Employment & Labour - Argentina Overview (June 2011) Contributed by Marval O'Farrell & Mairal June 15 2011 General principles Main types of labour contract Termination Registration and procedural formalities Work schedules Vacations and leave of absence Salary considerations Salary withholdings and contributions Female employees General principles Labour relationship Under Argentine law, a labour relationship exists when one person provides personal services to another in exchange for remuneration, while in a legal, economical and technically subordinate position. These arrangements need not be executed in writing in order to constitute a legally binding agreement between the worker and the employer. However, it is essential in a work contract that the employee receive payment for rendering services. Argentine law governs all labour activities in Argentina, regardless of where the employee was first hired or where the employment contract was entered into or signed. Rules governing labour relationships The Constitution contains the overriding principles governing labour relationships. The basic principles enshrined in the Constitution include: • freedom of employment; • the right to work in a dignified and equal manner; • the right to earn appropriate wages, which cannot fall below a minimum declared by law; • the right to paid breaks and vacations; and • the right to equal remuneration for equal work. All of the above rights are regulated by the four basic sources of Argentine labour law - which, in order of priority, are as follows: • laws governing labour contracts; • collective bargaining agreements; • agreements between the parties; and • customs in the workplace. Insofar as priority is concerned, a stipulation ranking below another may modify a higher-ranking stipulation only where it enhances the employee's position. The Labour Contract Law (20,744/1976), governs the majority of labour relationships in Argentina. However, other employees - such as those in the public sector, those in domestic service and rural workers - have their own specific statutes. The main issues covered by the law include: • remuneration; • annual vacations and special leave of absence; • holidays and non-working days; • daily and weekly working and resting hours; • special provisions for women and children; • illness; and • termination or transfer of a labour contract. Collective bargaining agreements tailor the general provisions of the law to particular situations such as a specific industry sector or employer. These agreements are negotiated between the relevant union representatives on the one hand and either the management of different industry sectors or a specific company on the other. They typically involve issues such as vacations, bonuses, pay scales, overtime pay, occupational health and safety and special paid leave. Furthermore, the parties may agree to specific individual conditions of employment by means of a written contract or an oral agreement. Written contracts are common among key employees such as senior management, professionals and chief executive officers. Finally, the customs and habits of a particular region or company may establish work practices which eventually become legally binding between the relevant parties. Main types of labour contract Argentine labour law contemplates the following types of labour contract. Indefinite period The typical form of labour contract under Argentine law is the labour contract for an indefinite period. All labour contracts are considered to be entered into for an indefinite period, unless the parties agree to a fixed period due to special circumstances. All indefinite-term labour contracts begin with a trial period which allows either party to terminate the relationship during that period without just cause and without the employer being obliged to make any severance payment. Fixed term The fixed-term contract is an exception to the general principle that all labour contracts are for an indefinite period. A fixed-term contract must be in writing, specifying: • the duration, which may not exceed five years; • the type of work; and • the reasons justifying the use of this exceptional form of labour contract. In the event that these requirements are not met, the contract will automatically be converted into an indefinite-term contract. In all cases the employer must give prior notice to the employee of the expiry of the contractual period not less than one month or more than two months before the expiry of the contract. If the employer fails to give this prior notice, the contract will be converted into an indefinite-term contract, unless the parties expressly agree to renew it for a further fixed period. Extraordinary or special services This type of contract is entered into where extraordinary or special services are to be provided by the employee: • for the realisation of determined works outside the normal activity of the enterprise; • in order to attend to a circumstantial increase in work corresponding to extraordinary and transitory needs of the employer; or • in order to cover the temporary absence of normal employees. Where a contract of this type exists, it is not necessary for the employer to give prior notice or to indemnify the employee when the contractual relationship ends as a result of the termination of the special work that gave rise to the contract. Seasonal work Employers may hire workers for activities performed seasonally. These contracts are considered to be contracts for an indefinite period, having periods of activity (ie, the season) and periods of recess. The worker has the right to be taken on at the beginning at each season simply because he