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Labor and employment law challenges in business transformations

Argentina

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Workforce restructuring, also referred to as “crisis prevention procedure,” is governed by Art. 98–105 of the National Employment Law (Law No. 24,013) and Decree No. 265/02.

The crisis prevention procedure is required when an employer contemplates the redundancy (or suspension of the employment contracts) of a number of employees as given below, for reasons of force majeure, economic or technological reasons:

  • More than 15% of its employees in companies with less than 400 employees
  • More than 10% of its employees in companies with 400-1,000 employees
  • More than 5% of its employees in companies with more than 1,000 employees

Below these thresholds, the Employment Contract Law No. 20,744 in Argentina does not distinguish between a single layoff from a collective one. In this case, if the termination indemnity is fully paid, in general, no special procedure is required.

Required legal justification

Crisis prevention procedure must be justified on the following grounds:

  • Economic or financial difficulties
  • Change(s) in technology that would render certain job position(s) obsolete
  • Company reorganization or closure of business for reasons of force majeure

The procedure must be supported with legal evidence notably on the financial situation of the company.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

The employer, as well labor unions, could initiate crisis prevention procedure. The administrative authority may also initiate it ex officio when the crisis involves potential dismissals, in violation of the rules governing crisis prevention proceedings.

At the outset, the employer must file an initial presentation of the restructuring project with the Labor Ministry (“MTEySS”).

For companies with more than 50 employees (with below 50 employees, employers are still required to file a presentation but for which content is not legally driven), this initial presentation must include as a minimum, an explanation of the measures that the company proposes to overcome the crisis or mitigate its effects. These measures are based on nine points fixed by the Decree No. 2074/94 and must notably include, when the employer's proposal to overcome the crisis contains reductions in staffing, the following:

  • Number and category of workers proposed to dismiss
  • Quantification of the indemnification offer addressed to each of the impacted workers

The MTEySS, within 48 hours, must convene the employer and the unions for an administrative hearing to negotiate an agreement on the proposed restructuring to overcome the crisis, its HR impact and the related mitigating measures. The negotiation period lasts 15 days unless the parties agree to extend it.

During the negotiation process, the employer cannot implement any measures (redundancy or suspension of the employment contracts contemplated).

Failure to reach an agreement during the negotiation period does not alter the timing of the collective redundancy process.

Consultation requirements with other employee representatives

There is no obligation to consult with other employee representatives.

Consultation requirements with employees

There is no obligation to consult the employees themselves before or during the crisis prevention procedure.

Approval/notification of the labor authorities or other government authorities

Upon completion of the negotiation process of the crisis prevention procedure between the union and the employer, if an agreement is reached, the Labor Ministry (“MTEySS”) has 10 days to approve it. If the MTEySS fails to respond within this legal time frame, the approval is deemed granted.

During the approval process, the employer cannot implement any measures (redundancy or suspension of the employment contracts contemplated).

In the absence of approval or if no agreement is reached during the negotiation process, the crisis prevention procedure is closed. The employer can execute on the collective redundancies or suspension of employment contracts.

Employee selection criteria

The employer must follow the objective selection criteria stipulated by law. Employment Contract Law No. 20,744 establishes that if a dismissal is due to force majeure, lack or reduction of workload, the employer must terminate, in priority, the employees with less seniority in the same category.

Labor union representatives and female employees on maternity leave are excluded from the selection criteria. These category of employees are the last in the queue to be dismissed by the employer.

Actions required to limit the negative impact and social plan

The employer must do everything possible to limit the negative impact of the collective redundancy on the employees. All such measures are included in a proposal provided by the employer to union or labor authority at the outset of the negotiation process or upon filing with the labor authorities.

Internal alternative employment/redeployment
There is no legal obligation for the employer to seek for alternative positions or redeployment position for the impacted employees. However, this is generally one of the items negotiated with the union during the negotiation process (for more information, see “Consultation requirements with works council/unions”).

Other measures
Companies employing 50 or more employees must propose a compensation plan; however, the content of such compensation plan is not fixed and employers are at a liberty to propose various options to limit the negative impact of the collective redundancy on the employees. Proposing a severance indemnity is a leading practice (although not mandatory).

Estimated timeline

The crisis prevention procedure usually lasts around four weeks as from the initial filing of the employer to the Labor Ministry initiating the procedure.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Notice or an indemnity in lieu of notice if the employee is released from working during the notice period (one to two months depending on the employee’s years of service)
  • Termination indemnity: Amounting to half a month’s salary per year of service. Where the crisis prevention procedure was not successful (i.e., no agreement was reached between the employer and the representative unions or such agreement was not approved by the Labor Ministry – for more information, see “Consultation requirements with works council/unions” and “Approval/notification of the labor authorities or other government authorities”), such amount can be increased either voluntarily by the employer or as a result of a claim by the impacted employee.
  • Compensation plan measures for companies with above 50 employees

Customary additional costs

The measures of the compensation plan are not legally driven and depend on the size of the company, the number of impacted employees, the negotiation with the unions.

Hiring restrictions post-redundancy

There are no hiring restrictions post-redundancy.

Litigation risk

Interested parties

Once the labor authorities’ process is over, the following interested parties can bring lawsuits related to the redundancy process:

  • Works council/unions/employees: can file labor lawsuits for unfair dismissal within two years from the date of the end of the labor relationship.
  • Impacted employees: can file labor lawsuits for unfair dismissal within two years from the date of the end of the labor relationship.

Litigation cannot stop or slow down the collective redundancy process.

Damages and other remedies

Damages for unfair dismissal
If the labor court deemed a redundancy as without cause, the impacted employee is not entitled to damages per se; however, he or she is entitled to the difference between the statutory severance paid and the statutory severance for termination without cause (one month’s salary per year of service).

Reinstatement
Employees can be entitled to reinstatement within the company — and the employer cannot refuse the reinstatement (except in exceptional cases) — in limited situations when:

  • The specific process to terminate a union representative or a worker on union leave was not compliant with the Argentinian rules.
  • Under certain conditions (such as pregnancy, maternity, disease, union activism), the termination of a worker is deemed to be on discriminatory grounds.

Criminal sanctions
No criminal sanctions apply.

However, failure to comply with the crisis prevention procedure where the conditions are met can trigger a fine from the Labor Ministry.

Country-specific issues

There are no issues specific to Argentina.

Contact

Primary Contact for Argentina Labor and Employment Law

Andres Tellado
Pistrelli, Henry Martin & Asociados S.R.L.
+541143181603

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Argentina
AR

Contacts