a. Laws and Guiding Principles
Argentina is an “Employee friendly country” and protective principles govern employment relationships. Please find below a brief of each one:
i. Protective principle: Argentina labor regulation is characterized by its protective nature. This protective nature is based on the fact that the legislator has considered the Employee the weakest part in the labor relationship. Due to this lack of equality in the negotiation power, the protective principle, the core of Argentine employment case law and regulation, was enacted.
The mentioned principle involves both individual and collective employment relationships. The application of this principle tends to balance the preexisting differences between the Employer and the Employee, and it is expressed in 3 rules:
• in case of doubt, the criterion most favorable to the Employee must prevail;
• application of rule of law that favors the Employee the most; and
• application of the most beneficial condition.
ii. Public order: rules imposed by the Argentine labor regulations are mandatory and may not be waived by agreement of the parties.
Terms of individual labor agreements that establish less rights or benefits than those established by applicable law or CBAs will be void and automatically replaced by the more beneficial terms as established by law or CBA. Any modification must always be made to increase an Employee’s rights and not to reduce them.
iii. Principe of primacy of reality: the nature of a certain relationship will be determined in accordance with the facts rather than by the formalities under which the relationship may be framed. According to this principle, facts prevail over formalities.
iv. Territorial principle: the law of where services are rendered applies, disregarding any other agreement about jurisdiction made by the parties.
v. Based on the protective nature of labor regulations, all documents should be in Spanish, in addition to any other language that the Employer wishes to use.
vi. Continuity of the labor relationship: it considers that employment agreements are meant to be for an indefinite period of time, which means that they are intended to last until the individual is under conditions to apply for state granted retirement.
vii. Non-discrimination principle: Employees may not be treated differently based on sex, religion, nationality, marital status, race, political opinions or physical appearance.
b. The Legal Consequences of a Re-Characterisation
In Argentina, there is a presumption according to which the render of services in favor of another individual implies the existence of a labor relationship. Thus, in case of conflict, it is on the company (beneficiary of the services) to prove that the relationship was of commercial nature, which is difficult due to the protective nature of local regulations.
In view of the above, when entering into Independent Contractor agreements, it is important that the hiring company is aware that the individual hired may construct an employment relationship if evidenced that:
• he/she performs tasks in favor of the company or individual regularly and on an exclusive basis;
• he/she complies with a regular time schedule and with company’s instructions;
• he/she renders services in a facility and with elements/tools supplied by the company;
• the compensation he/she receives in exchange of his/her services is his/her main source of income; and/or
• he/she receives similar benefits as Employees.
Sometimes there are doubts about the existence of a labor relationship. Argentine social security authorities refuse the autonomous/commercial nature of certain relationships understanding that these relationships constitute a fraud to local labor laws and thus, a wrongful registration of a labor relationship. All cases should be resolved taking into account the principle of primacy of reality explained above.
If subordination notes may be evidenced but the company has not entered into an employment agreement, the contractor will argue that the company failed to properly register the labor relationship and request its correct registration. If the company fails to do so or denies the existence of a labor relationship, the individual may consider himself/ herself constructively dismissed by fault of the company and claim statutory severance compensation together with applicable fines for non-registration.
c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status
If an individual seeks Employee status, he/she must file a complaint against the individual or company he/she considers his/her Employer. As a first step, the Independent Contrac-tor seeking Employee status must notify about his/her intention to be re-categorized as an Employee, requesting the registration of his/her labor relationship within the next 30 days counted from the reception of the legal notification.
The Employer has two options before a contractor’s claim:
• employer registers the employment relationship reflecting the real conditions of the relationship. It is important to point out that such cases are very unusual.
• employer fails to register the labor relationship or denies the existence of a labor relationship. On this occasion, the individual may consider himself/herself constructively dismissed by fault of the company and claim severance compensation (explained below) together with applicable fines for non-registration (please see Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterization below).