or she was employed for the previous season. During the recess period, no obligations or rights exist between the parties. If the worker is dismissed without cause either at the start of or during the season, the employer is obliged to pay an indemnity to the employee equal to the salary which would have been payable up to the end of the season in question, in addition to any amounts corresponding to a dismissal without just cause. Part-time work To be classified as a part-time contract, the employee's working hours cannot exceed two-thirds of the full-time schedule for the same activity. The remuneration paid by the employer must not be less than the proportional salary of a full-time worker. Overtime is not permitted for part-time contracts, except where the employee is providing services in order to avoid danger to other employees. Where the working hours exceed two-thirds of the full-time schedule, the employer must pay a penalty amounting to the same remuneration of a full-time contract employee in that month. Social security contributions should be made in proportion to the employee's salary, with the exception of contributions to the healthcare organisation, which shall be made taking into consideration the salary of a full-time worker of the same category as the part-time employee. Termination The key issues to consider when bringing a labour relationship to an end are: • the reasons for termination; • the appropriate prior notice, where relevant; and • the amount of compensation which may be due. Termination may occur in a variety of situations: • The employer and employee may mutually agree to terminate; • The employer may dismiss the worker with or without just cause; • The employee may resign or retire; • Outside events may dictate dismissal by the employer; or • A fixed-term contract may expire. If the contract is about to expire or the employer is about to end the relationship, the law provides that the employer must give appropriate notice of termination (except where there is just cause for dismissal). The length of the notice period depends on the employee's seniority. The employee must also, in principle, give notice to the employer when terminating the relationship. In practice, it is unusual for the employer to give appropriate prior notice of termination; the employer is normally therefore required to compensate the employee for salary in lieu of such notice. Furthermore, once the labour relationship has been ended appropriately, the employer is obliged to pay the employee any compensation to which he or she may be entitled depending upon the reason for the termination. In all cases the employee must receive any outstanding wages, payment for vacation days and the proportional entitlement to the semi-annual bonus. Moreover, the employer has an obligation to pay to the employee a severance payment calculated by reference to the length of time for which the employee has worked for the employer (ie, the seniority payment) if it dismisses the worker without just cause, or due to force majeure or economic events causing job destruction, bankruptcy or incapacity of the worker. Prior notice Before terminating a labour relationship, prior written notice must be given to the employee in accordance with the relevant statutory time periods. These statutory notice periods may be extended by mutual agreement between the parties and in some cases are so extended, particularly in the case of key employees. Even if an employee is retiring or has a fixed-term contract that is about to expire, the employer must nevertheless give a reminder of the approaching end date in the form of a prior notice. However, no such notice need be given by the employer in the following situations: • termination with just cause; • death; or • termination by mutual agreement. If the employer does not give appropriate prior notice, it will be obliged to pay the employee salary for the period for which no notice was given. Compensation upon termination Severance packages Where an employee's contract is terminated, the employer is obliged to pay the employee the appropriate amounts for any outstanding pay and vacation entitlement, alongside the relevant proportion of the semi-annual bonus. The semi-annual bonus is equal to one-half of the highest monthly salary earned by the employee during the previous semester. Furthermore, the employer also has an obligation to make a seniority payment in most cases where it decides to terminate the contract, except where the employer dismisses the employee with just cause. Furthermore, as indicated previously, if the relevant notice is not granted to the employee, a proportional amount of the employee's salary must be paid in lieu of such notice. Special severance packages exist for certain situations, such as dismissal on account of pregnancy or marriage, or on account of the employee's race, colour, religion, sex, national origin or disability, or if the employee is a union representative or is in public office. Seniority calculation An indemnity for seniority must be paid by the employer to the employee when the relationship is terminated in the following ways: • dismissal without cause; • termination due to force majeure or for economic reasons; • bankruptcy; • incapacitation of the worker; • expiry of a fixed-term work contract (with a duration of more than one year); or • in the case of the death of either employer or employee. The amount of the indemnity for seniority varies depending on the reasons for termination. If the employer terminates the relationship without just cause, it is obliged to pay the employee one month's salary for each complete year of service performed or period