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THE TRAP OF THE BAN ON LAYOFFS SPARKS OFF A MUCH-NEEDED DEBATE, PUBLISHED IN EL CRONISTA
The mandate of double severance pay expires on January 25, 2021 and the ban on work suspensions and layoffs for economic reasons, due to force majeure, and without cause expires four days later. The Executive Power is now discussing whether to extend or change these two measures in a gradual transition process.
Article by Julián A. de Diego published in El Cronista on January 19, 2021
There are three positions that offer different solutions:
1. The business sector encourages to put an end to double severance pay and the ban on layoffs, to go back to the application of the general provisions under the Employment Contract Act [Ley de Contrato de Trabajo] and the Crisis Preventive Procedure [Procedimiento Preventivo de Crisis] under the National Employment Act [Ley Nacional de Empleo].
2. An intermediate position fosters the creation of a transition subsystem. We already know that double severance pay does not apply to workers hired after Emergency Executive Order No. 39/2019, and employers may suspend or terminate employees hired after the first rule imposing the ban effective April 1, 2020. Employees may be suspended under the terms of Section 223 bis (Employment Contract Act). A transition could reduce double severance pay to a 50% surcharge, and restrictions on layoffs could be more flexible in the event that companies need to shut down branches or facilities, for example.
3. The toughest position advocates for a renewal of double severance pay until the end of 2021, and an extension for the ban on suspensions and layoffs in periods of two months evaluating the labor market situation upon expiration.
These two measures -double severance pay and a ban on suspensions and layoffs- have two really different underlying reasons. Double severance pay was first established in December 2019 with the aim of discouraging employment termination in a context of stagflation (inflation + recession), while the ban on layoffs was aimed at protecting employment during the Covid-19 pandemic. This last measure was supplemented with an economic or financial assistance package from the State, for example through the Emergency Aid Program for Employment and Production (ATP).
Considering that they are two unsystematic and asymmetric measures with different underlying causes that simultaneously co-exist in a heterogeneous way, the end to the ban on layoffs becomes a complex counterfactual process that will have direct impact and other side effects that will have to be mitigated.
For instance, the higher the severance pay, the greater the fraud to avoid payment. Stability plummets, and wages are not paid to either active or suspended employees.
The longer the ban on suspension or layoff, the longer the paralysis of the economic activity, jeopardizing the survival of jobs due to inactivity. Evidence shows that upward social mobility gets activated with the free and unregulated operation of an open market.
Since Aristotle and the Nicomachean Ethics, it has been said that the best way to overcome a conflict is from an equidistant point between extremes. Moral virtue is precisely in the middle. The balance combats deficiencies at the extremes. The application of the golden mean requires prudence and eunomia (from the Greek, good order), only the right reason guided by prudence ensures moderation. Moderation, the middle point, can fall into mediocrity if it is not reasonable, prudent and based on equity.
Today we need a prudent and careful transition, managing the time factor wisely to avoid excesses but gradually lifting the ban on layoffs.
The variables to take into account include:
- For the double severance pay and reduced rates and periods until reaching the standard value, a feasible solution would be 75% surcharge instead of 100% at first, and then 50 % surcharge and finally “zero”;
- As to the scope and flexibility of the ban on suspensions and layoffs, we could think of two stages until a return to normal. For example, accept payment of 60% gross salary as a non-salary benefit in case of work suspension for economic reasons and due to force majeure, then 50% and finally “zero”, as provided by the Employment Contract Act. In the case of employment termination without cause, authorize layoffs up to a maximum of 10% of the total staff of the company, eventually at another stage set up a limit of 20% and thirdly ensure a return to normal or the application of the Crisis Preventive Procedure under the National Employment Act; and
- A third variable can be considered in combination with the size of the company, like the National Employment Act whereby it establishes conditions for companies with fewer than 400 workers, companies with more than 400 and fewer than 1000 or for those with more than 1000 workers.
Overcoming the emergency system gradually, like lifting the ban on layoffs, is not enough but it is a necessary condition for a return to normal for the markets, for the production of goods and services as confidence is recovered and sustainable investment returns: the only formula to promote sustainable employment.
