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07. Termination of Employment Contracts

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07. Termination of Employment Contracts

Grounds for Termination

Employers can terminate employment at any time without justified cause, subject to payment of severance compensation provided by labour laws. Employees on a trial period, i.e. during the first three months of employment, are not entitled to severance compensation; exception made to prior notice (15 days). Termination of employment with justified cause does not entail payment of severance compensation.

The employer can dismiss an employee with justified cause in the event of the employee’s failure to fulfil his obligations which, by their gravity, do not consent to the continuation of the relationship. Labour laws do not list specific breaches that justify dismissal and should be analysed on a case-by-case basis. The employer has the burden of proving the cause of dismissal. The employee can also challenge any dismissal with justified cause as decided by the employer, in which case a labour court will decide if the employer had a justified cause for dismissal. Labour courts are very restrictive when it comes to evaluating whether the cause for dismissal meets the legal standards, in order to be considered justified. Labour courts usually analyse the employee´s seniority and hierarchy and if they have had any prior sanctions.

An employee can also resign, in which case, no severance compensation is payable. The employee can consider himself dismissed on a constructive basis due to an employer’s breach, the seriousness of which, does not lend itself to the continuation of the relationship, in which case a labour court will decide if the employee had a justified cause for constructive dismissal. Lastly, an employment relationship can terminate due to the fact that the employee retires at the time he/she is granted the governmental pension plan. No severance compensation is payable in that case.

A prohibition on dismissals is currently in force, pursuant to Decree 624/2020, by which an employer cannot proceed with a dismissal without just cause, for lack of work or a decrease in work, or due to force majeure until 30 September 2020. In case the employer proceeds with a termination of an employee in violation of the above, such termination will be considered null and will have no legal effect. As such, the employment relationship will continue under the same terms and conditions. Decree 624/2020 also prohibits furloughs due to force majeure, for lack of work or a decrease in work until 30 September 2020. Additionally, severance compensation duplication pursuant to Decree 528/2020 due to an occupational emergency is currently in force until 7 December 2020. Both the prohibition on dismissals and the severance compensation duplication may be extended in time, according to the emergency context.

Collective Dismissals

The company has to go through a mandatory conciliation procedure before the Ministry of Labour, prior to dismissing a certain minimum number of employees, provided in Law No. 24,013:

  • when the company has less than 400 employees and the company will dismiss more than 15% of the total payroll;
  • when the company has between 400 and 1,000 employees and the company will dismiss more than 10% of the total payroll;
  • when the company has more than 1,000 employees and the company will dismiss more than 5% of the total payroll.

Individual Dismissals

Employer can terminate employment at any time without justified cause, subject to payment of severance compensation.

Union delegates are protected and therefore, cannot be dismissed during their term and for one year afterwards. In case of dismissal of pregnant, married or sick employees, among others, additional severance compensation is payable.

Employers have to serve notice of termination in writing and through a notary public or certified letter for all dismissals. A resignation must be made in writing and the employee has to send a telegram from the official postal company (Correo Argentino).

Is Severance Pay Required?

In case of termination of employment without justified cause, the employer must pay the employee mandatory severance compensation, as provided by law, within 4 days after serving notice of termination, as follows:

Seniority compensation: equivalent to the highest monthly salary for each year of employment or period exceeding 3 months, taking, as a basis, the highest monthly salary and the regular and ordinary salary accrued during the last working year. Such basis has a maximum ceiling amount provided by the applicable bargaining agreement (three times the average of all wages provided by such collective bargaining agreement) and a minimum cap amount (one gross monthly salary). The Supreme Court ruled that said ceiling must not imply a reduction of more than 33% of the highest monthly salary basis.

Compensation in lieu of notice: the employer must give a prior written notice to the employee in the event of a termination of employment absent justified cause. Such prior notice must be given by the employer: (i) 15 days in advance, if the labour contract is under the trial period; (ii) 1 month in advance, if the employee has served for up to 5 years; and (iii) 2 months in advance, if the employee has served for more than 5 years. If the employer does not give such prior notice, it must pay this severance compensation in lieu of notice, equal to 15 days’ salary plus one or two monthly salaries (dependent upon each specific case). It is customary for employers opt to pay this compensation instead of giving prior notice.

Pending days till the end of the month: if the dismissal does not take place on the last day of the month, the employer must pay a compensation equal to the proportional salary for the pending days, to complete the entire month in which the dismissal took place.

Compensation for unused vacations: the employee is entitled to compensation equal to the vacation pay in proportion to the days effectively worked, for the year in which the dismissal took place.