worked in excess of three months (the seniority payment is equal to one month's salary multiplied by the number of years worked). In no event, however, may the indemnity for seniority be less than one month's salary. In the following circumstances the seniority payment may be reduced by 50%: • dismissals arising as a result of acts of God; • dismissals for economic reasons; • bankruptcy (not attributable to the employer); • dismissals of incapacitated persons when adequate tasks cannot be undertaken; and • when expiration of a fixed-term labour contract of more than one year. Tax considerations Amounts received pursuant to severance packages are generally taxable, with the exception of compensation paid for seniority, provided that it does not exceed the legal limits. Any amounts exceeding the legal limits will be taxable. Termination by mutual agreement A labour contract may be mutually extinguished by a formal agreement between the two parties. To be legally binding, this must be documented either by an agreement in a public deed executed before a public notary or by an agreement signed by the employee and approved by a labour court judge or by the local labour authority that has jurisdiction in the place where the employee works. Termination by employer An employer can terminate a labour relationship with or without just cause. If there is just cause for termination, the employer need pay the employee only outstanding pay, vacation entitlement and any proportional entitlement to the semi-annual bonus. In the case of dismissal without just cause, the employer must also include payment for any prior notice which may be due and an indemnity depending on the employee's seniority. This amount will be increased if the employee: • also occupies a public office; • is a union representative; • is just about to marry or has just been married; or • in the case of female employees, is pregnant. These indemnities will also be increased if the labour contract is not properly registered. Termination for just cause The law recognises two circumstances that constitute justified reasons for dismissal. The first is the employee's violation of his or her work duties, including unwarranted or excessive absences, lack of punctuality, abandonment of work, disobedience and participation in illegal strikes. The second involves the employee's violation of good conduct while carrying out his or her duties, including loss of trust, illegal competition and the commission of criminal acts. Since the labour courts tend to be protective of employees, it is normally difficult for an employer to establish just cause before the courts. Termination without just cause As stated above, if the employer wishes to dismiss the employee but cannot establish just cause, then in addition to any back pay, vacation entitlement and proportional semi-annual bonus, the employer must pay the employee compensation for seniority and any payment in lieu of notice. Furthermore, if the actions of the employer substantially modify the terms of employment to the detriment of the employee or if the employer aggrieves the employee, the latter may consider himself or herself effectively dismissed. This is known as an indirect dismissal. For example, this may occur when the employee's salary is reduced, there is a significant geographical move or the employer abuses the employee. In the case of an indirect dismissal, the employee will be entitled to the same compensation as indicated in the first section above. Termination due to outside events The distinctive character of this form of termination is that it arises as a result of forces external to the employer's or employee's volition, which makes continuation of the labour contract impossible. This type of termination includes bankruptcy, incapacity of the worker, force majeure and lack of work not caused by the employer. Force majeure and economic reasons An employer may dismiss employees where it becomes impossible for work to be carried out due to an act outside the control of the employer which could not be avoided with reasonable care (force majeure). This includes events such as the destruction of a manufacturing plant by flood or fire caused by lightning, as well as acts of war and terrorism. An employer may also dismiss workers in case of adverse economic events that cause destruction of jobs. However, the employer must prove that it is not responsible for such job losses and must be able to justify reasonably its actions. This is generally difficult for the employer to substantiate in practice. In both instances the employer must be able to show that the event will have a lasting effect and that it led to the employees' dismissals. Furthermore, the employer must prove that it was not responsible for the job losses and that it took reasonable precautions to prevent the same. Dismissals in such case must take place in reverse order of seniority. However, in respect of employees who started employment in the same semester, those with family responsibilities will be preferred for retention over those with no family responsibilities. Bankruptcy The employer can terminate labour relationships after a state of bankruptcy has been declared by the bankruptcy court. Incapacity of worker An employer may dismiss an employee who becomes disabled in the same circumstances as dismissal due to illness, as detailed below. Termination by employee The employee may conclude the labour relationship by either resigning or abandoning the post. In both cases the employee is entitled to collect the only basic payment of outstanding salary, vacation days and proportional semi-annual bonus. Resignation If the worker wishes to resign, he