Restatement of labor credits

Law No. 25,561 on Public Emergency and Reform of the Exchange System was passed on January 6, 2002.

Section 4 of the Emergency Law amended various sections of Law No. 23,928, known as the Convertibility Law (Official Gazette March 28, 1991), including sections 7 and 10 of the modified law, establishing that:

“Section 7 .- The debtor of an obligation to give a specific sum of money fulfills this obligation by paying the nominal amount stated on the date due. In no case shall monetary restatement, price indexation, cost variations or debt restatement be allowed, whatever the reason, whether or not the debtor is in arrears, except as indicated in this law.

“Section 10.- With effect from April 1, 1991, all laws and regulations establishing or authorizing price indexation, monetary restatement, cost variations or any other form of restatement of debts, taxes, prices or tariffs of goods, works or services are repealed. This repeal shall apply even to contracts and legal situations in existence, it not being allowed to apply or allege any legal, regulatory, contractual or conventional clause –including collective bargaining agreement clauses- of any prior date as a reason for adjusting the sum in pesos due to be paid.”

It should be recalled that as from the passing of Law No. 23,928 the repeal of all rules establishing or authorizing the indexation, updating or any other form of restatement of debts, one of which was section 276 of the work contract law has taken place. This section establishes a system for restatement when credits derived from a labor relationship are affected by depreciation of the currency.

As from the passing of Law No. 25,561, and as a result of the loss of value of the currency, the criteria that existed for the updating of labor credits began to be modified by the Labor Courts.

In this context the National Court of Appeals for Labor Matters agreed by means of Minute 2357/02 dated May 7, 2002 that without prejudice to the rate applicable until December 31, 2001, as from January 2002 the rate of interest to be applied would be that arising from the monthly average of the lending rate set by Banco de la Nación Argentina.

Prior to Minutes 2357/02, Minutes 2155/94 issued by the National Court of Appeals for Labor Matters was in effect. This established fixed rates of interest for each successive period, the last of which was 12% p.a.

Minutes issued by the National Court of Appeals for Labor Matters are not considered mandatory for judges, but they indicate the criterion that will be followed by the Court of Appeal.

Simultaneously various national and provincial labor courts began to define their own criteria.

As an example, we would mention Room VI of the National Court of Appeals for Labor Matters which ruled that the prohibition on indexation was unconstitutional (sect. 4 of Law 25,561), on the grounds that the prohibition on indexation dilutes the worker’s credit, threatens the right to property and violates internationally recognized human rights. In this context, in order to preserve the value of the credit it was decided to restate the amount from January 2002 until the date of actual payment, using the consumer price index as a reference .

For its part, the No.1 Labor Court in Morón also declared the unconstitutionality of sect. 4 of Law No. 25,561 and ordered the restatement of labor credits as from January 1, 2002 using the national consumer price index (general level) plus the interest rate paid by Banco de la Provincia de Buenos Aires on deposits for 30 days .

As a result of the monetary depreciation the solutions applied by the various courts to update labor credits are mechanisms that give rise to considerable legal insecurity for companies. In many cases, as has happened in Argentina in the past, situations could arise where the amounts determined as a result of indexation become exorbitant and disproportionate in relation to the debts that were originally due.