24 abril 2018

The Re-emergence of Voluntary Retirement Plans

Companies’ systematic reorganization plans in search of global efficiency have led to the re-emergence of voluntary retirement programs, whereby companies offer employees termination encouraging them with an extra payment in addition to statutory severance pay, extended health care coverage, and in some cases, outplacement services.

Published in El Cronista on April 24, 2018
This model has its origin in the privatization plans in the 1990s when the successful bidders of public utilities agreed not to terminate employees for a period of time. In order to bypass this limitation, there has been a shift in the restructuring process. So now it is the company who offers a “separation package”, for which it is indispensable to have employees’ consent and reach a mutual agreement for employment termination under Section 241 LCT [Employment Agreement Act]. This package is mainly made up of an extra payment, which is usually around 20% – 40% of the statutory severance pay, which is ultimately the differential that would attract employees and determine their acceptance.

The law (Section 241 LCT) stipulates that the parties may terminate the employment contract by mutual agreement. This must be done in a notarized document, at Court or before the law enforcement authority in labor matters, and if the employee is question is not present or the abovementioned requirements are not met, then the agreement is null and void. The employment relationship shall be deemed to be terminated by the parties’ mutual agreement if such termination derives from the parties’ final and reciprocal conduct that unequivocally results in the end of their relationship.

In a recent ruling in re “Barissani, Darío Nahuel v Huawei Tech Investment Co. Ltd. on employment termination” (National Labor Court of Appeals Panel VIII, March 21, 2018 see the Court declared the nullity of the agreement based on Section 241 LCT arguing that the principle of good faith and the principle of non-waiverable rights were breached because the agreed terms are contained under a settlement agreement that should have been approved in compliance with Section 15 LCT. In other words, voluntary retirement plans are not subject to the nullity declared in such ruling when all the formal and substantive requirements set forth in the law are duly met and the agreed amount exceeds the minimum statutory severance pay guaranteed by public order in labor matters.

As a matter of fact, if a voluntary retirement plan is based on the offer of an extra payment in addition to the statutory severance pay, plus extended health coverage and outplacement services, the principle of good faith is not violated and employees’ non-waivable rights under substantive law, labor laws, collective bargaining agreements and individual contract are not threatened in any way.

As to the involvement of the law enforcement administrative authority or the courts, Section 241 LCT does not include the requirement of approval for an agreement to be valid, even if such requirement derives from settlement agreements under Section 15 LCT. Undoubtedly, any notarized document for employment termination does not meet the requirement of approval or homologation, which is not required for its validity of course, simply because the public officer –Notary Public- does not have the authority to approve.

To this end, lawmakers demands that the notarized document meets all the formal and substantive requirements set forth in the law. For voluntary retirement plans companies are not required to file a Crisis Prevention Procedure [Procedimiento Preventivo de Crisis] (National Employment Act No. 24013) when such plans are not intended to reduce severance pay; on the contrary, they are designed to provide higher compensation than that set forth in the law and additional benefits offered unilaterally at the employer’s discretion, which are not imposed by public order.

In other words, most companies are under ongoing reorganization processes through voluntary retirement plans without the involvement of the law enforcement authority provided such plans comply with all formal and substantive requirements set forth in the law and are formalized in notarized documents without the participation of the Department of Labor.

By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.

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