Employee Termination and Severance Pay in Argentina

Argentina is a hub for a diverse and skilled workforce. Hence, you’ll find several startups and large US tech companies competing for the human capital in the region. However, before hiring anyone from this region, you’d do well to learn more about termination policies in the region. Oftentimes, it’s harder to terminate employee and contractor agreements than to create them. This knowledge can save you from a costly legal battle.

Understanding Legal Grounds for Employee Termination in Argentina

Before hiring an employee in Argentina, it makes sense to find out the legal grounds for contract termination to guide your actions if you decide you’re no longer willing to work with them. You’d be thrilled to know that employee and contractor termination in Argentina is governed by the National Employment Law (NEL). 

The first thing to know about these regulations is that Argentinian employees are allowed to leave or terminate their jobs voluntarily as long as they offer a 15-day notice period. However, involuntary employee termination is a completely different ballgame. The notice period and severance pay for involuntary employee termination are dependent on whether the employee was dismissed with cause, without cause, or during their probationary period. 

Here’s a distinction between employee termination in these three scenarios: 

• Termination during the probationary period: The probationary or trial period describes a duration when an employer determines an employee’s overall suitability for a job. Depending on the organization, probationary periods may last up to three months. If the employer decides an employee isn’t a fit for the job before the trial ends, they can terminate them with a 15-day notice period and without any severance payment. However, the employer can offer a payment in place of a notice period. 
• Termination without cause: Argentina’s labor laws allow employers to terminate the contract of their employees without cause at will. Employers who are terminated without cause are entitled to a one-month notice period if they’ve been working for more than five years. However, employers may offer payment in exchange for this notice period. Employees terminated without cause are entitled to a severance payment that’s equal to a single month’s salary for every year they’ve been employed. If an employee has worked at least 3 months in an incomplete year, they are entitled to an additional month’s pay. 
• Termination with cause: Employees terminated with cause are dismissed without any notice period or severance pay. However, you must be able to prove that the employee was terminated with due cause. In case of a dispute, Argentine courts are strict about the burden of proof they request from employers. 

Adhering to Mandatory Termination Procedures 

As mentioned earlier, it’s possible to terminate Argentine employees and contractors with or without cause. However, it’s crucial to note that there’s no list of reasons that describe the cause for dismissal. Instead, whether an employee or contractor is terminated with or without cause is determined on a case-by-case basis. Employers should understand that all employees are subject to termination laws. However, there are certain employees exempt from this. Let’s review examples of employees that may alter regular termination procedures. 

To start with, public employees and delegates are free from dismissal without cause. To terminate public employees and delegates, employers must comply with all the statutory procedures guiding this process. Also, if you terminate an employee within 3 months before their marriage or 6 months after it, the dismissed employee is entitled to special compensation. 

Furthermore, pregnant employees cannot be dismissed until after childbirth. If a pregnant employee is dismissed before or immediately after childbirth, the pregnancy will be considered to be the cause of dismissal. When this happens, the employee will be enlisted for discrimination and paid compensation equal to their annual salary. They’ll also be due severance payments. Finally, employers must prepare severance payments before dismissing employees who are on sick leave. 

There are also instances where an employer may wish to attempt a collective or mass dismissal, which involves laying off more than one person from work at the same time. If an employer wants to perform a mass dismissal of its workforce, it’ll need to inform the trade union regulating activities in that industry. Before reporting to the trade union, it’s essential that employers maintain their mass dismissals under any of these thresholds: 

• 15% mass dismissal when employees are less than 400 people
• 10% mass dismissal for organizations with employees between 400 and 1,000 people
• 5% mass dismissal for organizations with employees of more than 1,000 people. 

During a massive dismissal, employers must also comply with the Preventive Procedures of Companies Crisis (PPC). This procedure will involve the employer negotiating any employee settlements with the affected union. However, the PPC procedure is also meant to help the employer avoid bankruptcy after the mass dismissal.

Calculating and Managing Severance Pay

As mentioned earlier, the National Employment Law (NEL) in Argentina stipulates that employees dismissed without cause are entitled to severance pay. But how are these compensation payments calculated? Here’s a breakdown of due compensation when an employee is dismissed without cause:

