overtime with a 50 per cent or 100 percent surcharge depending on whether the extra hours were worked during the week or at the weekend, respectively. Overtime may not exceed 30 hours a month and 200 hours a year, unless administrative authorisation to exceed such caps is obtained. If the work is performed in teams based on revolving schedules, however, overtime eligibility is measured in three-week periods. As explained above, only directors and managers are exempt from overtime as a result of a recent statutory amendment.
VII FOREIGN WORKERS
Argentine entities are fully authorised to receive and hire expatriate or otherwise foreign employees at their discretion and with no limits on numbers. Every non-Argentine citizen that enters the country to perform a paid legal activity must first obtain a temporary residence work visa. This work visa may be granted for the maximum term of one year, renewable each year. Citizens from Bolivia, Brazil, Colombia, Chile, Ecuador, Paraguay, Peru, Uruguay and Venezuela (Mercosur and associated countries) are exempt from the need to obtain this work visa, since they may directly apply for a two-year residence visa in their capacity as citizens of Mercosur and associated states.
A temporary residence work visa may demand approximately two months to process. The process is in principle composed of two stages; the first one takes place in Argentina (the employee’s attendance is not required) and the second stage requires personal attendance by the employee before the Argentine Consulate of his or her home country. The process may, however, be materially simplified and performed entirely in Argentina if the employee is already in the country.
Business visitor visas are called ‘business visas’. Nationals of most countries require a business visitor visa to travel to Argentina on short-term trips for business, investment, market surveys, attendance to meetings or conferences, or contract negotiation, among other examples.
Business visas are issued for specific short-term assignments, with a maximum of 90 days and may be extended for an additional 90 days. Business visas may be applied for at the Argentine consulate with jurisdiction over the applicant’s home country. The processing time will depend on each consulate. The process may have to be initiated in Argentina if there is an Argentine inviting company.
Local laws do not require specific recruitment percentage of national employees or a specific duration for their assignment. Furthermore, the Argentine Constitution grants all residents of Argentina, regardless of their nationality, the right to work. In relation to foreign directors of corporations (‘SAs’), they must establish special domicile in Argentina, although they may be of any nationality. If they were to move to Argentina during their term of office, a special visa would be required.3
VIII GLOBAL POLICIES
The employer may regulate and organise the activity of the company through the creation of internal policies. Though not expressly required, it is advisable for the employer to establish internal rules in writing and have the employees sign them, acknowledging receipt and acceptance of the rules. It is also advisable to translate the rules into Spanish and notify the employee in such language. Despite such freedom given to the employer, any policy, even in writing, contemplating conditions that are not, at least, as favourable for the employee as Argentine statutes or other local regulations shall be null and void.
There is no legal obligation to translate the employment contracts or other employment documents into native language (i.e., Spanish). This includes employment contracts, policies, handbooks or otherwise. Official forms (e.g., social security documentation or salary receipts), however, are required to be actually drafted in Spanish.
Regarding labour documents that do not require translation, it is still highly recommendable to draft them into Spanish or to have English-Spanish versions because only documents in such language are acceptable in the event of a lawsuit. Otherwise, in the event of a dispute, a public translator would be appointed and any mistranslation would be interpreted in favour of the employee.
Consequently, there is no particular exposure in the event that documents are not translated, less even criminal risks, other than the risk of mistranslation outlined above.
X EMPLOYEE REPRESENTATION
Trade unions are widespread in Argentina; they are permitted and regulated by law. Argentine law distinguishes two types of employees: unionised and non-unionised. The former are those covered under a collective bargaining agreement, whereas the latter are not. While the application of a collective bargain agreement to employees is mandatory if their job is covered by such collective bargaining agreement, employees can decide whether to be further affiliated with a union or not.
Collective bargaining agreements adapt the general provisions of the LCL to particular situations, such as a specific industry, sector or employer. These agreements are negotiated between the relevant union representatives and either the management of an industry sector or a specific company. Unions are independent from employers and the government.
The economic resources of unions are made up of the contributions or fees paid by their members and economic funding provided by employers due to collective bargaining agreements’ provisions. The funding imposed on employers is aimed at providing social benefits, such as social assistance, medical care, education and general improvement of the employees’ quality of life.
Representative power is a title given to unions by the Ministry of Labour. Only if given this title do unions have bargaining powers in defence of collective labour rights. This title is assigned to the most representative union of each sector. Unions may be organised either by activity or profession. As a condition of achieving representative power, unions must be previously registered and their members must represent at least 20 per cent of the employees of a given activity.4
Only unions with representative power may represent their members against different organisations, even governmental ones; negotiate and sign collective bargaining agreements; exercise industrial action, such as the declaration and promotion of strikes; and create and administrate social service organisations.
