Understanding Argentina’s Labor Modernization Bill

The Labor Modernization Bill reverses Argentine case law to exclude certain items from the definition of “compensation,” including:

• Healthcare insurance.
• Equity compensation, including the granting or vesting of [stock options and the award of equity].
• Cellular phone and internet services paid for or reimbursed for job-related purposes.
• Tips.

Non-recurring payments, like performance bonuses or “extraordinary payments” demanded by a union under a collective bargaining agreement or given at the employer’s discretion, remain included within the definition of “compensation.” Nonetheless, the making of these non-recurring payments no longer defaults to an acquired right of an employee.

Why it is important: Excluding these and other items from the definition of “compensation” should (a) reduce employment claims for under-reporting wages (b) narrow severance payments to reflect true wages and not incidental benefits and (c) restore greater flexibility for employers to design compensation structures. For decades, these items have been used by plaintiffs’ attorneys to juice termination payments.

The Bill authorizes the payment of wages in foreign currency.

Why it is important:  Current law treats payment in foreign currency as “payments in kind” and limits them to 20% of the employee’s gross wages. Historically, this made sense to restrain an employer’s payment of wages in vouchers or other practices that limited the employee’s use of wages.  It does not make sense for employers trying to retain talent by paying in U.S. dollars. While many employers elected to disregard the law in favor of protecting the workforce, the Labor Modernization Bill will remove uncertainty.

The Labor Modernization Bill adopts greater restraint in extending joint and several liability for employment-related claims between the employer of record (“EOR”) and the beneficiary of the EOR’s services.

Why it is important: The Bill undoes decades of case law and scholarship that have sustained joint and several employment law liability of both the EOR and the beneficiary of recurring services provided by the EOR.  While it maintains joint and several liability for services considered part of the beneficiary’s “regular activity,” the Bill excludes ancillary activities (e.g., security, cleaning, product distribution) from a finding of joint and several liability with the EOR.

The Labor Modernization Bill eliminates the need to maintain either a Payroll Journal or an Overtime Registry. Rigorous requirements on employer recordkeeping are also repealed. The employer’s employment recordkeeping obligation is limited to the online registration of employees with the Federal Tax Authority.

Post-employment certificates are deemed delivered when made available at the company’s offices or upon electronic delivery to the former employee by reliable means.

Why it is important: The Bill greatly reduces the administrative burden on the employer and eliminates all-too-common gamesmanship by former employees alleging they were not timely given post-employment certificates (which would entitle them to a hefty fine).

The Bill disrupts 50 years of statutory control over when an employee can take vacation days, allowing employers and employees to agree on timing and to split vacation day entitlements (no less than seven days).

Why it is important: This provision evidences an underlying vision of the Milei Administration to deregulate the economy in general and the workplace in particular, formalizing a long-standing private-sector practice of flexible scheduling and splitting of vacation days.

The Labor Modernization Bill allows the employer and the employee greater flexibility to agree on scheduling, compensation for overtime, and accrual of downtime. Part-time employees are also eligible for these arrangements.

Why it is important: This represents a drastic shift from historic statutory rigidity, which assumed an employee’s absence of individual bargaining power. It also is a specific nod to Argentina’s strategic industries (ag, oil & gas, and mining) that have lobbied for greater flexibility.

Under the Bill, for any medical leave not based on work-related illness or injury, the employee must provide a digitally signed medical certificate issued by a licensed physician, containing the diagnosis, prescribed treatment, and rest days.

The Bill also entitles the employer to deny reinstatement of employees seeking partial disability. If reinstated with less hours or lesser responsibilities, the employer may prorate wages accordingly.

Why it is important: The employer is now better equipped to respond to questionable claims of medical leave supported by a non-medical professional and to demands for reinstatement even if the employee is unable to perform the same tasks.

The Labor Modernization Bill addresses certain ambiguities in calculating statutory severance payable to employees terminated without cause. In criminally simple terms, this payment equals years of service times the terminated employee’s “highest recurring monthly compensation” in the preceding 12 months. The Bill offers statutory guidance on “recurring” and excludes from the severance calculation such non-recurring payments as the prorated statutory bonus (aguinaldo proporcional), vacation days, and performance-based bonuses or awards.

Why it is important: As part of the effort to reduce employment litigation, the Bill removes decades of uncertainty and conflicting judicial opinions on how to calculate a terminated employee’s statutory severance.

The Bill eliminates the 2020 Remote Work Law that was adopted during the COVID Pandemic to regulate remote and hybrid work arrangements.  Among other employee benefits, the Remote Work Law afforded caregiver privileges during work hours, the employee’s unilateral right to return to on-site work, and a partial employer subsidy of connectivity and utility costs.

Why it is important: Repealing the Remote Work Law restores contractual freedom, prompting employers and employees to craft remote work arrangements tailored to their mutual interests and the operational needs of the organization.

The Labor Modernization Bill implements a Fondo de Asistencia Laboral (Employment Severance Fund) to help cover statutory severance payments. The Bill requires employers to contribute a sum equal to 3% of gross wages to a pooled Employment Severance Fund created in the name of the employer. The employer’s additional cost is neutralized by a like reduction in the employer’s social security contributions.

Why it is important: Rather than allocate the cost burden entirely to the employer—potentially ruinous to small- and mid-size enterprises—the Bill would promote gradual funding and government underwriting of cost by reducing the employer’s social security contributions.