Pay Cuts Amid Coronavirus Crisis

Cutting pay is one of the milestones and possible consequences of the economic and financial crisis that companies are undergoing both during their current hibernation and struggle to survive, and for the eventual relaunch of their businesses when the lockdown is over. Salary reduction may be produced directly by express decisions, or indirectly when inflation is higher than pay rises.

Published in El Cronista on April 28, 2020
In any case, it is worth mentioning that our legal system does not allow companies to unilaterally cut wages or additional and supplemental payments, not even with the voluntary agreement between the parties.

As a matter of fact, wages are part of labor public order, whereby it is forbidden to introduce changes to the detriment of workers based on the principle of salary protection, ensuring the full and timely collection of living wages as provided by law (Section 103 of the Employment Contract Act).

In addition, Section 12 of the Employment Contract Act expressly states that based on the principle of inalienable rights, any agreement between the parties reducing or eliminating rights provided by law, labor laws, collective bargaining agreements or individual employment agreements shall be null and void, whether upon execution or performance or when exercising rights arising out of employment termination (Reform of Act No. 26574 Official Gazette of December 29, 2009).

Consequently, companies do not have the power to introduce changes in wages or cut them –not even by mutual agreement with workers. Otherwise, such decision or agreement is completely null and void because the Argentine law treats it as if it had never existed. In fact, there is an additional mechanism for nullified agreements or decisions called “automatic severability”, whereby any agreement between the parties is rendered null and unenforceable because of misrepresentations or fraud, breach of labor laws, or because the amendments adversely affect workers as compared to the provisions of laws or collective bargaining agreements, and shall be automatically replaced by valid clauses by operation of the law.

In the last couple of years, the principle of progressive realization has been

introduced according to international treaties, whereby workers gradually improve their rights under employment agreements and under employment relationships qualitatively and quantitatively.

In this context, under the law, collective bargaining agreements and individual contracts, employee compensation cannot be reduced, no items can be eliminated and no withholdings can be made, except for those stipulated in the law such as contributions to pension and social health care, union dues, advance repayments. Pay cuts cannot derive from employers’ unilateral or contractual decisions.

Having said that, there are cases where employee pay may be reduced. Take for instance work suspension under Section 223bis of the Employment Contract Act, where a non-salary amount is paid to inactive workers (who are suspended at home) for lack or decline of work through no fault of employers or for force majeure. In these cases, payment may be agreed for a lower amount than the one is paid to active workers. According to Section 223 bis of the Employment Contract Act, workers are paid a non-salary amount simply because they are suspended, and not actually working.

Another dilemma is whether collective bargaining agreements may contain a pay cut or suspension of certain additional or supplemental payments due to the crisis.

In fact, in the past, during the hyperinflation crisis between 1985 and 1988, and the financial meltdown in 2002 and 2004, the so-called crisis collective bargaining agreements were designed, whereby the signatory unions agreed that without pay cuts, business was unfeasible. Naturally, in order to reduce wages the signatory parties should enter into an agreement, subject to the approval by the Department of Labor in accordance with Act No. 14250 on Collective Bargaining. A subsequent agreement may contain less favorable conditions for workers than the previous one, and this has been a court en banc decision.

Now the discussion revolves around a new factor: employers may receive government support to save a portion of wages and non-salary benefits, accounting for 50% of workers’ income, with a floor of one month’ minimum living wage and a maximum cap equal to two months’ minimum wages. In this case, many unions claim that workers should not be paid the same net amount than they used to collect when they were actually working, not even when they are suspended under Section 223 bis of the Employment Contract Act. In fact, making this contradiction is also unfair for those workers who go to work every day getting exposed to the virus, as compared to those inactive workers who stay home observing the quarantine.

It is also said that employers should pay gross wages to inactive and suspended

workers, in which case they would be earning more money now than when they were actually working, given the support schemes offered by the Executive (extended deadlines or reduction in employers’ contributions, wages, and the like), an unfair and inequitable alternative.

Actually, we are not fully aware of the seriousness of the crisis we are undergoing or of the catastrophic effects companies will have to face at every level because many parent companies of multinational corporations are even worse off than Argentine firms.

The measures and actions taken TODAY will be the key to end this lockdown with reasonable chances of recovery.

The choice between receivership and bankruptcy or survival and reactivation depends on the specific actions that can be taken right now under the most complex circumstances of this public health emergency, taking into account that the restrictions to avoid the spread of the virus will be in place for a long time until an effective vaccine is ready to put an end to this Pandemic