The delegates in the company may exercise the charge during renewable two-year terms and may not be dismissed or disciplined during their time in office and for one year after the termination of such term. In the event of dismissal during such a protected period, the employee shall collect wages for the entire term until its expiration plus one more year, in addition to regular severance. Claims for damages and re-hiring are becoming more frequent.
XI DATA PROTECTION
Argentina has adopted strict criteria in relation to Data Protection by means of the Data Protection Law No. 25,326, (‘the Data Protection Law’) and related regulations. The main purpose of the Data Protection Law is to guarantee the complete protection of personal data contained in files, records, databases or other technical means, either public or private if meant ‘to supply information’, and the rights to good reputation, privacy, and access to information, in accordance with Article 43 of the Argentine Constitution. The Data Protection Law is applicable to legal entities.
According to the Data Protection Law, personal data means any kind of information referring to individuals or legal entities. The transfer of personal data to other countries or to international organisations is forbidden if such countries or organisations do not grant an adequate level of protection according to the Argentine authorities’ criteria. Pursuant to the Argentine Data Protection System, countries inside the European Union fulfil this requirement but, for instance, the United States does not.
Further regulations have allowed international transfer to unsafe countries or entities when the owner of the data consents to the transfer or when the adequate protection levels arise from ‘contractual clauses’, and ‘binding corporate rules’ or ‘selfregulation systems’.
No consent is needed if transferring data from a public registry legally constituted to provide information to the public and open for access to any person who can show a legitimate interest.
Furthermore, sensitive data has been defined as any personal data revealing any of the following: racial or ethnic origin, political affiliation, religious, moral or philosophical convictions, trade union activity or information related to health or sexual orientation. Personal data is defined generally as any kind of information related to a person or a company, including labour references, labour history or compensation.
The employer has the right to check and investigate different personal, educational and criminal references of new hires as long as the dignity and privacy of the candidate is not affected and, to minimise risks, the individual’s consent is obtained. Nevertheless, the LCL and the Anti-discrimination Law No. 23,592 forbid any kind of discrimination. Employers must treat all employees and candidates equally and any act of discrimination, including, without limitation, those based on matters of sex or any private life issues, are considered unequal treatment.
XII DISCONTINUING EMPLOYMENT
The employer may terminate an employment relationship with or without cause. If the employer is ending the relationship without cause, the law provides that the employer must give appropriate prior notice of termination. If the relevant notice is not granted to the employee by the employer, the proportional amount of the employee’s salary must be paid in lieu of such notice. The length of prior notice is dependent on the employee’s seniority (one month’s notice if the employee worked for the employer for less than five years and two months’ notice if the employee worked for the employer for more than five years).
Furthermore, once the notice has been given (i.e. by telegram, certified letter, notarial notification or acknowledgment in writing by the dismissed employee), the employer is obliged to pay to the employee any compensation to which he or she may be entitled, such as any outstanding wages, payment for leave, and the proportional entitlement to the ’13th salary’.
If prior notice is given by the employer and the dismissal takes place on a day different from the last day of the month, the employee will collect, in addition to the prior notice, an amount equal to the salary corresponding to the remaining days of the month of dismissal.
The employer is also obliged to pay compensation for seniority at the rate of one month’s salary for each complete year of service performed, or period worked in excess of three months. The calculation is the best monthly, normal and regular remuneration earned by the employee in the last 12 months of employment. Such a basis for calculation, however, is subject to a cap published by the Labour Ministry according to each activity. Whenever the difference between such cap and the employee’s monthly salary is material, a different analysis must be used, as the Argentine Supreme Court of Justice has said that whenever the cap is lower than 67 per cent of the employee’s monthly salary, the cap is unconstitutional.
According to the full bench decision Tulosai, Alberto Pascual v. Central Bank of the Republic of Argentina on Law 25,561, proportional semi-annual mandatory bonuses and non-monthly performance bonuses shall not be included in the calculation for compensation for seniority pursuant to the first paragraph of Section 245 of the LCL unless there was fraud, in which case voluntary bonuses may impact the severance calculation.
Severance payments and outstanding wages must be paid within four working days following the termination of the labour relationship. However, the parties may agree otherwise in writing through the execution of a settlement agreement before the Labour Ministry. In Argentina it is advisable to enter into settlement and release agreements that, once approved by the Labour Ministry, have res judicata effect and minimise the risk of future claims, especially considering the different criteria for calculation of severance adopted by Argentine Courts and the lack of binding precedents.