Mandatory severance compensation for termination with no cause and final liquidation, include the following concepts:
i. Seniority compensation: this compensation is equivalent to a monthly salary times per year of services or fraction over 3 months. Such basis has a maximum cap amount provided by the applicable CBA which is 3 times the average of all wages provided by such CBA and a minimum cap amount which is 1 Employee’s gross monthly salary. The application of any cap amount to the seniority compensation could be challenged by the Employee on grounds of disparity between such cap and the real salary. The Supreme
Employees vs Independent Contractors – argentina
Court established that the calculation base may not be reduced more than 33%, con-sidering such reduction as a confiscatory act if the mentioned percentage is exceeded. Therefore, fixing the cap, it must be verified that at least the calculation is made with 67% of the employees’ monthly compensation in case it exceeds the cap established by the applicable CBA.
ii. Severance in lieu of notice: the NEL provides that the Employer must give a prior written notice to the Employee in the event of a wrongful termination of employment. If the Employer does not give such prior notice, it must pay compensation in lieu of notice equivalent to 1 or 2 monthly salaries, depending on the Employee’s seniority;
iii. Pending days of the termination month: if the dismissal does not take place in the last day of the month, the Employer must pay a compensation equivalent to those pending days to complete the entire month;
iv. Severance for proportional vacations: disregarding the cause of termination, the Employee is entitled to compensation equivalent to the vacation pay in proportion to the days effectively worked;
v. Proportional semi – annual bonus: the Employer must pay an annual bonus (“SAC”) in 2 instalments (June 30 and December 18) equivalent to 50% of the best monthly salary earned in the prior 6 month term and whatever the cause of termination of employment, the Employee is entitled to the proportional amount of the SAC;
vi. Statutory annual bonus over severance in lieu of notice: Court decisions have ruled that the Employee is also entitled to 1/12 of the amount provided for severance in lieu of notice; and
vii. Wages due – other benefits: the Employer must pay any pending salary and any other benefits, incentives, compensations due to an Employee if applicable.
d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation
If the Independent Contractor argues the existence of a subordination relationship and claims for the correct registration of his/her labor relationship before the company terminates the relationship or communicates its decision not to renew his/her contract and the company does not comply with such registration, the Independent Contractor may consider himself/herself constructively dismissed and claim the payment of manda-tory severance compensation and fines for incorrect registration: equal to: i) 1/4 of the compensation accrued since the beginning of the labor relationship, and ii) the double of severance on account of seniority, prior notice and pending days of the termination month.
In the case the company communicates its decision to terminate the relationship before the Independent Contractor claims for correct registration of his/her relationship, he/ she may claim a fine equal to double that of the seniority compensation based on the labor nature of the relationship. This fine cannot be accumulated to one established in the above paragraph.
In addition, if the Employer does not comply in due time with the payment of the mandatory severance package, the Employee may claim for interest and fines, in which case the Employer must pay an additional compensation equal to 50% of the severance on account of the seniority, prior notice and pending days of the termination month.
Also, the Employer has the obligation to deliver the Employee working certificates within 30 running days from the termination of the employment relationship. If the Employer fails to comply with this obligation, the Employee is entitled to claim an additional fine equal to 3 monthly salaries. Thus, since there is no registration of the labor relationship, in case of a conflict, the Independent Contractor may likely also request this fine.
The statute of limitations applicable to labor obligations is of 2 years.
Moreover, if the Employee’s claim is accepted, in addition to the explained above fines, the Employer will be sentenced to the following penalties:
• Social Security: National Tax Authority (Administración Federal de Ingresos Públicos AFIP-) may also claim to the Employer that it did not comply with the deposit of corresponding social security withholdings and claim the amount accrued as capital, plus fines up to 200% of the capital owed and monthly intersts of approximate 2%.
– The statute of limitation for this claim is 10 years.
• Union Matters: Eventually, if the activity rendered by the Independent Contractor is governed by any particular CBA, the corresponding union may claim the contributions not made. The percentage depends on the applicable CBA, but in general is between 2% and 5% of the monthly compensation.
– The statute of limitation for this claim is 5 years.