Labor reform to stop the suing culture. An expert’s initiative to put an end to working off the books. Published on Cronista.com
Employment and labor lawyer Julián de Diego says many SMEs are at risk as a result of the lawsuit culture. This situation calls for comprehensive labor reform to deal with the gig economy and platform work. “Every time an SME is sued, it risks bankruptcy. The amounts eventually awarded in lawsuits may be impossible to pay. Labor reform is necessary to correct the disruption that has led to the so-called ‘suing culture’”, says Julián de Diego. He explains that the fines and penalties imposed by Courts have reached amounts that double the severance pay provided by law. Julián de Diego is an employment and labor lawyer. He is the director of the postgraduate course in Human Resources Management at UCA and a member of the Academia Nacional de Ciencias Morales y Políticas. He says that case law has come to disrupt legislation and made everything questionable and debatable to the extent that it is considered covert compensation. “Lawsuits have grown due to the disproportionate amounts awarded in court rulings because the calculation basis has changed,” he says. How do you see the labor market today? “For starters, it’s very critical to consider the level of unreported employment. The next labor reform should aim at preventing off-the-books work. The idea is not to adopt a repressive position that has never been successful so far. What needs to be done is labor reform that clearly aims at making hiring easier for companies with fewer than 100 people, which represent 85% of Argentina’s employment. This would not only boost the job market, but also simplify hiring processes and regularization mechanisms. It would discourage litigation and reduce the problem of tax evasion considerably. We all agree that employees should pay contributions to preserve, for example, their pension benefits and health insurance coverage. However, employers should not pay contributions in companies with up to 20 or 30 people”.
A shift in the model
Wouldn’t unions resist such a labor reform? “Yes. Actually, unions are at a crossroads today. As a result of their stiff position, the job market is what it is: totally out of control. The level of unemployment shown in the statistics is pure fiction, because most people work off the books with no social security contributions. Therefore, employees do not pay social security contributions or have health insurance coverage. They turn to public hospitals because they have no other medical centers to go to. They earn miserable wages under pretty bad or terrible working conditions. As a result of this model they so desperately fight to protect, more than 50% of the population works off the books. Even in State agencies, employees work off the books or as freelancers (monotributistas). I believe that this whole process has failed, even for unions. Most of their potential members are not unionized because they work under the table. The Employment Contract Act dates back to the ’70s and collective bargaining agreements in general date back to 1975. It has been almost 50 years. During this whole time work in all its forms have undergone substantial changes.”
How can the law be adapted to today’s job market?
“I’ve always said we should build on what we have and not to destroy it. That is why I have received so much criticism, especially from businesspeople. The Employment Contract Act was passed in 1975. The precedents based on which the text was drafted date back 10 years, when there were not even fax machines. Now, what’s really going on? Out of the 280 sections the Act contains, how many are applicable? Several sections about severance pay have been challenged at courts. The provisions about working hours are totally out of date. The law is obsolete. Many of its sections cannot be applied today. They need to be revamped. For example, remote workers. Most companies have 70% of their employees working from home. How could they prove job abandonment? The law does not provide a solution because job abandonment was designed for a time when companies had physical offices and workers stopped showing up for work. Then they sent a notice. How could they go about it with someone who works from home? Shall they send a registered letter to their home address indicating they did not show up for work at their own house? The law should create a mechanism to deal with these situations.
Technology
Technology and, in particular, the shared economy and online platforms have substantially changed industrial relations… “Absolutely. There has been an advance and acceleration of new technologies that the law does not address. Food delivery apps, ride-hailing platforms, such as Cabify, Uber or DiDi, are not subject to the Employment Contract Act or the Civil Code. This issue is not an easy fix. No country in the world has made them subject to employment and labor laws. None. Even though some courts have ruled against these apps in California, London, Switzerland, it is true that no country has changed its laws and classified app-based food delivery workers as employees under employment relationship. And they don’t want to do it because they know that if they are governed by employment laws, they would transform the entire business into something unfeasible. Right now more than 500,000 people in Argentina work on these apps. And this calls for legal treatment. For instance, in the province of Mendoza, three apps -DiDi, Cabify and Uber- have been legalized. How? Drivers must have a professional license, be registered as self-employed, and take out third-party, personal and passenger liability insurance. And they are required to conduct regular maintenance checks annually.” How is all this working out in Mendoza? “Fantastic! Taxi drivers are no longer taxi drivers and work on these three apps. Everyone gets paid. Everyone uses ride-hailing services. Ride-hailing services have drastically improved and almost everyone has renewed their car fleet. There are no old cars anymore because they are not acceptable for these apps. Cars should not be more than five years old. They are regularly checked and well maintained. I mean, everything got better.
Another issue that companies face when hiring staff is high labor costs as a result of employers’ taxes and eventual lawsuits. How can the suing culture be stopped?
First off, in case of litigation, a conflict with an employee working off the books is far more problematic than with a registered employee. The court decision in a case where an employee works under the table puts the Company in such a troubled situation, with a high level of exposure that is twice or three times more catastrophic than in a dispute with a registered employee. Now, registered employees are protected under employment and labor laws, and in most precedents. With this case law and panorama, Argentina has for sure discouraged investment and hiring. And there is another consequence: replacement, which in some countries like France is called ‘job elimination’. That’s what happens when there is a huge threat from a labor law standpoint. Companies no longer hire employees, but replace them with technology. The end-result of this process is something more dramatic: jobs are eliminated. In Argentina many industries have done it. In the banking sector, online banking replaced bank branches, for instance. Most services that were traditionally available through a local branch by employees hired and paid by the bank are now handled by customers themselves. Naturally, this has reduced costs significantly for banks.