Cross-Border Catch-Up: Argentina’s New Rules on Severance, Working Hours, and More

Announcer: Welcome to the Ogletree Deakins podcast, where we provide listeners with brief discussions about important workplace legal issues. Our podcasts are for informational purposes only and should not be construed as legal advice. You can subscribe through your favorite podcast service. Please consider rating this podcast so we can get your feedback and improve our programs. Please enjoy the podcast.

Shirin Aboujawde: Hello, and welcome to the Cross-Border Catch-Up. I’m Shirin Aboujawde, and today I’m joined by my wonderful colleague, Lina Fernandez. And today we have a topic that is generating a lot of conversation in Argentina. We’re going to be discussing Argentina’s new labor modernization law, or Law 27802.

Lina Fernandez: Hi, Shirin. Well, it’s a pleasure to be here with you today discussing this interesting topic.

Shirin Aboujawde: Lina, you’ve been following this closely. Can you set the scene for us?

Lina Fernandez: Absolutely. So, this new law, the Labor Modernization Act, was enacted in 2026. It was discussed a couple weeks ago. And it has sparked considerable controversy and faced a strong opposition from unions and social groups. They claim that it diminishes workers’ rights and it actually benefits mostly employers.

Shirin Aboujawde: Interesting. So, let’s get into the substance. The law covers a wide range of topics. At a very high level, what are the headline changes?

Lina Fernandez: So, there are several major pillars in the reform, including changes to severance compensation and dismissals cost, flexibility around working hours and vacation time. There are new rules on gig economy workers and technology platforms and also rules around labor registration and formalization.

Shirin Aboujawde: Wow. Let’s start with severance because that is arguably the most impactful change for multinationals operating in Argentina.

Lina Fernandez: Of course. So, under the prior system, the indemnification for unjustified dismissal, the statutory severance was calculated on the basis of the worker’s best monthly, normal, and habitual salary over the last year. The new law, however, changes how the base salary is counted for the calculation, although it keeps the same framework as one month of salary per year of service. So, the new law specifically excludes payments that are not made on a monthly basis, such as the 13-month salary known as the Sueldo Annual Complementario or this SAC. It also excludes vacation pay and bonuses that are not paid monthly. The only variable components that were accrued for at least six months of the 12 months of the calendar year will be considered customary and thus included as the base salary for calculation of the statutory severance.

Shirin Aboujawde: Okay. So effectively the base for calculating severance is going to be lower in most cases.

Lina Fernandez: That’s right. And it’s also worth mentioning that there is a cap. So, the base salary for calculating severance cannot exceed three times the average salary under the applicable collective bargaining agreement. And most importantly, the law now expressly codifies the cap calculation methodology established by the Argentine Supreme Court in the case Visotti, meaning that the cap now cannot reduce the base to below 67% of the worker’s own monthly habitual remuneration calculated under the new formula.

Shirin Aboujawde: And are there any other notable changes on the severance side?

Lina Fernandez: Yes, there are several important changes. So first, the bill clarifies that the statutory severance for termination without cause is now the sole remedy available in such cases. So, there is no longer room for additional damages claims on top of the statutory indemnification. On the enforcement side, in the case of large companies, court judgments may be satisfied in up to six consecutive monthly installments. And for micro and small and medium-sized companies, that window extends to up to 12 installments, which was not a possibility in the prior regime.

Shirin Aboujawde: Got it. Now, I know the law also introduces something called the Labor Assistance Fund. Can you explain how that works?

Lina Fernandez: Of course, yes. So, the law creates what’s called these labor assistance funds or Fondo de Asistencia Laboral (FAL). Basically, every private sector employer must now make a mandatory monthly contribution into an individual account managed by an authorized entity regulated by under Argentina Securities Commission. These funds accumulate over time and can be drawn upon by the employer to help cover the cost of dismissal. The employer remains fully responsible for paying the severance. And this fund simply is a mechanism to finance part of that cost.

Shirin Aboujawde: So, this is not a system where the worker gets a pre-funded pot at the end of their employment. It stays in the employer’s hands, right?

Lina Fernandez: That’s right. An employer side liquidity tool, not a worker side benefit account. Each account is individual to the employer, but it is not individualized by employee. Basically, it is a common pool for the employer’s general termination liabilities.

Shirin Aboujawde: Understood. Let’s talk about seniority and rehiring, because I understand there are some important rules there as well.

Lina Fernandez: That’s right, Shirin. The bill provides that if two years elapse between the termination of an employment relationship for whatever reason and the company is rehiring that employee, then the employee’s prior length of service will not count for seniority purposes. So basically, the clock effectively restarts when two years or more have elapsed. In addition, if an employer rehires an employee and a severance previously paid to that employee will be deducted from severance due upon the subsequent termination, in that case will be adjusted for inflation.

