Labor Modernization Law: Approved by the Lower House and Awaiting Final Review

By Clara Fazio

The labor modernization bill is in its final stage of legislative approval. After receiving preliminary approval with amendments in the Chamber of Deputies on February 19, the initiative returned to the Senate for its final consideration.

Final approval is expected in early March, following the achievement of consensus on key changes related to severance payments and the regulation of working hours, issues that had generated debate during its parliamentary discussion.

The initiative proposes a comprehensive reconfiguration of Argentina’s labor regime, aimed at strengthening the system’s legal certainty and providing greater predictability for both employers and employees.

In general terms, the new regulatory framework seeks to: (i) reduce structural litigation within the labor system; (ii) consolidate more predictable interpretative criteria; and (iii) modernize work organization and management tools, adapting them to new productive and technological dynamics.

The reform’s overarching objective is to increase regulatory transparency and reduce areas of legal ambiguity that have historically led to judicial disputes and contingencies that are difficult for organizations to quantify.

Below are the most relevant amendments included in the bill, along with our comments on their potential impact. We would be pleased to expand on these points in person should you consider it necessary.

I.- Scope of Application

The bill expressly defines the scope of application of the Employment Contract Law (LCT), excluding: (i) construction, services, agency, transportation, and freight agreements governed by the Civil and Commercial Code; (ii) independent contractors and their collaborators; and (iii) independent service providers operating through technological platforms.

Impact: This clarification aims to reinforce the boundary between employment relationships and civil/commercial arrangements, reducing litigation related to reclassification claims, particularly in service provision and platform-based models.

II.- Principles of Interpretation and Employee Protection

The reform introduces significant interpretative adjustments. Specifically:
(i) “social justice” is removed as an express interpretative principle;
(ii) the automatic application of the in dubio pro operario principle in evidentiary assessment is eliminated; and
(iii) the automatic nullity of individual agreements that waive or reduce rights is repealed.

Impact: These changes tend to reduce the structural bias in favor of employees in evidentiary matters, directly affecting judicial predictability. In practice, a more stable decision-making framework is expected, with less room for automatic presumptions and greater emphasis on concrete proof of facts and circumstances.

III. Sick Leave

The current Employment Contract Law establishes the employee’s duty to notify and the employer’s right to medical verification, without clear standards regarding the content, validity, and authenticity of medical certificates.

(i) Requirements for Medical Certificates

Certificates must be issued by licensed professionals, include diagnosis, treatment, and number of rest days, and be digitally signed through authorized platforms. The digital signature strengthens authenticity and traceability, aligning labor regulations with current technological standards.

(ii) Medical Control and Disputes

The employer’s right to medical verification is maintained. In cases of irreconcilable discrepancies, referral to an official medical board or reputable institution is предусмотрed.

Impact: The reform formalizes a procedure already commonly used in practice when discrepancies arise between treating physicians and company doctors.

(iii) Vacations Interrupted by Illness

Clear rules are established for rescheduling unused vacation days when illness interrupts a vacation period, reinforcing the obligation of timely notification and the employer’s right to verification.

Impact: The regime introduces a more structured and verifiable framework for managing sick leave and contingencies during vacations, reducing discretion and enhancing legal certainty.

Recommendation: We recommend reviewing and updating internal absenteeism policies, procedures for receiving and validating certificates, medical verification protocols, and internal communications regarding absence notification.

IV.- Working Hours – Hour Bank and Compensation

The bill proposes incorporating Article 197 bis into the LCT, introducing for the first time express legal regulation of overtime compensation systems and hour banks. Employers and employees may voluntarily agree in writing on a compensation regime for overtime, establishing operational limits and verifiable tracking mechanisms.

The system may include “overtime regimes,” “hour banks,” “compensatory time off,” or similar arrangements. Agreements may be individual or collective, potentially requiring union involvement or administrative authority intervention in certain cases. Legal minimum rest periods and worker health protections must always be respected.

Impact: This institutionalizes a tool already used in practice—particularly in industrial and mining sectors—allowing work schedules to align with production cycles and reducing traditional overtime costs.

However, potential legal and union debates may arise concerning: (i) reduction of overtime economic value; (ii) tension with the principle of non-waivability of rights; (iii) validity of consent; and (iv) risks of excessive working hours without adequate compensation.

V.- Fixed-Term and Temporary Contracts

(i) Part-Time Work (Art. 92 ter LCT)

The two-thirds limit of the normal workday is modified, allowing more flexible reduced schedules with variable extensions up to full-time hours.

