Supreme Court Rejects Extending Liability to Directors

1. The case

In “Oviedo, Javier Darío c/ Telecom Argentina S.A. y otros s/ despido,”  the plaintiff brought a labor claim against Tel 3 SA, Cotelar SRL, and Telecom Argentina SA, arguing that the companies should be held jointly liable based on an alleged fraudulent intermediation scheme in his hiring. The lower court ruled in favor of the plaintiff, and the Court of Appeals on Labor Matters (Chamber II) upheld the decision, holding not only the companies but also three directors of Telecom Argentina SA—Enrique Garrido, Andrea Mangoni, and Gerardo Werthein—jointly liable.

The Court based its decision on articles 59 and 274 of the Argentine Companies Law (LGS), and reasoned that the directors acted with “full awareness of the [employment] relationship” and had a “deliberate intent not to register the employment relationship,” without requiring direct evidence of these claims or assessing each director’s specific role.
 

2. The Supreme Court’s ruling

In a decision issued on July 10, 2025, the Argentine Supreme Court overturned the Court of Appeal’s ruling. While it upheld the joint liability of the companies involved, it reversed the decision regarding the three directors, excluding them from liability.

Key takeaways from the Court’s ruling include:

• Separate legal personality and limited director liability: the Court reaffirmed that companies are legal entities distinct from their directors, and that personal liability can only be imposed where there is clear evidence of wrongdoing or failure to act with the diligence of a “prudent businessperson” (articles 59 and 274 of the LGS; precedents “Carballo” and “Palomeque”).
• Standard applicable to large corporations: The Court acknowledged that in complex organizations with multiple decision-making layers and operational decentralization, it is unreasonable to expect directors to have personal oversight of every employment decision. It is sufficient for them to have implemented appropriate monitoring and audit mechanisms.
• Lack of sufficient reasoning by the Court of Appeals: The Court held that the Court of Appeal’s ruling was arbitrary, as it imposed liability on the directors without evaluating specific evidence or addressing key defenses, such as the duration of each director’s term in relation to the plaintiff’s employment.

As a result, the Court granted the extraordinary appeal and overturned the Cour of Appeal’s decision, remanding the case.
 

3. Why does this ruling matter?

This ruling clearly defines the boundaries of personal liability for corporate directors, reaffirming the principle of separate legal personality and the need for a subjective standard of liability. The Court confirms a restrictive doctrine—consistent with its prior case law—that requires concrete and reasoned evidence of willful misconduct or gross negligence to extend labor-related liability to directors.
 

This standard promotes predictability in corporate governance and discourages judicial decisions based on generic assumptions or rigid doctrines.
The ruling sets a limit on the growing trend of extending joint liability to directors, a practice that had significantly expanded in recent years. The Court makes it clear that allegations of fraudulent intermediation or sham structures are not sufficient grounds to hold directors liable. Instead, there must be clear evidence of the director’s active involvement in the alleged labor violations or at least a failure to fulfill their duty of diligence.
 

In this case, given Telecom’s size, its large workforce, professional management structure, and decentralized operations, “it is unquestionable that directors cannot personally oversee every business decision. It is enough for them to ensure the existence of adequate internal controls, i.e., systems reasonably capable of preventing or correcting irregularities punishable under labor law.”
 

Ultimately, the ruling reinforces the principle that directors’ liability for labor-related obligations is limited, cannot be imposed objectively, and must be based on a careful evidentiary assessment, considering the employer’s organizational structure.