Highlights of the Milei Administration Labor Reform Package

After months of legislative debate and backroom dealing among the political power brokers, the Argentine Congress finally passed the so-called Ley de Bases, an omnibus reform package delivered by the executive as a critical step toward deregulating the economy.[1] The Ley de Bases is voluminous and covers many aspects of the economy, but today we will focus on labor reform (the “Labor Reform Package”).

The Labor Reform Package calls for a voluntary remediation by employers of all unregistered and under-registered employment. In a market that imposes significant payroll costs and statutory termination payments, employers have been traditionally tempted to keep employment off the books or to under-report wages. The rules have yet to be regulated, but employers adhering to the plan are expected to enjoy the following benefits:

• To have at least 70% of all unpaid social security contributions associated with past noncompliance forgiven.
• To qualify for a payment plan with respect to the remainder of unpaid social security contributions.
• Following remediation of past non-compliance, to have their record expunged of violations (which would otherwise frustrate the employer’s ability to qualify for government and private-sector contracts)
• Have any pending criminal tax evasion proceedings dismissed.

The Labor Reform Package eliminates the penalties applicable to an employer’s past non-compliance. This is perhaps likely to have the greatest impact on the labor market, as these penalties as much as doubled severance pay and imposed an additional 25% of all unregistered compensation on the employer. Moreover, the penalties were payable to the employee litigants, not the government, thus making them a key driver of employment litigation. The elimination of these penalties—potentially crushing to the employer—spells significant relief to the management side.

The Labor Reform Package extends the so-called employment “trial period” from three to six months. This may not sound like much, but the trial period means an employer can terminate without paying statutory severance. In a market that quickly accrues significant termination entitlements, allowing the employer extra time to evaluate an employee without additional cost is meaningful.

For employees covered by collective bargaining agreements, the Labor Reform Package allows the CBAs to further extend the trial period to up to eight months (for employers having six to one hundred employees) or up to one year (for employers having less than six employees).

Argentine employment law provides three months’ paid maternity leave, at least one month of which must be taken before giving birth. The Labor Reform Package maintains the same amount of paid leave but allows the mother greater flexibility in determining how to allocate that paid leave. Expectant employees can now reduce pre-birth leave to as few as 10 days and add the accrual to post-partum leave.

The Labor Reform Package introduces an alternative to the traditional severance payout upon termination. For employees subject to a CBA, an employment severance fund may be agreed on with the union. The employer will bear the cost of creating and maintain the fund, contributing a monthly amount not to exceed 8% of each employee’s monthly wages [computable remuneration].

Employing a novel legislative approach, the Labor Reform Package declares an employee’s participation in workplace blockades or takeovers of a workplace as statutory grounds for immediate dismissal for cause (no severance payable). The legislative change takes away a judge’s discretion in assessing “proper grounds” for termination.

The Labor Reform Package now defines a discriminatory firing, including for union-related causes, and entitles the discriminated employee to “aggravated damages” (50% to 100% of statutory severance) on top of standard severance. The law eliminates the remedy of reinstatement.

The Labor Reform Package creates a new category of the “Independent Worker.” A natural person, the Independent Worker may hire up to three independent collaborators to work on a common enterprise. Under the former law, these persons would have been likely deemed “employees.” Under the new law, they are now exempt from employment law statutes, instead regulated by a laxer set of rules to be established by the executive branch.

While the Labor Reform Package introduces various measures to deregulate the employment market, there are several aspirational efforts that were sidelined, perhaps for another day. These include:

• Requiring independent audits of union healthcare plans funded by employer and employee contributions.
• Eliminating the monopoly of unions based on employer industry and activity, allowing unions to compete for worker affiliation.

The Ley de Bases is clearly a feeler for the willingness of the public and the politicians to allow free-market reforms to take hold. If the Milei administration enjoys at least some success in stimulating economic growth and creating jobs, expect the president to push for additional reforms of the Argentine employment market.

[1] As of this writing, the law is pending publication in the Official Gazette. Nonetheless, the text (in Spanish) can be found here: Texto completo de la Ley Bases y la reforma fiscal en pdf | TN