or she must do so in writing, preferably with the signature certified by a notary or an official of the Labour Ministry. The employee typically sends the resignation to the employer, with the applicable prior notice, by registered telegram through Correo Argentino (or any other postal agency properly operational in Argentina). These rules are not strictly enforced by the Argentine courts. However, an employer should ensure that the employee does in fact send a telegram of resignation; otherwise, the employee may later claim that he or she is still employed by the company. Abandonment of work In the event that an employee abandons the post, the employer must send a registered telegram requiring the employee to return to work. If the employee does not respond to the notice within a reasonable period of time (usually two days is considered reasonable), the employer can consider the contract terminated by the employee. Termination by retirement or death Retirement The age of retirement is 65 for men and 60 for women. However, the employer is obliged to maintain the labour relationship until either the employee begins to receive pension benefits from his or her elected pension fund or one year has passed since the notification of retirement was made by the employer, whichever occurs soonest. In practice, this notification is normally made by the employer as soon as the employee attains the age of retirement and has paid 30 years of contributions to the social security system. Death of employer The employer's death causes the termination of the employee's labour contract only when it is impossible for employment to continue in his or her absence - for example, when the employee worked directly for the employer and there is no longer any need for the employee's services. Death of employee The appropriate severance package, including 50% of the seniority payment and any outstanding pay, must be paid by the employer to the persons specified in Section l of the table in Section 3.2.2 of the law. Registration and procedural formalities It is important that the employer comply with all procedural and formal obligations arising with regard to the labour relationship. If these are not complied with, the employer will be obliged to pay increased levels of compensation to the employee in the event of dismissal and may also be subject to fines. For instance, the employer must ensure that the employee is correctly registered in the Labour Registry System. Other formalities include properly documenting salary payments with receipts and taking out a group insurance policy for all employees. Work schedules Argentine labour law regulates the number of hours per day or week that an employee can work, as well as part-time salaries, night work and overtime pay. Working day The basic working day under Argentine labour law is eight hours, with a maximum of 48 hours per week. Any hour worked between 9:00pm and 6:00am is equal to one hour and eight minutes when calculating the number of hours to be included in a basic working day. If the work has been declared unhealthy by the Ministry of Labour, working hours may not exceed six hours per day and 36 hours per week. An employee who works between six to eight hours per day will be considered to be a normal full-time worker. Any hours worked in excess of the normal working day (generally, eight hours) will be payable at overtime rates. Overtime pay Hours of work in excess of the basic working day are payable at overtime rates equivalent to a 50% (time-and-a-half) surcharge on the normal wage. However, after 1:00pm on Saturdays, Sundays and holidays, the surcharge is 100% (double time). Night-shift workers do not receive overtime pay for night work. Part-time workers cannot work more than two-thirds of the normal working schedule and cannot work overtime hours. Vacations and leave of absence The employer must grant employees the appropriate number of vacation days, as well as special leave of absence for illness and important personal events in the employee's life. During these absences, the employee will receive normal pay from the employer, with the exception of maternity leave, when the employee will receive social security benefits; however, these will be equal to the normal salary payments from the employer and will normally be paid by the employer. Entitlement to vacation days In order to qualify for the full vacation entitlement, the employee must have been in employment with the employer for a minimum of half a year. However, if the employee has worked less than half a year, he or she is entitled to one day of vacation for every 20 days worked. For these purposes, any sick days or legal absences taken by the employee are considered days worked for the purposes of vacation entitlement. The annual vacation time to which an employee is entitled increases in accordance with the period of employment with the employer in the following manner: Period of employment Annual vacation entitlement 6 months to 5 years 14 days 5 to 10 years 21 days 10 to 20 years 28 days More than 20 years 35 days The calculation is made as of December 31 each year. The employer fixes the vacation period and must give each employee 30 days' prior notice of the dates assigned for vacations. In principle, employees are entitled to take their vacations only during the summer months between October and April. However, in practice, this rule is not generally observed by Argentine employers and employees. If employer and employee agree, up to one-third of any vacation entitlement may be carried over to the subsequent year. Vacation or paid leave of absence While on a leave of absence, the employee receives normal