12 febrero 2019

The Need for an Integral Reform of Labor and Employment Law

Strong advocates of Argentine labor and employment law, which is extremely protective of employees, do not admit failure and are now aware that the model they have been defending for more than sixty years is not only in crisis but in the most absolute decadence.

Published in El Cronista on February 12, 2019
We are faced with the reality that not only legislation does not protect employees, but also today it is proved that it ejects and even destroys job positions.

Unfortunately, because of this model Argentina ranks first in the region in work inflexibility, high labor costs, high social security and payroll taxes, and also ranks high in worldwide rankings. If we stay on this path, nobody will be willing to invest here and those who have invested will go away. Just a few local businesses will remain because they have special strategic benefits or allowances.

As a matter of fact, in the last eight (8) years, the unemployment rate not only soared, but also fell inevitably under the effects of the new models to which Argentina could not adapt, as a result of new technologies and the pressing need for productivity that markets demand.

Whenever it is said that protective legislation should be preserved, that the law, Courts and Unions should stand up for fundamental rights, actually each sector is defending different interests and those directly related to employees come in second, and are all excuses to keep an outdated, retrograde and totally anachronistic system. Actually, they are false arguments that are part of a cover-up story that tries to conceal reality; the economy is inevitably collapsing and one of the reasons why is directly linked to labor and employment law, collective bargaining and the resulting model.

The sharing economy is making its way through historical models of labor law, replacing a segment of work in a new form: self-employment. First, Uber and Cabify, then Glovo, PedidosYa and Rappi, among others, have shown that the relationship in their application is between service providers and clients, and therefore it is freelance work where service providers take a great deal of the business risk.

The traditional working day is on its way out, and now the focus is on the provision of services and compensation on a case-by-case basis according to productivity. The costs related to the so-called dead time are no longer there. Employee pay is transformed and replaced by micropayments for each service once it is provided to the client’s satisfaction. Freelancers compete for pricing and quality.

This system is built on the foundation that nobody involved is under an employment relationship, neither the service provider or the clients and users, they are all independent contractors, entrepreneurs. The Company as an institution disappears, and now the natural person as a service provider plays a vital role and deals directly with the user without middlemen. Each service provider is an independent contractor, and the rest of the transaction is carried out by users themselves.

As a matter of fact, for an employee-employer relationship to occur, work should be done for the employer’s business. There is financial subordination (to the employer who pays their salary), technical subordination (the know-how provided by the Company), hierarchical subordination (arising out of the Company’s power to organize and run the business), and finally legal subordination under the different provisions of labor and employment law, in particular the rebuttable presumption (in Latin, praesumptio iuris tantum).

These pillars of an employee-employer relationship are disappearing. The system is setting the rules, many tech workers bring specialized knowledge to the table, more often than not a third party pays for the services, and the service provider is an independent contractor who determines when, how, why and in exchange for what they work.

Argentine legislation has replicated the models of Mainland Europe in particular, where extraordinary reforms are being implemented to transform and reformulate a model that if it is not changed, it will increase unemployment, reduce income and bring about a social and employment collapse. Argentina has emulated the extremely protective postwar legislation, and now ignores that they are abandoning such outdated models.

The two economies that lead the list of the world’s most successful economies are the US and China, and none of them has protective legislation like Argentina does. In fact, these two countries do not have any labor and employment law as such, and only handle issues related to HR and people management.

It is then clear, as always, that the paradox in The Leopard by Lampeduza still applies: changing things so everything stays the same, and this leads inevitably to failure.

Talking about the labor reform without information is disregarding its relevance under the circumstances. If we really want to put this crisis behind us and finally find the path to prosperity and develop our full potential, it is indispensable to show results undertaking structural reforms that call for profound transformation.

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

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