Shirin Aboujawde: Okay. That is a significant practical consideration for any employer thinking about bringing back former employees.

Lina Fernandez: Absolutely. It actually requires careful diligence before any rehire decision is made.

Shirin Aboujawde: Yeah, for sure. Now let’s turn to the employment relationship presumptions, because I know the law makes some changes in this area that affect how service contracts are structured.

Lina Fernandez: That’s right, Shirin. So, the law addresses the presumption of an employment relationship, which has been historically a major source of litigation in Argentina. Under the new rules, the presumption will not apply to contracts for work, professional services, or trades, or any other arrangement involving the provision of services without an employment relationship. This is provided that either the corresponding receipts or invoices are issued or that the payments are made through banking channels or other systems established by the implementing regulations. And this is a meaningful safe harbor for companies engaging independent contractors provided they structure their engagement carefully and maintain, of course, proper documentation.

Shirin Aboujawde: Okay. Let’s touch on contractors and subcontractors since joint liability and supply chains has always been a sensitive topic in Argentina.

Lina Fernandez: Yeah. So the law provides that any party that assigns in whole or in part to a third party an establishment or operations authorized under its name or that engages contractors or subcontractors to perform work or services falling between the establishment’s regular and its specific core business activity must actively oversee those assignees, contractors, or subcontractors and require them to provide the information mandated by law. Failure to conduct that oversight would actually result in joint and several liability. The law essentially is putting the burden on the client to police their contractors network when it comes to their core activities.

Shirin Aboujawde: Okay. And what about fixed-term employment contracts? Were there changes there?

Lina Fernandez: Yes, there was actually a notable change. Under the prior regime, if an employer terminated a fixed term contract without cause before the agreed expiration date, the employee could claim damages. Now the bill eliminates that ability entirely. So now employers have greater flexibility to exit fixed term agreements early without facing damages exposures. And instead, they will rely on a statutory severance for regular employees.

Shirin Aboujawde: That’s great. Well, let’s move to working hours and vacation flexibility because I know those changes are quite significant as well.

Lina Fernandez: Yes, they are in fact. So, on working hours, the law introduces the concept of [foreign language 00:09:08] or hours bank. In practice, what this means is that instead of paying for overtime at a premium rate, employers and employees can agree to compensate extra hours work with compensatory time. This is permissible as long as daily risk requirements are respected, and the weekly maximum hours are not exceeded. The law also permits daily working hours to be extended up to 12 hours, provided the weekly legal maximum is not surpassed. On the vacation side, currently Argentine law requires that vacations be taken in a single period and only between October and May. Under the reform, parties may agree to split vacation into segments of no less than one week each. And those segments can be actually taken at any time during the year. And that flexibility, of course, is actually quite welcome to multinational employers trying to coordinate across global operations.

Shirin Aboujawde: Yeah, I bet it is. Can imagine it would be really difficult otherwise. Let’s talk about gig workers and technology platforms. This was a hot button issue.

Lina Fernandez: It was, Shirin. So, the law explicitly excludes gig platform workers from the scope of the labor code. Specifically, the law establishes a dedicated title for ride-share and delivery platform workers. These workers are classified as independent providers. They have freedom of connection, meaning they can log on to any platform, they can accept or reject orders as they choose, and they can define their own schedule. The law, however, does impose some obligations on the platform. They must provide certain information to the workers. They need to respect their freedom of connection. They cannot exclude them from the platform without a process. Platform must also ensure that independent contractors have accident insurance coverage. However, these obligations per se do not convert that relationship into one of an employment relationship. They remain independent providers.

Shirin Aboujawde: It seems like there is a lot going on here. So just taking a step back, what is the government’s stated objective for all of these changes?

Lina Fernandez: So, the government’s position is that the central purpose of this is to create formal employment. They want to bring undeclared workers into the register system. They want to reduce cost of employment and incentivize investment. The law includes actually a regime for regularizing informal employment relationships with significant debt forgiveness for employers who bring workers into the formal system between 180 days of the regulations coming into force. It actually also includes reduced employer social security contributions for new hires who meet certain criteria.

Shirin Aboujawde: Oh, that’s really interesting. Thank you, Lina. We will have to watch closely as the regulations implementing the law are issued in the coming months.

Lina Fernandez: Yes. This law is only the beginning. We’ll have to wait for the implementation details because those will matter a lot.

Shirin Aboujawde: Absolutely. Well, thank you so much, Lina, and thank you to all of our listeners for joining us today on Cross-Border Catch-Up. Please follow us to stay in the know about cutting edge employment issues worldwide. And we will see you again in the next episode.

Announcer: Thank you for joining us on the Ogletree Deakins podcast. You can subscribe to our podcast on Apple Podcasts or through your favorite podcast service. Please consider rating and reviewing so that we may continue to provide the content that covers your needs. And remember, the information in this podcast is for informational purposes only and is not to be construed as legal advice.