rules governing labor relationships

Enrique M. Stile

Cross-Border Employment and Global Mobility Issues Cross-Border Employment and Global Mobility Issues in Europe and Latin Americain Europe and Latin America

A Closer Look at International AssignmentA Closer Look at International Assignment

ABA 2006 Spring MeetingABA 2006 Spring MeetingApril 4-8, Waldorf Astoria NY, NYApril 4-8, Waldorf Astoria NY, NY

Enrique M. Stile

The International Employment Lawyer

April 2006

Rules governing labor relationshipsRules governing labor relationships

• Argentine Constitution• Labor Laws• Collective bargaining agreements• Agreements between the parties• Customs in the workplace

Enrique M. Stile


April 2006

Argentine ConstitutionArgentine Constitution

• Section 14 of the Argentine Constitution warranties to all Argentine inhabitants (residents) the right to work and to develop any licit industry.

• Section 14 bis of the Argentine Constitution fixes all minimum rights that must be guaranteed to all workers, such as:

- Decent and equal conditions of employment- Limited working day- Paid rests and vacations- Fair remuneration- Minimum salary- Equal remuneration for equal task

Enrique M. Stile


April 2006

Labor Contract Law (“LCL”)Labor Contract Law (“LCL”)

• Employment contract: An employment contract shall exist whenever an individual accepts the obligation to carry out acts, execute works or supply services for the benefit of another and in the employment of the latter for either a specific or unspecified period of time, in exchange for the payment of a remuneration.

• The LCL is based on certain principles, such as:- Principle of territoriality.- Principle of public order.- No waiver of labor rights principle.- Principle of interpretation most favorable to employee.- Principle of conservation of contract.- Principle of existence of labor relationship

Enrique M. Stile


April 2006

Principle of territorialityPrinciple of territoriality

• According to Section 3 of the LCL, any employment contract meant to be performed in the territory of the Republic of Argentina shall be governed by the LCL, regardless of its place of execution or the choice of law made by the parties.

• The principle of territoriality applies to labor, social security and tax issues.

Enrique M. Stile


April 2006

Principles of public orderPrinciples of public orderand no waiver of labor rightsand no waiver of labor rights

• Section 7 of the LCL provides that the employer must comply with all the provisions of the LCL and any other applicable labor regulation. The employer can establish better terms than those provided by law for the employee, but under no circumstances worst terms can be agreed upon.

• According to section 12 of the LCL, all agreements between the parties suppressing or reducing the rights foreseen in the LCL, the professional statutes or the collective agreements, shall be considered null and void.

Enrique M. Stile


April 2006

Remuneration and benefitsRemuneration and benefits

• According to Section 103 of the LCL, remuneration is understood as the compensation received by the employee under a labor agreement in consideration for its services.

• All remunerations corresponding to an employment contract performed in Argentina must be registered in Argentina.

• As regards to remunerations, employers’ labor documentation mainly consists of a remuneration and wages book (Section 52 of the LCL).

• Registration of remunerations in such book must be made regardless of:

- Place of payment.- Location of actual beneficiary of the services.- Nature as in cash or in kind payment.

Enrique M. Stile


April 2006

• Remunerations may be paid either in cash or in kind.• Remunerations in kind are limited to 20% of the

employees gross payment.• Remunerations may be paid upon a monthly, daily or

hourly basis.• The rates of overtime pay are 150% to 200% of the

base rate.• Employees are entitled to annual paid holidays, which

vary from 14 to 35 calendar days each year depending on length of service.

Remuneration and benefits (cont’d)Remuneration and benefits (cont’d)

Enrique M. Stile


April 2006

• Other remuneration and benefits:- Mandatory semi-annual bonus which is paid in two

installments, in June and December, which installments are equivalent to 50% of the monthly wage.

- Performance or otherwise discretionary bonuses paid upon an annual, semi-annual or quarterly basis (*)

- Stock option or purchase plans (*)- Company cars (*)- Cellular phones (*)- Golden parachutes (*)

(*) Not mandatory


Enrique M. Stile


April 2006


• According to certain court precedents:- Performance or otherwise discretionary bonuses

shall be considered part of the compensation package (i.e. may be claimed by the employee and shall be subject to social security payments) once granted on a regular basis.

- Financial benefits obtained under stock option or purchase plans are part of the employee’s remuneration.

