Labor Modernization: A Change in the Rules That Redefines Work in Argentina

The Senate has given preliminary approval to the Labor Modernization Bill, a wide-ranging reform—213 articles—that modifies core aspects of the Employment Contract Law and the labor court system. The debate now moves to the Chamber of Deputies. If approved, it would constitute one of the most profound labor reforms since the 1970s.

The bill does not eliminate the current system, but it reshapes it. It changes incentives, redefines concepts, and alters the balance between worker protection and employer predictability. To understand its scope, it is useful to examine its key points.

1. Severance Compensation

Severance pay remains set at one month’s salary per year of service, but some calculation parameters change: the salary components included are redefined, non-monthly payments are excluded, and a cap equivalent to three times the average collective bargaining agreement salary is established. A floor of 67% of the base salary is also set.

The bill expressly defines the base remuneration for calculating seniority-based severance as the amount accrued and received in each calendar month, excluding non-monthly items (13th salary/SAC, vacation pay, non-monthly bonuses or awards, and similar concepts). Objective criteria for regularity and normality are introduced: items received for at least six months within the last calendar year are considered regular, and variable items are averaged over the last six months or the last year, whichever is more favorable.

Additionally, seniority-based severance is established as the sole compensation applicable in cases of termination without cause, with a full settlement effect regarding other judicial or extrajudicial claims related to dismissal (except for criminal offenses).

The aim is to increase predictability in the system and reduce litigation related to the calculation base.

2. The New Labor Assistance Fund (FAL)

One of the reform’s central pillars is the creation of the Labor Assistance Fund. It does not replace severance pay but introduces a financial planning mechanism.

Companies must contribute a monthly percentage of salary (1% for large companies, 2.5% for SMEs) to specific accounts managed by authorized entities. These funds will be used to cover severance, notice pay, and other related concepts.

3. Working Hours and Work Organization

The bill introduces flexibility tools regarding working hours, expressly regulating overtime compensation systems for the first time, including hour-bank schemes.

Employers and employees may agree—individually or collectively—on an overtime compensation system, which must be set out in writing, establish operational conditions, and include verifiable recording and monitoring mechanisms for worked and compensated hours.

Such schemes may include hour banks, compensatory overtime systems, compensatory rest days, or equivalent arrangements.

In all cases, legal working time limits, minimum rest periods, and worker health protections must be respected.

For activities with variable or seasonal production cycles, these tools may provide greater operational flexibility. Their practical implementation and impact will largely depend on how they are designed and negotiated within each sector or company, as well as on proper system design, timekeeping, and compliance with legal limits.

4. Social Benefits and Remuneration

The bill introduces significant changes regarding remuneration and benefits, directly affecting salary structures and termination costs.

Key points include:

• Redefinition of the social benefits regime (Art. 103 bis), reinforcing their non-remunerative nature and clarifying items such as meal services, medical plans, work clothing, childcare, school supplies, training, and funeral expenses.
• Express clarification that tips are not part of remuneration.
• Introduction of Art. 104 bis, allowing additional compensation components (fixed or variable) by individual or collective agreement or employer decision, without creating vested rights.
• Authorization to pay wages in foreign currency.
• Expansion of non-remunerative items (documented reimbursements, phone, transportation, vehicle, housing benefits, among others).

In practice, many labor claims seek to classify in-kind benefits or reimbursements as salary, thereby increasing the wage and severance base.

The reform seeks to more clearly define which items constitute salary and which do not, reducing litigation and increasing predictability in estimating labor and termination costs.

At the same time, it opens the door to more flexible and contribution-efficient compensation schemes.

5. Vacation

The notice period for granting vacation is reduced to 30 days. Vacation may be split by mutual agreement, with a minimum of 7 consecutive days per period. Simultaneous vacations by teams are permitted (ensuring at least once every three years during summer), and the October–April period remains the general rule, though vacations outside that period are allowed by agreement.

Vacation splitting was already common practice, but the reform introduces clear rules and explicit authorization. From a management perspective, this allows better workforce planning during high-productivity periods and more balanced leave distribution throughout the year. Proper documentation of individual agreements will be important to avoid claims of unilateral imposition. Reviewing internal vacation policies is recommended.

