Argentine President Milei’s Labor Reforms

Did Atlas Shrug ?

On December 20, newly elected Argentine President Javier Milei issued an executive order (Decreto de Necesidad y Urgencia No. 70/2023 (the ‘DNU’) to swiftly introduce free-market reforms.

Milei’s rhetoric and action feels like a throwback to Ayn Rand and the libertarian crusade. Among the most controversial of these reforms are those aimed at the workplace.

The DNU, as a whole, is subject to congressional review. Specific aspects of the DNU, including the labor reforms will, undoubtedly, come under judicial scrutiny. In the meantime, the DNU is the law of the land.

For an understanding of the DNU and its scope, click here:

The following paragraphs summarize the most relevant labor reforms in Argentina. If they hold, in the process reversing 70 years of protectionist legislation and regulation, the world may very well look at Javier Milei as the 21st Century John Galt.

Argentine employment law levies severe penalties on an employer who fails to accurately register an employee’s start-date or wages, and who fails to deliver an “employment certificate” within 30 days of conclusion of employment.

The DNU declares a “modernization” of employment registration (to be regulated by the Executive Branch) and the repeal of penalties for deficient registration.

It may sound minor, but the labor reform attacks the “gotcha” gamesmanship that plaintiff’s-side attorneys look for to create an attractive claim.

The cost to employers for employment litigation has been staggering. In addition to eliminating the fines for deficient registration, the labor reforms pare away at various sources of historic windfalls for plaintiffs, including the heavy penalties automatically applied when an employee sues to enforce statutory employment rights and a limit on interest (which cannot exceed the government-reported CPI plus simple (not compounded) annual interest of 3%).

Finally, in the event of an adverse judgment, natural persons and SMEs can elect to pay the judgment in up to 12 monthly installments (with interest at CPI + 3%).

The labor reforms extend the trial period from three to eight months.

This is critical to employers looking to hire but unwilling to accrue statutory severance after just three months. The additional five months is intended to stimulate further offers of employment and a more dynamic marketplace.

The DNU freedom-of-contract principle extends to remote work arrangements.

If the employee requests or consents to remote work, the arrangement can be changed or unwound by mutual agreement, so long as the workplace can accommodate the return consistent with the job description.

The DNU changes the calculation of statutory severance, adopting case law favorable to the employer.

Among other changes, the labor reforms:

• Exclude year-end and other bonuses and non-recurring payments from the calculation.
• Treat variable compensation by averaging it over the last 6 or 12 months, depending on what is more favorable to the employee.
• Recognize as law a Supreme Court ruling (the so-called, Vizzoti Doctrine) to cap the compensation basket used to calculate severance.
• Offer an alternative to statutory severance in the form of an employer-funded reserve payable upon termination, provided this is agreed to with the union in the relevant collective bargaining agreement. The employer contribution to the fund cannot exceed 8% of the employee’s regular wages.

As anyone who has ever tried to terminate an employee “for cause” in Argentina, knows it is at the employer’s risk of losing a wrongful discharge claim no matter how egregious the act or omission by the employee.

The labor reforms declare that any employee’s participation in organized strong-arming (blockading or occupying a business) is unequivocal cause for dismissal. The DNU removes from the labor court the ability to assess the existence of cause in this case, limiting the court to a mere finding of fact on the employee’s participation in the alleged act.

The DNU also addresses matters of discriminatory termination, including termination based on union activism. Where wrongful discharge based on discrimination is found, the employer must pay a 50% to 100% penalty on top of statutory severance. Reinstatement, however, is eliminated as a remedy.

The DNU introduces the notion of the “independent employee,” who may hire up to five “collaborators” to work together on a specific project or to provide services.

The independent employee and their hired personnel will be outside the scope of conventional employment laws, particularly the Employment Contract Law. This allows for an employment relationship governed by a different, more flexible regime the specifics of which will be regulated by the Executive Branch.

The labor reforms include certain measures that will not make the unions happy. These include:

• Releasing the employer from withholdings on account of union dues, or other amounts payable to a union, absent the employee’s express consent. Thus, the DNU attacks the union’s default funding mechanisms, leaving it to the employee to decide if they wish to have wages paid over to the union and for what purposes.
• Expanding the range of “critical activities” (e.g., public utilities, telecommunications, fuel transportation, and public primary schools) that must continue to provide at least 75% of “normal” services in the event of a strike.
• Specifying other “important businesses” that must maintain at least 50% of normal service. These include hospital suppliers; maritime, air, river, land, and underground transportation companies, continuous industrial activities (including steel and aluminum, chemical, and cement industries); the food industry; construction material providers; banking, hotel, and restaurant services.