- Company cars and cellular phones paid by the employer may be considered remuneration if they are used for employee’s personal purposes.

Enrique M. Stile


April 2006

Foreign exchange regulationsForeign exchange regulationsrelated to remunerationsrelated to remunerations

• From a labor point of view, payments outside Argentina to Argentine resident employees are not permitted.

• Remunerations must be paid in Argentina in Argentine Pesos. They may be agreed upon in foreign currency, though they have to be paid in Argentine Pesos.

• If nevertheless made, from a foreign exchange point of view such off-shore payments may only be made in foreign currency, provided such foreign currency (i) has been held outside Argentina since December 2001 or (ii) has been obtained abroad without entering Argentina and is not subject to repatriation requirements.

• Transactions that infringe foreign exchange regulations may be subject to sanction under the criminal foreign exchange regime

Enrique M. Stile


April 2006

Contributions and WithholdingsContributions and Withholdings

• Mandatory social security contributions and withholdings are calculated as a percentage of the monthly remuneration of the employee. Employee’s payments are made only on AR$4,800 of his/her salary, whereas employer’s payments are calculated on the full remuneration.

• Some employees are exempted from social security payments in Argentina due to express exemptions for certain professions provided for in Argentine social security laws or under the terms of certain social security agreements executed between Argentina and other countries.

Social SecuritySocial Security

Enrique M. Stile


April 2006

Contributions and Withholdings (cont’d)Contributions and Withholdings (cont’d)

Employer Employee

• Family allowance andunemployment andpension funds 17% to 21% 10% to 14

• Health care organizations 6% 3%

Social Security (cont’d)Social Security (cont’d)

Enrique M. Stile


April 2006


Collective Bargaining AgreementsCollective Bargaining Agreements

• Under certain collective bargaining agreements, special contributions must be made to the applicable Trade Union.

• These contributions are withheld by the employer from the employee’s remuneration.

Enrique M. Stile


April 2006


Income TaxIncome Tax

• Applicable to all Argentine resident employees with a annual income in excess of AR$22,020.

• Ranges from 9% to 35%, depending on the employee’s earnings and deductions.

• Although it is a personal obligation of the employee, it must be withheld by the employer and both are joint and sevarlly liable for its payment.

Enrique M. Stile


April 2006

Termination of indefinite termTermination of indefinite termlabor contractslabor contracts

• An employee may resign at any time and must give the employer a fifteen-day prior notice.

• The employer may dismiss an employee with or without cause at any time.

• Upon dismissal without cause, prior notice must be given 1 or 2 months in advance, depending on the employee’s length of service.

• Such prior notice may be substituted by payment equivalent to the period of the omitted prior notice.

Enrique M. Stile


April 2006

Severance paymentSeverance payment• Upon dismissal without cause, severance payment must be paid to the

dismissed employee.• Severance payment includes, but is not limited to, the compensation for

seniority, compensation for lack of prior notice and the integration of the month of dismissal.

• The compensation for seniority equals one time the best monthly, normal and usual salary per each of employment or fraction greater than three months.

• Such calculation basis may not be in excess of three times the average monthly salary provided for in the collective bargaining agreement for the corresponding category at the time of the dismissal (the “Cap”).

• The Argentine Supreme Court held that whenever application of the Cap implies a reduction of the calculation basis greater than 33% of the employee’s remuneration, the Cap is unconstitutional (in re “Vizzotti, Carlos vs. AMSA about Dismissal”).

• Although such doctrine was binding only for the specific case and the Cap is still in full force and effect, many lower courts are adopting and applying the Supreme Court criteria.

Enrique M. Stile


April 2006

Non-compete agreementsNon-compete agreements• An employee has a duty of loyalty towards the employer

and is barred from engaging in competitive activities during the period of his employment.

• Key employees are normally required by their contracts to work exclusively and upon a full time basis for their employers.

• In Argentina, non-compete clauses covering post-employment periods are of doubtful enforceability due to the constitutional principle of freedom to work.

• Non-compete clauses executed in countries other than Argentina are in principle unenforceable in Argentina.

Enrique M. Stile


April 2006

Mandatory InsuranceMandatory Insurance• All workers employed in the private sector are protected

by the provisions of the Law No. 24,557 and must be insured by a Work Risk Insurer.