6. Exclusions and Consolidation of Independent Work

The list of individuals excluded from labor law coverage is expanded: contracts governed by the Civil and Commercial Code, independent workers, digital platform service providers, among others.

This consolidates a more clearly dual model: dependent employment with traditional protections versus autonomous services governed by civil law.

7. Digital Platforms: Recognition of a Model

The bill creates a specific regime for ride-hailing and delivery platforms. It expressly states that service providers are independent and that no employment relationship exists.

Platforms must provide accident insurance, but providers retain the freedom to accept or reject trips or orders.

This formalizes the current platform economy model and reduces litigation over legal classification.

8. Sick Leave

The reform originally proposed a significant change to sick leave for non-work-related illness: if the worker voluntarily assumed a risk leading to illness, they would receive 50% of salary; if not, 75%, for specified periods depending on whether they had dependents. Currently, coverage is 100% of salary.

However, after strong political and union opposition, the Government withdrew Article 44 introducing this change. Therefore, the current regime remains unchanged, maintaining full salary coverage in such cases.

9. Labor Litigation and Credit Updates

A uniform standard for updating credits is established: inflation (CPI) plus 3% annually. Interest in ongoing cases is limited.

Procedural changes are also introduced: lapse of proceedings after six months of inactivity, mandatory application of Supreme Court precedents, limits on legal fees, and caps on court costs.

The intention is to reduce judicial time and costs and limit discretion. In practice, this would create a more predictable and less costly labor justice system, though potentially less flexible.

10. Labor Formalization (“Blanqueo”)

The Labor Formalization Incentive Regime provides a substantial reduction—minimum 70%—in unpaid social security contributions for one year.

The goal is to encourage employers to regularize informal employment without facing unmanageable liabilities. Its success will depend on employer participation and subsequent enforcement.

11. Commercial Travelers’ Statute

The Commercial Travelers’ Statute would be repealed effective January 1, 2027.

If enacted, workers currently covered by this special regime would be governed by the relevant collective bargaining agreement and the general Employment Contract Law. Economically, this would eliminate the special severance compensation under the statute, which often significantly increases termination costs. As a result, severance costs would decrease and predictability in managing these employment relationships would improve.

12. Collective Labor Law – Ultra-Activity and Collective Agreement Structure

The reform limits ultra-activity. Once a collective agreement expires, only normative clauses remain in force until a new agreement or extension is signed; obligatory clauses continue only by express agreement. Under the current regime, all clauses remain fully in force unless otherwise agreed.

This is a substantial change: it limits the automatic continuation of collective provisions and shifts the burden of extension to express agreement. It reduces the inertia of economic and management obligations after expiration, reshapes negotiation incentives, may create periods with a more limited regulatory framework, and may trigger disputes over clause classification and the temporal scope of acquired rights.

Additionally, the logic of coordination between agreements is reversed: higher-level agreements may not modify the content of lower-level agreements; company-level agreements may define their own matters and refer to higher-level agreements applicable to the lower scope. The current system allows higher-level agreements to establish coordination mechanisms. The change strengthens lower-level—especially company-level—autonomy, limits higher-level intervention, and consolidates a more decentralized model, with potential intra-sector differentiation and the need for clear references to avoid overlap.

A Paradigm Shift

The reform pursues five clear objectives: reduce litigation, increase business predictability, formalize unregistered employment, introduce flexibility in work arrangements, and redefine the role of labor courts.

From a business perspective, it improves predictability and reduces contingencies. From a union perspective, it reduces certain protection levels and makes it more difficult to classify employment relationships.

The severance system and the protective principle do not disappear, but automatic mechanisms are reduced and contractual autonomy is strengthened.

The real impact will depend on regulatory implementation, judicial interpretation, and collective bargaining negotiations—as well as on the debate in the Chamber of Deputies, where amendments may still be introduced.

What seems clear is that the bill marks a shift: from a classic, rigid, and highly judicialized model toward a system with greater flexibility, enhanced financial planning, and a redefinition of the boundaries between employment and independent work.