Important Notes on Dismissals Without Just Cause

The Labor Modernization Bill, which received preliminary approval in the Argentine Senate on February 11, 2026, seeks to incorporate, among other aspects, specific statutory parameters for calculating severance compensation in cases in which the employer orders a dismissal without just cause.

The reform proposes to amend article 245 of the Argentine Labor Law 20744 (LCT), which will have a direct impact on the prevention of labor disputes through greater predictability in calculating severance compensation. 

The legislative proposal does not entail a substantial modification of the current regime; rather, it seeks to include precise clarifications or specific guidelines within the existing statutory framework—many of them previously endorsed by labor courts—to provide transparency, clear rules, and legal certainty.


Preliminary clarification: absence of a cap based on years of service

It should be clarified that the Bill does not establish limits when determining the number of years of service. In other words, the current method of using an employee’s time of service as a multiplier of the base calculation remains unaffected.


Guidelines the reform seeks to incorporate regarding severance for dismissal without just cause

The initiative maintains the same calculation base for severance compensation in cases of dismissal without just cause, but it introduces certain clarifications and provides concrete guidelines for interpreting it. Thus, it clarifies that “remuneration” means that which is earned and paid in each calendar month. Likewise, it expressly excludes non monthly payments, such as the annual supplementary salary, vacation pay, and bonuses that are not paid monthly.

It also explains the concept of “habitual,” including in this category those items earned for at least six months during the preceding calendar year.

Finally, it proposes defining “normal” remuneration—in the case of variable items such as monthly bonuses, overtime, or commissions—as either the average of the last six months or the last year, if the latter is more favorable to the employee. Many of these notions are merely statutory incorporations of judicial decisions, including en banc rulings.


Severance cap: incorporating the jurisprudential standard in “Vizzoti” 

Intrinsically linked to the application of the severance cap—already recognized under current law—is the incorporation of the jurisprudential standard established in the well known Supreme Court precedent "Vizzoti, Carlos Alberto c/AMSA S.A. s/despido." Accordingly, the Bill provides—verbatim, as the Court stated in 2004, and as judges have consistently applied since then—that under no circumstance may application of the cap set by the applicable collective bargaining agreement result in an amount lower than 67% of the monthly, normal, and habitual remuneration calculated according to the parameters established in article 245.


Labor termination systems

Another element incorporated in the Bill is the possibility of replacing the statutory severance regime through a collective bargaining agreement with a severance fund or labor termination system. It also clarifies that the cost of such system will be borne by the employer.

This incorporation follows the previous labor reform introduced by Law 27742 (the Bases Law), enacted in July 2024.
Although the legislative proposal does not refer to the specific modalities of severance fund systems, pursuant to Decree 847/24—which regulated the Bases Law—and Resolution 1071/2025 of the Argentine Securities Commission, there exist bank account based labor termination systems, open end mutual fund termination systems, and financial trust termination systems, among others.

Likewise, the initiative seeks to incorporate what had already been introduced in the Bases Law: that these labor termination systems may be used not only to cover the compensation in cases of dismissal without just cause, but also the amount freely agreed upon by the parties in cases of mutual termination (a form of contract termination established in article 241 of the LCT).


Exclusive applicable remedy and final termination

As a final proposal regarding severance for dismissal without just cause, the Labor Modernization Bill provides that the compensation established by article 245 is the exclusive applicable remedy, and that its receipt entails the definitive termination of any judicial or extrajudicial claim related to the dismissal. This includes claims of a civil, contractual, or extra contractual nature, and expressly clarifies that actions may not be brought outside the special regime established in the Argentine Labor Law. 

The only exception provided, according to the Bill, is an action based on a criminal offense. In such a case, the initiative clarifies that the compensation will be governed by the rules of general civil law.


Final considerations

Taken as a whole, the Labor Modernization Bill introduces adjustments aimed at standardizing and specifying the severance regime for dismissal without just cause. To this end, it incorporates definitions, existing jurisprudential criteria, and collective bargained alternatives that seek to provide greater clarity and regulatory uniformity.

Although the modifications do not alter the core structure of the current system, it is clear that the objective is to define more precisely its practical application and the instruments available to channel the termination of the employment contract. In summary, the Bill aims to reduce discretionary margins and limit conflicts arising from divergent interpretative criteria, by consolidating parameters already used in practice and enabling complementary mechanisms within the same legal framework.