salary. However, in the case of vacation pay, an unusual feature of Argentine labour law is that the employee receives a slightly increased salary -approximately 20% more - while away on vacation. Furthermore, holiday pay corresponding to the period of the vacation must be paid before the employee's departure as opposed to the end of the month, as would normally be the case. Vacation pay is calculated by dividing the monthly salary by 25 and multiplying this amount by the number of days of vacation taken. Special leave of absence The law provides for leave of absence in certain specific circumstances. Events which merit special leave of absence include the birth of a child, maternity leave, marriage, death of a relative and high school or university examinations. As indicated above, the employer will pay the employee's usual salary during such leave of absence. At the request of the employee, the annual vacation may be accumulated with such leaves of absence. Absence due to illness An employee who is absent from work due to accident or extended illness not related to work is entitled to collect normal salary while away. The worker may receive normal salary for up to three months of illness if he or she has been working for the same employer for less than five years, or up to six months if he or she has been working for the same employer for more than five years. If the worker has dependants, these periods are respectively extended to six months and 12 months. The employer may cease paying the employee's salary after these periods have elapsed. If, however, the illness continues beyond such periods, there is an additional reserve period of up to one year during which the employer must reserve the right for the employee to return to the previous employment position. This right to return to a previous employment position is also granted to employees elected as union officers or to certain public offices. After termination of the reserve period, either party may terminate the employment contract without it being necessary to pay any indemnity to the other. If, during either of the above periods, the employee returns to work but there is a permanent reduction in his or her capacity to carry out previous work functions, the employer must assign the employee to a post which he or she can fulfil, without reducing the salary paid by the employer. If the employer cannot assign the employee to such a post, the contract will be terminated and the employer will be obliged to pay the employee 50% of the normal seniority indemnity. However, if the employer can assign such a post to the employee but does not do so, the contract will be terminated and the employer will be obliged to pay the whole of the seniority indemnity to the employee. Salary considerations Remuneration is the consideration that a worker receives in exchange for providing his or her services under an employment contract. Although the usual form of payment is some form of monetary payment, payments in kind (eg, lodging or gifts) may also qualify as a form of remuneration, up to a maximum of 20% of the salary. These will be computed when calculating the relevant social security contributions and union contributions. The employer may also offer the employee vouchers for food and eating establishments (as discussed below). Minimum wage As from August 1 2010, the minimum wage was Ps1,740 (around $450) for workers earning a monthly salary for a full-time legal day's work and Ps8.70 (around $2.50) an hour for daily workers. As from January 1 2011, the minimum wage is Ps1,840 (around $470) for workers earning a monthly salary for a full-time legal day's work and Ps9.20 (around $2.70) an hour for daily workers. The only exceptions to this rule are wages paid to apprentices and part-time workers, who may be paid less than the minimum wage. Mandatory semi-annual bonus Argentine law requires that every semester (ie, in June and December of each year), a bonus be paid to the employee equal to 50% of the highest monthly wage received by the employee during the previous six-month period. This bonus is referred to as the 'semi-annual bonus'. In the case of small and medium-sized companies, the relevant collective bargaining agreement may provide that the semi-annual bonus be paid in three equal parts. Social benefits Social benefits are services provided at the employer's expense to the employee in order to improve the employee's quality of life and that of his or her family. These benefits are not considered to be part of the employee's remuneration and cannot be substituted by monetary payments. Social benefits are not subject to contributions or salary withholdings and are not taken into account in calculating the semi-annual bonus or in calculating the amount of any indemnity in the case of a labour contract termination. Under Argentine law, the following benefits are considered to be social benefits: • the provision of company restaurant facilities; • reimbursement by the employer, against duly accredited receipts, of medical and dental expenses of the worker and the worker's dependants; • duly accredited reimbursement of the expenses of children's nurseries utilised by the employee's children up to the age of six, where the employer does not provide such facilities; • the provision of school materials and smocks at the beginning of the school year for the employee's children; • reimbursement of the cost of occupational training courses; and • reimbursement of duly accredited funeral expenses for the employee and his or her dependants. Luncheon and food vouchers used to be considered as social benefits. However, Law 26,341, implemented by Decree 198/2008, has recently established