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Employment trends and hot topics in 2010: what does 2011 hold?

Submitted By Firm: Marval, O'Farrell & Mairal

Contact(s): Enrique M. Stile

Author(s):

Enrique Stile- Javier E. Patrón

Date Published: 4/10/2012

Article Type: Legal Article

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Employment & Labour - Argentina Employment trends and hot topics in 2010: what does 2011 hold? Contributed by Marval O'Farrell & Mairal April 20 2011 Introduction A political view Hot topics Significant cases in 2010 Comment Introduction Labour relationships in Argentina are governed by the Argentine Constitution, international treaties and conventions and, in most cases, the Labour Contract Law (20,744). The Constitution contains overriding principles that govern labour relationships, including: • the principle of 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 level declared by law; • the right to be entitled to paid breaks and vacations; and • the right to equal remuneration for equal work. The law is the minimum statutory threshold and governs every aspect of labour relationships, including remuneration, termination, holidays, timetables and leaves of absence. In Argentina, the labour justice structure is divided according to each province and the City of Buenos Aires. No court has the power to control another court, but only to review, in some cases, appealed decisions, depending on the jurisdiction. In principle, case law has no precedential effect. The only exception to this principle is a full-bench judgment in which all of the National Labour Court of Appeal judges participate. These judgments determine legal doctrine and the criteria adopted by the court of appeal in such cases are mandatory for 10 years for all of its 10 chambers and for all first instance labour courts sitting in the City of Buenos Aires. Appeals against judgments rendered by the National Labour Court of Appeal or by the superior courts of each province may be filed as extraordinary appeals before the National Supreme Court of Justice. Such appeals are aimed at preserving the supremacy of the Constitution and are applicable only in very specific situations. A political view The governing party Argentina's employment law and the power of the unions depend on the political party in office at the time. A pro-union or pro-employee government is different from a market government because it tends to enact laws granting increased powers to the unions, which in turn support the governing party, as well as enacting more employee-protective regulations. Argentina has had a pro-employee government for a number of years, including this year. In October 2011 the national presidential elections will decide on the party that will govern for the next four years. As a consequence of the prevailing pro-union politics, judges have increased their tendency to be protective of employees and legal practice has been affected by claims from managers taking advantage of the judges' interpretation of the law, thereby dramatically increasing the number of cases for both blue-collar and white-collar employees. Hot topics One of the hot topics of 2010 was a bill of law filed by a governing party congressman which gives employees the right to participate in their company profits. The profits bill establishes that 10% of a company's net profits, calculated after each fiscal year, shall be distributed among its employees under certain conditions. At present, the bill is being discussed in the Federal Congress, with the support of the governing party and the most influential unions. If the bill is signed into law, the unions will have even more power since they will collect a participation of the distributed amount and participate in commission that will damage company profits. Another bill of law, which the House of Representatives has already approved, is aimed at modifying the extension of several and joint liability in case of outsourcing, to the disadvantage of employers. Under its existing wording, Section 30 of the Labour Contract Law provides that any employer that outsources its own and specific activity shall be jointly and severally liable for all labour and social security obligations of its contractors. In the event that certain documentation is regularly requested by the contractor, such joint and several liability shall not apply, even if the outsourced activity is specific to the contracting company. However, case law has interpreted both requirements in a much more flexible manner (ie, the scope of outsourced activity and documentation requests). Following the tendency of such case law, the proposed modification establishes that the joint and several liability of the contracting company will be triggered not only by the activities rendered by contractors that may be considered as the contracting company's own and specific activities, but also by those activities that supplement or support the contracting company's own and specific activities. Another relevant topic of 2010 was the amendment of the Labour Workday Law (11,544). In effect, Law 26,597, published in the Official Gazette on June 11 2010 and effective as of June 20 2010, amended the Labour Workday Law by materially narrowing the scope of employees who are exempt from workday limitations and overtime. In this regard, only directors and managers are now exempt from workday limitations. All other employees, provided that they do not work in teams and on revolving schedules, will have a limited work day or work week, and therefore will be entitled to overtime when such limit is exceeded. This new bill provides a substantial variation in companies' employment cost structures. To date, most companies have not adjusted their employment structure according to the provisions of the new law, as they are waiting to see the reaction of the market. This issue is likely to cause conflict over the next few years. In addition, in December 2009 Section 12 of the Labour Contract Law was amended to forbid completely the waiving of any labour rights by employees. Before this amendment, the waiving of labour rights by employees was already very restricted, but accepted with regard to specific labour rights provided by individual employment contracts. This issue also complicates the scenario for companies that must