• Seniority Compensation: The seniority compensation is a payment that’s equal to the employee’s monthly salary multiplied by years of service or a predetermined fraction over a period of three months. However, you should note that this basis has a maximum cap amount that’s provided by a collective bargaining agreement. The NEL also stipulates a minimum amount for this payment equal to the employee’s gross monthly salary. It’s worth noting that the application of a minimum or maximum cap to seniority compensation can be disputed by employees depending on any disparity they suspect between real salary and cap values. The Supreme Court establishes that the cap applied to seniority compensation must not be less than 67% of the regular salary. 
• Payment in lieu of notice: The National Employment Law in Argentina stipulates that you must provide a written notice to the employee before their contract is terminated. This notice must be provided within 15 days for contracts that are currently in the trial period. However, a one- or two-month notice may be necessary, depending on how long the employee has served you. If an employer prefers not to give a dismissal notice, they can make a severance payment. This payment is usually equal to the notice period the employee is due. 
• Remainder of the Termination Month: There may be certain instances when employee contract termination does not happen on the last day of the month. In this type of scenario, the employer must make a severance payment that’s equal to the salary for the remaining days of the month. 
• Severance for Proportional Vacations: Regardless of the reason for the dismissal, an employer is responsible for paying a compensation equivalent to the value of the vacation pay proportional to the number of days worked. 
• Semi-annual Bonus: Argentine employers are expected to pay an annual bonus that’ll be settled in two installments (30 June and 18 December). The semi-annual bonus is paid at a value that’s equivalent to 50% of the employee’s best monthly salary over the last six months. Regardless of the cause of employee contract termination, employees are entitled to a proportional amount of their semi-annual bonus. 
• Statutory Annual Bonus in Lieu of Notice: Argentine court decisions have ruled that employees are entitled to one-twelfth of the severance payment made in exchange for dismissal notice. 
• Wages and Other Benefits: Depending on the previous contractual agreement between both parties, employers are required to pay any outstanding salaries, incentives, and compensation before their contract is terminated. 

Further reading: Work Hours in Argentina

Challenges in Employee Termination: Legal and Practical Considerations

While most employees expect employee termination to be a smooth process, this is not always the case. There may be instances when an employee will challenge their dismissal, referring to it as a wrongful termination. In this type of scenario, the employee is free to claim payment of severance pay for termination without cause plus an additional fine, which will be equal to 50% of the severance compensation. Employers who are challenged for wrongful termination are expected to provide the cause of dismissal for the affected employee.

Another challenge during employee termination is the allegation that severance payments have not been properly calculated. When this happens, employers will have to prove to a court that they have correctly calculated the employee’s severance as well as previously paid salaries. Employers must also prove that they have correct registers of employees’s labor relationships. 

In both scenarios, employees must go through a mandatory conciliation process before filing their claim with the court. The Ministry of Labor will appoint a conciliator to listen to both parties. 

Contractor Termination: A Different Landscape

The process of dismissing a contractor is completely different from that of dismissing employees. As an employer, it’s crucial to note that contractor termination is based on pre-determined terms in the contractual agreement between both parties. 

Oftentimes, either party can choose to end employment. However, both have to pay attention to the notice period applicable according to the terms of the contract. Due to the nature of their employment, independent contractors are not entitled to the same benefits as employees. For instance, contractors are not eligible for vacation pay or severance pay unless previously stated in the contract. 

There are some instances when independent contractors are misclassified. This process involves wrongly treating employees as contractors or vice versa. When this happens, the employer is entitled to back payment for any missed benefits, including severance pay, employment benefits, or payment in lieu of notice. 

Navigating Contractor Agreements: Expectations and Best Practices

As mentioned earlier, the relationship between an employer and a contractor is based on their contractual agreement. So, it makes sense to specify termination terms or procedures in the contract to guide the actions of both parties when the working agreement comes to a close. Before signing the contract, both parties should agree on any project completion parameters, project completion bonuses, termination fee, and notice period to avoid future disputes. It’s crucial that any terms affecting the termination of this contract be stated clearly in writing. 

If an employer decides to end the working relationship with a contractor, all they have to do is follow the predetermined terms and procedures outlined in the contract. However, if you deviate from these laid-down procedures, the contractor may file a court case. 

Legal and Ethical Considerations in Contractor Termination

Argentina’s National Employment Law clearly states that employees can be dismissed with or without cause. As an employer, you’re expected to pay attention to the parameters affecting both types of dismissals. However, you should note that both types of dismissals require a brief notice period that must be complied with. Severance pay must also be calculated where appropriate. On the other hand, the conditions affecting the termination of a contractor’s working relationship are based on the terms of the contract. 

As an Argentine employer, it’s crucial to adopt employee and contractor termination procedures that comply with local labor laws. By doing this, you’ll save yourself the extra hassle of attending court cases, paying fines, and paying legal fees. 

Further reading: Payroll Taxes and Expenses in Argentina and Employee Benefits in Argentina

FAQs

Article author

Vit Koval

Co-founder at Globy

A top Global Hiring voice on LinkedIn, co-founder of Globy, and host of Default Global. Using deep expertise in global hiring, remote work, and global business expansion to help companies excel worldwide with innovative strategies.