Statutory Annual Bonus: the employee is entitled to the proportional amount of this 13th salary. The severance compensation is reduced by one‑half if the labour relationship ends as a result of the employee’s death. Additional severance (equal to 13 monthly salaries) must be paid in case of termination without justified cause of a pregnant employee (during pregnancy and up to 7.5 months after giving birth) or an employee who has been married (and is fired within 3 months prior to the marriage or 6 months after the marriage). If the employee is dismissed during his or her paid sick leave, the employee is entitled to claim the months remaining to complete the paid leave, as provided by law, plus moral damages. The employee may claim payment for labour fines provided in favour of the employee, which may significantly increase the severance owed, if he is able to prove that there was an unregistered labour relationship.

Separation Agreements

  • Is a Separation Agreement required or considered best practice?

No separation agreement is required. The advantages of a separation agreement should be analysed on a case-by-case basis, depending on the amount to be paid to the employee and the employer´s exposure. Argentina’s labour law provides that any labour settlement agreement shall only be valid if it is approved by a labour court or the Ministry of Labour. Any such agreement duly approved by a labour court or the Ministry of Labour is binding and final, having the effect of res judicata, not only with respect to any claim of severance compensation and salary differences, but also with respect to any possible claim for labour fines.

Any labour settlement agreement that does not fulfill these legal requirements (or if the contractor continues working for the company, either as an employee or as an independent contractor) would not prevent the contractor from bringing a labour claim in the future, even after executing the settlement agreement and collecting the settlement amount. In this case, any settlement payment would be taken on account of, and detracted from, an eventual adverse ruling against the company (settlement amounts will not be adjusted by inflation nor would they accrue any interest) and both periods of time (before and after execution of the settlement agreement) will be considered for purposes of calculating severance compensation, labour fines and other amounts ultimately awarded to the employee.

  • What are the standard provisions of a Separation Agreement?

Both parties must appear before the Ministry of Labour, and assisted by counsel. A settlement agreement should always be concluded, without acknowledging any facts or rights, and subject to the prior approval by the Ministry of Labour. A confidentially provision, as well as a broad waiver, are also standard. Lastly, a provision stating that the amount payable due to the separation agreement should be offset against any eventual future claim or amount awarded to the employee by a court.

  • Does the age of the employee make a difference?

In principal the age of the employee does not make a difference, but when employees reach 70 years old and have 30 years of contributions to the social security system, the employer is entitled to demand that the employee begin the process to obtain retirement and the governmental pension plan. The employer must serve notice to the employee in these circumstances. The employer must also deliver the labour certificates to the employee in advance and verify that the employee is eligible for retirement.

Once the employer has served notice and delivered the labour certificates, the employer is obliged to maintain the labour relationship with the employee (and pay salaries and all benefits) until either the employee obtains retirement, or for a period of one year from the time the employee was served notice (whichever occurs first). Once the employee obtains retirement or the one year period has expired (whichever occurs first), the employer is entitled to terminate the employment relationship due to the employee’s retirement, without paying any severance compensation to the employee.

  • Are there additional provisions to consider?

In some cases, parties agree that (i) the employee returns all work equipment or tools of the company; (ii) the employee resigns from any board of directors or legal representative position; (iii) the employer pays the employee’s medical coverage for a limited period of time after termination; (iv) the employer pays proportional bonus or stock options; (v) the employer transfers the company car to the employee; (vi) the employee returns the company car; and/or (vii) a non-compete clause applies.

Remedies for Employee Seeking to Challenge Wrongful Termination

The employee can challenge dismissal with justified cause, by claiming payment of severance compensation for dismissal without justified cause, plus a fine in his favour equal to 50% of the severance compensation (plus interest and legal fees), in which case a labour court will decide if the employer had a justified cause for dismissal. The employer has the burden of proving the cause of dismissal.

The employee can also claim payment of severance differences, alleging that the severance compensation was not properly calculated, as well as certain fines provided in his/her favour for improper registration of salary or entry date, in which case a labour court will decide if the employer correctly paid the salaries and severance compensation, as well as properly registered the employee´s labour relationship and salary.

The employee must go through a mandatory conciliation process prior to filing a court claim. Parties must attend hearings before a conciliator appointed by the Ministry of Labour, to explore a settlement.

Whistleblower Laws

Argentine criminal laws provide reduction of penalties for whistleblowers in respect to crimes against the public administration (corruption and fraud against public administration) customs, criminal offenses, economic and financial crimes, drug trafficking, terrorism, human trafficking and money laundering, among others. These laws also provide a reduction of penalties to be imposed on companies for crimes committed by their employees or officers, provided that the company has set forth a compliance policy that includes, among others, the company´s protection to whistleblowers against retaliation.

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