adjust their employment structure according to the new provisions of the Labour Workday Law. In 2005 a series of bills with anti-evasion purposes were enacted, one of which was Law 26,063, which deals with multiple social security matters (eg, principles of interpretation and assessments of debts made by the social securities authority and cooperatives). In 2010 the Tax Authority enacted Resolution 2927/10, which implements the mechanisms for assessments of debts for the building and textile industries by a system based on presumptions. Therefore, the authority will apply certain indicators to presume the minimum number of workers that a company needs to employ in order to carry out its business. Consequently, if a company registers a smaller number of employees, the authority will presume that the remaining necessary employees are providing services without being properly registered. Some of the parameters that are taken as indicators include: • use of energy and transportation; • the type of building, work or construction site; and • the level of specificity of the business. Although the company may challenge the Tax Authority's presumptions and conclusions in cases where a social security debt is assessed by offering and producing the corresponding evidence, experience shows that global indications are usually different from reality, and that in fact it is often difficult to obtain a reversal of any Tax Authority ruling before reaching a judicial stage. The authority also intends to implement the mechanisms for other industries. Finally, the number of litigations and collective negotiations has continued to increase - as shown in the following statistics provided by the Labour Ministry. Significant cases in 2010 The issues described above have been analysed by the administrative and court authorities. For example, in 2010 Argentina experienced a major union conflict with some employees of Parana Metal, an unlisted private steelmaker that produces foundry parts mainly for exports. When Parana Metal decided to reduce salaries and suspend and dismiss several employees for operational reasons (ie, due to a lack and reduction of work), the whole spectrum of political issues and pressures discussed above became evident. Parana Metal came under pressure from all sectors, including government agencies, unions and citizen picketing. Its employees picketed for more than 30 days and the conflict did not end. In this context, the Labour Ministry issued several decisions protecting employees and ordering them to be rehired. High-rank public officials of the governing party also requested that private investors provide financial aid to Parana Metal. Many have criticised the arguments put forward in these decisions as irrational and aimed only at obtaining a political advantage. Furthermore, the courts frequently adopt decisions disregarding the severance caps (especially when highly compensated employees are involved). In most cases the courts adopt a doctrine created by the Supreme Court of Justice in 2004,(1) whereby the court stated that whenever the cap is lower than 67% of the employee's best, monthly, normal and regular salary, the cap should be considered unconstitutional. In November 2009 the National Labour Court of Appeals decided the debate about the severance impact of non-monthly payments. In the 2010 plenary judgment rendered in re Tulosai, Alberto Pascual v Central Bank of the Republic of Argentina on Law 25,561 the majority of the judges understood that the proportional semi-annual mandatory bonus and non-monthly performance bonuses should not be included in the calculation basis for compensation for seniority pursuant to the first paragraph of Section 245 of the Labour Contract Law, unless fraudulent activity had taken place. Finally, the political climate of recent years has resulted in the unions repeatedly agitating for and obtaining salary increases, which are considered partially remunerative and partially non-remunerative. Such agreements have been approved by the Labour Ministry; however, a court decision found that such non-remunerative payments (even if backed up by a collective agreement signed by the employers, the unions and approved by the Labour Ministry) were unregistered remuneration.^ In the same sense, the Supreme Court of Justice declared Decrees 1273/02, 2641/02 and 905/2003 to be unconstitutional, meaning that non¬remunerative sums formerly established by these decrees issued by the Executive Power should be considered to be of a remunerative nature. Both cases may also encourage claims for salary and severance differences, and fines for incorrect registration. Comment The hot topic for 2011 is the profits bill - whether it will be signed into law, its final terms and conditions, and its overall effect on company profits. Throughout 2010 the unions obtained several salary increases by means of collective bargaining agreements. In 2010, as in 2009, the number of litigations and collective negotiations has continued to increase. In particular, non-remunerative payments have been implemented and challenged as remunerative in the labour courts. The coming year is certain to bring new negotiations between the unions and companies on this subject. Furthermore, in March 2011 the most powerful union (representing truck drivers) negotiated a progressive 24% salary increase for 2011. This negotiation will provide a benchmark for other industries. However, other unions have already criticised this agreement because they believe that it limits their expectations for obtaining higher salary increases for 2011. The near future for employers in Argentina will be greatly determined by the new administration that will take office in December 2011 and the labour and employment matters that it chooses to address. Although material changes in government policy are not expected during 2011, the existing government's short remaining period in office reduces the chances of any such anticipated change. 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. Endnotes (1) Vizzoti, Carlos v AMSA SA, Supreme Court of Justice, on dismissal, September 14 2004. (2) Gimenez Patricia v Blockbuster Argentina SA, National Labour Court of Appeals, Chamber X, June 26 2009. 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

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