An end to the ban on Employment Termination and Suspension

Lawyer. Employment advisor of companies and chambers of business. Academic Counselor for Libertad y Progreso.

EL CRONISTAThe government ordered the gradual lifting of the Ban on Employment Termination and Suspension in a smart move to put an end to a system that is aimed at controlling any disruption while registered employment is steadily recovering.

To this end, the Government imposed a surcharge system for severance packages, whose rates decline over time, and decided not to extend the effective date of the ban on employment termination and suspension, which expires on December 31, 2021.

Executive Order No. 886/2021 (Official Gazette of December 23, 2021) established a surcharge system for employment termination without cause, whose rates decrease over time every two months, in an attempt to provide additional coverage from January 1 until June 30, 2022. And at the same time, it did not extend the term of the restrictions that had been imposed until December 31, 2021, prohibiting employees’ suspension for financial reasons or force majeure events, and employment termination for the same reasons or without fair cause.

Within the framework of the Public Emergency in Occupational Matters, registered employment has increased (with more than 130,000 new jobs) and the unemployment rate has fallen (8.2% in Q3 2021), a steady trend that continues. And a return to normal for labor laws is essential to develop and promote social dialogue.

The complex panorama for economic reactivation, rebuilding and creation of new ways to organize human labor involves different sectors such as domestic tourism, the construction industry, commerce in general, technology companies, logistics, e-commerce, online ordering and delivery of any kind of products, the food industry, companies producing cleaning and sanitizing products, IT services whether in-house or outsourced, among others.

The rules about employment termination and suspensions for financial reasons, force majeure events or without cause expire on December 31, 2021, and will not be extended.

Those employees hired after the effective date of EO 34/2019 (December 14, 2019) are not governed by this rule or subject to any restrictions on employment termination and suspension, or entitled to collect double severance pay (Section 5 EO 886/2021).

With regards to the surcharge system, remember that until December 31, 2021 severance pay for termination without cause was doubled with a cap of ARS 500,000, and now there is a decreasing scale as of January 1, 2022, namely:

a) From January 1 until February 28, 2022, a 75% surcharge is added to all items in the severance package;
b) From March 1 until April 30, 2022, a 50% surcharge is imposed on all items in the severance package;
c) From May 1 until June 30, 2022, a 25% surcharge is levied on all items in the severance package;
d) As of July 1, 2022, no surcharge will apply to the statutory severance pay, and payment will be made only in the amount provided by the law currently in place.

As of January 1, 2022, employees may be suspended for financial reasons (lack of work or reduction in operations beyond the reasonable control of the company) or due to force majeure events unrelated to work and may be terminated for financial reasons or due to force majeure events in accordance with the Employment Contract Act. The objective reason for force majeure events, such as the Pandemic, remains in full force provided the relevant party can prove that its effects continue to directly harm its business or activity, and there is enough evidence of a causal relationship between the company situation and the virus and the related restrictions, including new variants such as Delta or Omicron.

Employment termination without cause will be subject to the surcharges in #6 above in the case of employees who have been hired before December 14, 2019 (effective date of EO 34/2019, see Section 5 EO 886/2021). Employees hired after December 14, 2019 are not subject to any ban or surcharges for severance pay.

As of July 1, 2022, the severance pay under the laws currently in place will not contain any surcharge, and will go back to their original amount.

In addition to the terms of EO 886/2021, it is worth mentioning that any other forms of employment termination remained in force during the Public Emergency, such as termination by mutual consent (Section 241 of the Employment Contract Act), whereby employment termination was agreed before a notary public or before the enforcement authority, and buyout programs. Employees could also unilaterally decide on their express or tacit
resignation or job abandonment, which was perfectly viable. In addition, employment could be terminated for fair cause (when employees commit any breach under the law, collective bargaining agreement or employment contract), due to retirement (when they reach 70), due to total permanent disability or partial disability because of which they are unable to perform certain jobs or occupations, among others.

The return to the New Normal will require new measures from the Executive, reinvigorating regional economies that generate exports and providing aid for companies that are still undergoing a crisis due to the heavy economic and financial burden caused by the Pandemic. In this context, coherence, synergy, and clear rules should be supplemented with a tax reform, eliminating regressive taxes and reducing payroll taxes that increase costs incompatible with sustainable growth for the near future.