a mechanism for their progressive elimination as social benefits, granting them remunerative nature in a staggered manner, and making them subject to social security withholdings and contributions. Travel expenses The reimbursement of an employee's travel expenses, provided that they are duly accredited by proper receipts, is not considered as remuneration and thus will not be computed for the purposes of calculating social security, healthcare and union contributions. Salary withholdings and contributions Pursuant to Argentine labour law, employers and employees have certain obligations to make social security contributions for family allowances, medical services, pensions and unemployment benefits. In addition, pursuant to many collective bargaining agreements, union dues of 1% to 2.5% of salaries may be withheld from employee salary payments for employees who are covered by those agreements. Furthermore, the employer will also be required to withhold amounts due in respect of income tax payable by the employee. Calculated as a percentage of the individual employee's salary, withholdings and contributions must be deposited in the relevant accounts that the Argentine Tax Administration (AFIP) maintains in most banks in Argentina. Withholdings are amounts that would normally be paid by the employee, but are retained from the employee's remuneration by the employer. In the case of contributions, the employer has a direct obligation to pay these and they are calculated by reference to the employee's salary. The employer must ensure that the above amounts are deposited in a correct and timely fashion in the relevant bank accounts of the AFIP; otherwise, interest and penalties may be due. Any debt that the employer may have with the AFIP is subject to a penal rate of interest of between 1.5% and 3% per month and may also be subject to fines which could increase the debt by 200%. The limitation period for any claims by the AFIP for such withholdings or contributions is 10 years. Withholding and contribution percentages The percentage amounts for both withholdings and contributions are based on the employee's gross remuneration and are set out in the following chart. Employer contributions Employee withholdings Health provider 6% 3% Pension funds 17 % or 21 % 14% Family allowances Unemployment fund Total 23% or 27% 17% In the above table, for employers whose main activity is the rendering of services, leasing or commerce in general, and which have annual invoices of more than Ps48 million, the percentage for employer contributions is 21%. The contribution for other companies, unions, healthcare organisations, and small and medium-sized companies is 17%. Salary caps for withholdings and contributions The mandatory social security withholdings and contributions are calculated as a percentage of the employee's remuneration. For employees' contributions, the base to calculate them is capped at Ps13,879. Employer's contributions have no cap and therefore must be calculated on the employee's entire remuneration. Female employees The law guarantees female worker an equal remuneration for equal work and protection against discrimination in employment based on sex or marital status. By law, female employees are entitled to a two-hour rest at midday. This rule is generally not enforced and can be eliminated with the approval of the Ministry of Labour. Maternity leave A pregnant employee is entitled to 90 days' maternity leave, divided into 45 days before birth and 45 days after birth. If the employee wishes, she may subtract up to 15 days from the time allowed before birth and add it to the leave permitted after birth. The employer is obliged to take the employee back once she has finished her maternity leave. While on leave, the employer must pay the employee the social security benefit which is equivalent to her normal salary; however, the employer may either reclaim the amounts from the Social Security authorities or alternatively offset the amount paid to the employee from its monthly contributions made in respect of other employees. Maintenance of employment during pregnancy Job protection is guaranteed to all female employees during pregnancy, from the moment that they subsequently legally notify their employer of their pregnancy with proper medical certification. If an employee hands in the proper legal certification of her pregnancy to her employer and is dismissed within 7.5 months either before or after birth of the child, then it is presumed that she was dismissed by reason of her pregnancy. In this case the employer will be obliged to pay the employee, in addition to the usual severance package for dismissal without just cause, one year's salary. Special considerations for childcare For up to a year after the birth of the child, the mother is entitled to a half-hour break taken twice daily to breast-feed her child. In practice, in this situation either employees come to work an hour later or leave an hour earlier. Furthermore, collective bargaining agreements often contain clauses making it obligatory for the employer to establish a day-care centre for employees' children. For further information on this topic please contact Javier E Patrón or Enrique M Stile at Marval OFarrell & Mairal by telephone (+54 11 4310 0100), fax (+54 11 4310 0200) or email (jep@marval.com.ar or ems@marval.com.ar). The Marval OFarrell & Mairal website can be accessed at www.marval.com.ar. The materials contained on this website are for general information purposes only and are subject to the disclaimer. ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription. Register at www.iloinfo.com. Authors Javier E. Patrón Enrique M. Stile