• The Work Risk Insurer must compensate and provide medical attention to any employee who suffers a labor-related accident or illness.

• In addition, a life insurance policy covering all employees must be purchased and afforded by the employer. The minimum insured amount is AR$6,480 per employee.

Enrique M. Stile


April 2006

Emergency LawEmergency Law• The Public Emergency and Exchange Regime Law No.

25,561 amended the labor framework regarding the termination of employment.

• Under such law, labor contract terminations without just cause are suspended.

• According to amendments to the Emergency Law currently in force, any employer who violates such suspension and carries out a dismissal without cause shall pay 50% of the compensation for seniority in addition to regular severance payment.

• The suspension of dismissals shall be in full force and effect until the unemployment rate is lower than 10% (currently at 11.1%) or until otherwise decided by the Argentine Government.

Enrique M. Stile


April 2006

Argentine jurisdictionArgentine jurisdiction

Section 19 of Law No. 18,345 (Labor Justice Organization and Procedure) provides that the competence of Argentine labor courts, including territorial competence, may not be extended or otherwise waived by the parties.

Enrique M. Stile


April 2006

Law No. 25,871 (Migration Law)Law No. 25,871 (Migration Law)Immigration ProceduresImmigration Procedures

• Individuals who wish to enter the Republic of Argentina in order to develop a paid legal activity must previously obtain a temporary residence permit.

• Steps:- (a) application before the Migration Authority to obtain

an “entrance permit” (“permiso de ingreso”);- (b) application before the Argentine Consulate in the

country of origin to obtain a “Visa” for a renewable 1-year period; and

- (c) application before the Registro Nacional de las Personas to obtain the Argentine identity card (Documento Nacional de Identidad). This document is not mandatory but useful.

Enrique M. Stile


April 2006

Key issues and risksKey issues and risks

Agreementsbetween theparties

No provisions may be made to the extent that such provisions grant benefits lower than the threshold of the LCL and applicable law.

Benefits granted in prior assignments should not be eliminated or adversely modified.

Non-compete clauses agreed upon in foreign countries would in principle be unenforceable in Argentina.

Risk: Written consent or agreement by employee, even by written means, may be disregarded, if lower than applicable law.

Enrique M. Stile


April 2006

Remunerations

All remunerations should be registered in Argentina, independently of the place of actual payment, location of actual beneficiary or otherwise.

Certain benefits granted to employees, such as stock option or purchase plans, company cars and cellular phones, may be considered remuneration.

If payment is made abroad, foreign exchange controls must be complied with.

Key issues and risks (cont’d)Key issues and risks (cont’d)

Risk: Remuneration and benefits granted abroad or in Argentina, but not registered in the labor documentation, may be considered unregistered remuneration. Employer may be subject to material fines.

Enrique M. Stile


April 2006

Terminations

Due to the principle of territoriality, Argentine law would govern the termination of employees as well as their conditions during the development of the labor relationship.

Upon dismissal without cause, severance payment plus additional 50% regulated by emergency regulations should be paid.

Under certain circumstances, employees may consider themselves dismissed (constructive dismissal).


Risk: In the event of a conflict, the employee may consider him/herself dismissed in order to be terminated in Argentina and benefit from employee-biased laws. Employee may claim that his/her length of service should include years of service in other countries, as well as that his/her remuneration should comprise benefits not registered in the labor documentation of the employer (please refer to previous slide). Payment of regular bonuses and stock options may also be, and usually are, claimed upon termination.

Enrique M. Stile


April 2006

Others

All labor relationships performed in Argentina are governed by Argentine law and subject to Argentine jurisdiction.

Argentine law may only be replaced by the parties by a law more favorable to the employee.

Argentine jurisdiction may not be waived or extended by the parties.

The employee should not commence to work in Argentina until a working “Visa” is obtained in the country of origin.


Risk: Provisions or agreements less beneficial than applicable law may be disregarded in the event of a conflict. Employers who employ foreign individuals who have not obtained their “Visa” may be subject to fines by the Migration Authority and labor and social security contingencies, as such employees would not be duly registered. Employees may be expelled from Argentina.

Enrique M. Stile


April 2006

Enrique M. Stile

Av. Leandro N. Alem 928

(C1001AAR) Buenos Aires - Argentina

Tel: (54-11) 4310-0100 / Fax: (54-11) 4310-0200

e-mail: [email protected]

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