Argentina's Labor Reform: The Constitutional Battle over Worker Protections and Severance

 

Argentina's Labor Reform: The Constitutional Battle over Worker Protections and Severance

Argentina's labor code, traditionally one of the most protective in the world, is now at the center of a profound constitutional and political battle. The reforms introduced by President Javier Milei's administration, largely through the Decree of Necessity and Urgency (DNU) 70/2023 and later legislative efforts like the Ley Bases (Foundation Laws), aim to drastically deregulate the labor market to stimulate economic growth and formal employment.

However, these changes have been met with immediate and forceful opposition from powerful labor unions, leading to swift legal challenges that question the very constitutionality of the executive's actions. The core of this conflict lies in the tension between economic liberalization and the deeply entrenched principles of worker protection, particularly concerning severance and dismissal.

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⚖️ The DNU and the Challenge to Constitutional Authority

The most significant initial move was the use of a Decree of Necessity and Urgency (DNU) to enact sweeping changes without immediate Congressional approval. While the Argentine Constitution (Article 99, Section 3) allows the President to issue DNUs, it strictly limits this power to "exceptional circumstances" where it is "impossible" to follow the ordinary legislative process.

The Constitutional Argument Against the DNU

The central constitutional challenge, primarily filed by the General Confederation of Labor (CGT), focused on two key points:

1.     Lack of Necessity and Urgency: Critics argue that Congress was in session and fully capable of debating the reforms, thus invalidating the constitutional premise of the DNU. The use of a DNU for such a massive, systemic overhaul of fundamental labor laws was seen as an executive overreach that undermined the constitutional separation of powers.

2.     Violation of Worker Rights: The reforms were argued to violate the protective principles enshrined in Article 14 bis of the National Constitution, which guarantees stable employment, protection against arbitrary dismissal, and favorable working conditions.

Judicial Intervention and Current Status

In early 2024, the National Chamber of Labor Appeals (CNAT) sided with the unions, ruling the labor chapter (Title IV) of DNU 70/2023 unconstitutional and ordering its suspension. The court found that the executive branch had usurped the legislative function. While the government appealed to the Supreme Court of Justice of the Nation (CSJN), the labor provisions of the DNU remain largely suspended and inapplicable pending the final high-court ruling.

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🛡️ Key Reforms and the Erosion of Worker Protections

The labor reform package proposes fundamental changes to several areas, directly targeting what the government considers the "high cost" of employment in Argentina.

1. The Severance System: From Lump Sum to Fund

Historically, Argentina's system of severance pay (indemnización) has been rigid and employer-funded, calculated as one month's salary per year of service upon termination without just cause. The reforms seek to replace this with a more flexible, private Severance Fund or "Cessation Fund" system.

·       The Proposal: Employers and legally recognised unions would be allowed to agree through collective bargaining to substitute the traditional severance with a private, insurance-based, or self-insurance fund. The employer's monthly contribution to this fund would be capped, often at around 8% of the employee's salary.

·       The Impact: This shift fundamentally changes the employer's risk profile. Instead of a potentially massive, unpredictable liability upon dismissal, severance costs become a regular, predictable operating expense. For workers, it makes the termination process easier for employers, potentially reducing job stability, though they would have access to the accumulated fund.

2. Elimination of Labor Fines and Aggravations

A major incentive for employers to formally register workers was the threat of severe penalties, or "fines," payable to the employee in cases of unregistered or deficiently registered employment (informal labor).

·       The Change: The reforms eliminate numerous fines that previously doubled or dramatically increased severance payments for issues like poor registration, late payment of severance, or failure to deliver employment certificates.

·       The Conflict: Proponents argue these penalties were a perverse incentive for litigation and a major cost driver, ultimately discouraging formal hiring. Critics argue their repeal removes the primary deterrent against companies using informal labor, thereby undermining a key protection against employment precarity.

3. Extension of the Probationary Period

The reforms propose extending the probationary period from the standard three months up to six or eight months (and potentially up to a year for small businesses).

·       The Rationale: A longer trial period is argued to encourage employers to hire by reducing the risk associated with a permanent contract.

·       The Concern: This extension significantly lengthens the period during which an employee can be dismissed without cause and without severance, increasing job insecurity for new hires.

4. Restrictions on the Right to Strike

The DNU and subsequent bills classify certain services (like transportation) as essential or of vital importance, imposing minimum service requirements (e.g., 75% or 50% capacity) during strikes. Furthermore, participation in the blockade or takeover of a business during a protest is explicitly defined as a just cause for dismissal.

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🔮 The Future of Argentine Labor Law

The ultimate fate of the labor reforms rests with the judicial and legislative branches.

Path	Key Action	Implication for Reforms
Judicial Review	A definitive ruling by the Supreme Court (CSJN) on the constitutionality of the DNU's labor chapter.	If declared unconstitutional, the DNU's labor provisions are permanently void. If upheld, they immediately take full effect.
Legislative Approval	Congress passes the Ley Bases (or a similar bill) that contains the labor reforms.	This process, unlike the DNU, would ensure the reforms are legally enacted through the proper constitutional channel, making them harder to challenge on procedural grounds.

The battle over the DNU is a high-stakes constitutional showdown that will not only redefine the relationship between employers and workers in Argentina but will also set a crucial precedent for the limits of presidential power in the country. The economic urgency cited by the government is colliding head-on with the deeply rooted constitutional and collective rights of labor, making this one of the most critical legal and political debates in recent Argentine history.