If the employer is terminating the relationship with just cause, no severance or prior notice needs to be granted to the dismissed employee. However, the employer must take extreme care in advance to verify the seriousness of the infringement by the employee. Without significant evidence, the chances of a court confirming such dismissal are very low, especially considering the highly employee-protective tendencies of Argentine labour courts.
The LCL establishes that the employer may dismiss an employee for force majeure and economic reasons, in which cases the employer may pay the employees an amount equal to 50 per cent of the compensation for seniority. An employer may dismiss employees if work cannot be carried out for reasons outside the control of the employer which could not be avoided with reasonable care. The employer must prove that it is not responsible for the job loss and must be able to reasonably justify its actions. The employer must be able to show that the event will have a lasting effect and that it inevitably led to the dismissals. Dismissals must take place in the order of ascending seniority and, regarding employees with similar hire dates, in consideration of dependant relatives.
Under Argentine law, whenever the employer needs to dismiss or suspend employees as a result of force majeure, or economic or technological reasons, and such dismissals or suspensions affect a certain percentage of employees, a special procedure called the Crisis Prevention Procedure (‘CPP’) must be followed before the Labour Ministry. Under the CPP, the parties must try to negotiate solutions to the conflict and try to avoid terminations or suspensions. Under the broad interpretation of local authorities, a cap might be considered applicable if a significant number of employees are dismissed, even with full severance.
XIII TRANSFER OF BUSINESS
Transfer of business (‘TUPE’) in Argentina is also ruled by the LCL. In this context, we shall differentiate between the transfer of an establishment and the transfer of individual employment contracts, as the requirements for each are different.
Pursuant to Section 225 of the LCL, upon transfer, either total or partial, of an establishment, the labour relationships shall continue with the buyer of such business, who shall maintain both the seniority and any and all employee’s vested rights. In that context, the assignment of employment agreements occurs by operation of law upon transfer and no further communication is required to be made to employees.
Therefore, if the business to be transferred can be considered an independent technical productive unit, upon the transfer of such business a transfer of establishment would occur and, therefore, it would be implemented by operation of law. Although no notice or consent is required to or from any third party upon the transfer of an establishment, including employees, in practice it is frequent to give employees notice that, effective as of the transfer date, their labour relationships shall continue with the buyer pursuant to the TUPE.
Employees may not challenge the transfer, which is automatic. However, employees could consider themselves constructively dismissed if, as a result of the transfer, they suffer a material damage significant enough to justify such a termination decision. Although Argentine labour law does not contain any formula to assess the level of damage to justify termination, cases that would most certainly justify such a decision would be: the unilateral modification of labour conditions in the form of a reduction of the employee’s remuneration, in any of its forms; the elimination or adverse modification of any benefit that the employee received from a former employer; change of position and title; or a change in any other aspect of the labour relationship to which the employee was entitled to, as long as it is not replaced by any other – more beneficial – compensation. For TUPE cases, the LCL also provides that constructive dismissal may be justified if there is a material difference in the seller’s and buyer’s solvency.
As regards eventual severance payment upon transfer, in Argentina no employee would be entitled to claim severance payment upon transfer unless the employee succeeded in a constructive dismissal claim. Although an employee may state that he or she rejects the transfer and claim a severance payment, such a claim would need to be based on any other aspect because the mere existence of the TUPE and consequent change of employer – assuming no adverse effect on his or her labour rights – would be beyond his or her control and would under no circumstances be subject to his or her consent.
If no assets or liabilities (i.e., technical unit), but only employees, were to be transferred, Section 229 of the LCL would become applicable, and, pursuant to this section, the assignment of labour contracts requires the written consent of the relevant employee. The assignee shall keep the previous labour conditions of the employees and the assignor and assignee shall be jointly responsible for all liabilities stemming from the assigned employment relationship.
Therefore, in contrast to a transfer of establishment, upon an individual employment contract being assigned, the employee would be required to participate in the assignment contract and his or her consent shall be required.
As previously discussed, the most important issues have been postponed due to several reasons, mainly political, and it is therefore expected that many changes and modifications on working conditions will be implemented by late 2012.
Finally, and as in previous years, the amount of litigation and collective negotiations have continued to increase. In fact, throughout 2011 just as in the previous year, unions have obtained several salary increases by means of collective bargain agreements. Next year will surely bring new negotiations between Unions and companies on this subject.
1 Enrique Mariano Stile is a partner at Marval, O’Farrell & Mairal.
2 N LCA, Chamber VIII; Paz, Elpidio y Otros v. Acindar Industria Argentina S.A.s/ Wage differences; August 30th, 2011.
3 Argentine Companies Law No. 19,550, Section 256.
4 Law 23,551, Section 25.