Impact: May reduce claims seeking reclassification as full-time employment, enable more efficient hour allocation, and decrease litigation in sectors reliant on reduced schedules (retail, services, call centers, logistics).

(ii) Fixed-Term Contracts – Early Termination

Compensation based on lost wages until contract expiration is replaced with a severance scheme similar to dismissal without cause under indefinite-term contracts.

Impact: Introduces economic logic and predictability, eliminating disproportionate costs from remaining contract terms, though it may incentivize greater use of fixed-term contracts.

(iii) Casual (Temporary) Contracts

The requirement of unforeseeable duration is eliminated, while maintaining the need for extraordinary and temporary cause.

Impact: Provides flexibility to manage activity peaks but increases risk of judicial reclassification if the extraordinary nature is not properly documented.

VI.- Vacations

Notice period is reduced to 30 days; vacation may be split by mutual agreement (minimum 7 consecutive days per period); simultaneous team vacations are allowed (ensuring summer leave at least once every three years); and the October–April period remains the general rule, with flexibility by agreement.

Impact: Introduces clearer rules to manage staffing and productivity cycles. Proper documentation of individual agreements will be essential.

VII. Severance – Calculation Basis and Final Settlement Effect

The bill defines the salary base for severance calculation as monthly accrued and paid compensation, excluding non-monthly items (SAC, vacations, non-periodic bonuses). Objective criteria for regularity are introduced.

Severance for seniority becomes the sole compensation for dismissal without cause, with full settlement effect, except in criminal matters.

Impact: Reduces litigation over calculation disputes and enhances predictability of labor liabilities.

VIII. Labor Assistance Fund (FAL)

A mandatory capitalization system is created to finance termination costs (notice, seniority, etc.), funded by monthly contributions (reference: 3% of salary, subject to regulation). It does not replace severance but serves as a financing mechanism.

Impact: Improves liquidity and predictability but introduces a permanent labor cost.

IX.- Ius Variandi

Employees must formally notify the employer before claiming constructive dismissal. The autonomous “reasonableness” parameter is removed, focusing instead on material or moral harm.

Impact: Raises the threshold for indirect dismissal claims.

X.- Compensation and Benefits

The reform clarifies non-remunerative benefits (meals, medical plans, work clothing, childcare reimbursements, school supplies, training, etc.), excludes tips from salary, allows foreign currency payment, and introduces Article 104 bis enabling additional compensation components without generating acquired rights.

Impact: Limits disputes over inclusion of benefits in severance calculation and enables more flexible compensation schemes.

XI.- Registration and Formalities

Failure to produce payroll books no longer creates automatic presumption; digital delivery of certificates is allowed; fines for non-compliance under Art. 80 are eliminated; and digital signatures for payslips are authorized.

Impact: Significantly reduces litigation based on formal defects.

XII. Unfair Practices and Collective Rights

Objective parameters are introduced for unfair labor practices, requiring concrete harm.

Impact: Greater balance in collective disputes.

XIII. Collective Bargaining – Ultra-Activity and Agreement Hierarchy

Ultra-activity is limited: after expiration, only normative clauses remain until renewal; mandatory clauses require express agreement. Higher-level agreements may not modify lower-level ones, strengthening company-level autonomy.

Impact: Reduces automatic continuation of economic obligations and decentralizes bargaining.

XIV. Telework

The Telework Law is repealed. No automatic reversibility, no express obligation to compensate expenses, and no statutory right to digital disconnection. Telework will be governed by the general LCT and agreements.

XV.- Traveling Salespersons Statute

Repealed effective January 1, 2027. Affected employees will fall under general LCT and relevant collective agreements.

Impact: Eliminates special severance schemes and reduces termination costs.

XVI. Labor Claims and Procedure

Updates follow CPI + 3% annually; stricter procedural deadlines are introduced; plaintiffs must submit evidence with the initial complaint.

Impact: Moderates exponential growth of labor judgments, improves predictability, and shortens proceedings by preventing strategic procedural delays.

Regarding the submission of evidence, the reform seeks to balance the proceedings and strengthen standards of transparency and fairness between the parties, ensuring more symmetrical litigation conditions. It aims to prevent the plaintiff from introducing evidence after filing the complaint and/or reshaping their procedural strategy once the statement of defense has been received situations which in practice may place the defendant in a state of defenselessness and distort equality between the parties.

Additionally, by imposing stricter requirements for procedural initiative and organizing the evidentiary stage, the framework is intended to shorten the duration of proceedings and prevent delays that, due to lack of activity by the plaintiff, result in unnecessary prolongation of the dispute and the consequent accrual of interest.