Again The Year-End Bonus Becomes a Benefit That Raises Doubts about its Compulsory Payment

The Executive Order establishes a bonus, non-salary in nature, amounting to ARS 5,000, to be paid 50% with the wages of November 2018 and 50% with the wages of January 2019.

Published in El Cronista on November 14, 2018
The bonus may be paid in proportion to reduced working hours in accordance with the provisions of the respective collective bargaining agreements. This is a non-salary benefit, which runs contrary to the terms of Executive Order 633/2018 (passed on July 6, 2018) forbidding such payments as from August 2018 for any amounts agreed through collective bargaining.

As a matter of fact, within the framework of the collective bargaining procedure under Act No. 14250 (consolidated text in 2004) the Department of Labor shall not accept, approve or register any collective bargaining agreement and/or arrangement having similar effects containing amounts or items that are salary in nature in relation to which the parties agree on their non-salary nature, and the situations where such exceptions may be valid in accordance with the procedure regulated by Sections 98-105 (inclusive) of Act No. 24013, as amended and regulated.

In turn, based on this Executive Order, the signatory parties to collective bargaining agreements may set out special conditions for companies in crisis by compensating, including or absorbing them through pay rises given in 2018, and also this bonus may be offset by any other payment unilaterally granted by Companies. If there is any non-salary payment, it should be converted into a salary benefit.

This Executive Order also provides a reporting procedure for employers: they should report their decision to terminate an employee without cause ten (10) days in advance to the enforcement authority; otherwise, they should be subject to penalties.

The Executive Order refers to the Employment Contract Act and the Act on Collective Bargaining, none of which authorize the National Government to establish compulsory pay rises. Furthermore, the Supreme Court of Justice of Argentina is -and has been- quite categorical about it, indicating that the Executive is not authorized to decide on wages at the private sector, or determine a non-salary payment, in particular. The exactly same thing happened with the allowances granted by Néstor Kirchner during the 2002 crisis to cope with the emergency, which were deemed to be unconstitutional.

In fact, in re “Gonzalez v POLIMAT”, the Court found that the Emergency Executive Order 1273/02 provided that workers in the private sector under collective bargaining agreements should be paid a monthly, “non-salary, food allowance” by their employers. According to the recitals, these executive orders had come to ratify that there was a “significant decrease in the purchasing power to the detriment of workers”, and it was imperative to recover workers’ “income to meet basic needs like food”, in an attempt to “correct the reduction in salaries in general and specially in the case of low wages”. That is why these rules may have well given a “non-salary nature to a food allowance or benefit” that actually is salary in nature.

The Supreme Court declared the unconstitutionality of Emergency Executive Orders 1273/02, 2641/02 and 905/03, because they ignore the salary nature of the benefits they grant, thus distorting the purpose of the severance pay scheme regulating Article 14 bis of the National Constitution, which states that the law shall protect workers from “wrongful termination”, considering that severance pay ends up ignoring the specific reality that it was designed to attend based on the limitations imposed to one of the components of its calculation, which precisely and unequivocally is one of the two indicators of such reality: the wages actually earned by those workers terminated. An emergency executive order does not qualify as such by the President’s mere decision to give it such status, but it becomes an “emergency executive order” when all the procedures under the National Constitution are duly met.

In other words, the Executive is ordering to pay a bonus without having the necessary powers to do so, determining that it is non-salary in nature when the law actually forbids it and the Supreme Court has declared its unconstitutionality, indicating that it may be compensated, absorbed or paid on account, which is something that only the signatory parties to collective bargaining agreements should decide freely, making no distinction among companies according to their size and economic or financial situation, and especially punishing SMEs that account for 82% of total employment.

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