Double Severance in Argentina

One of the first measures taken by the current President of Argentina, Alberto Fernandez, when he took office in December 2019, was to establish conditions for the protection of employees in the event of a public emergency in the field of employment.

The Decree (DNU 34/2019) provides for double compensation in case of dismissal. Among other things, Article 2 states that « the affected worker shall be entitled to receive double the corresponding compensation in accordance with the legislation in force ». This double severance package includes all items arising from the unjustified termination of the employment contract but shall not be applicable to contracts entered into after the enforcement of this Decree or to the National Public Sector defined by Article 8 of Law No. 24.156.

In principle, this Decree would be enforced for 180 days, but given the current situation, the new Decree 528/2020 extends this period to discourage dismissals and protect workers. It is estimated that double indemnity will be extended, in principle, until July of the following year. The ban on dismissal will continue until at least January 2021.

If we look at historical records, Law No. 25.561, passed in 2002, established a similar doubling of compensation, which was initially established for 180 days and lasted for more than 5 years. Therefore, Article 4 of the current DNU is clear in this sense and establishes that it would not apply to derivative contracts after its enforcement.

The calculation of compensation in Argentina is contemplated in the Employment Contract Law. An indemnity equivalent to one month’s salary is calculated for each year of service or fraction thereof exceeding three months, based on the best normal and usual monthly remuneration earned during the last year, or during the time of service if this is less.

The aforementioned basis may not exceed the equivalent of three times the monthly amount of the sum resulting from the average of all the remunerations provided for in the collective bargaining agreement applicable to the worker, at the time of dismissal, for the legal or contractual working day, excluding seniority. It is important to mention that, although this last aspect is mentioned in the law, in practice it is not applied in the case of salaries of senior executives, since in many cases specific agreements are reached between the parties.

The DNU’s objective was to reduce dismissals by increasing the cost to do so and avoid excuses for not hiring staff. It also applies to workers who have been dismissed without just cause or lack or reduction of work and force majeure.

Concerning dismissals for just cause, the Decree would not be applicable. In the event that the employee questions in court the origin and existence of the mentioned cause, he or she will probably claim the incorporation of the duplication under analysis.

Although the Decree does not specify the items reached, it is understood that the duplication of compensation covers:

1. Compensation for seniority
2. Substitute compensation for notice
3. Integration of the month of dismissal

However, the following points would not be covered:

1. Paid time off not having been taken
2. 13^th month salary

With regard to the working fines, they are not included since their background objective is not to compensate for the dismissal but rather to sanction certain behaviours that cause the employer’s non-compliance.

Anyhow the jurisprudence differs in this respect.

The Argentine Government is currently analyzing the possibility of extending the Decree that determines the double indemnity for the whole year 2021, but adding some modifications to the regulations.