Impact of Labour Reform on Businesses and Employees

This Friday, the labour reform was enacted, an initiative that seeks to change, for the first time in decades, the relationship between companies and workers. A single criterion will apply to severance payments, litigation is expected to decrease, regulations are being made more flexible, and incentives are being created to promote formal employment. Analysts agree that the effects will not be immediate.

For companies, especially small and medium-sized enterprises (SMEs), one of the most tangible changes introduced by the new law will be the reduction of legal uncertainty when paying severance. Until now, the amount payable by a business could vary depending on the judge or the jurisdiction. From now on, however, bonuses, the annual supplementary salary and other extras are excluded from the calculation, and a single criterion is established.

“There used to be five different ways to calculate severance. Under the reform, there will now be a single, definitive formula, although it does not adopt what is most favourable to the employee, but rather what the law provides. That is the original spirit of the rule,” explained Enrique Stile, partner at Marval O’Farrell Mairal, and added: “This should reduce litigation, because today a labour lawsuit can wipe out SMEs: they had to pay enormous sums, mortgage their companies, and lose profits that could otherwise have been invested. Anyone would sue because they were likely to get something out of it, and that discouraged hiring. With this reform, the rules are being organised and the small issues that gave rise to different interpretations are being eliminated.”

According to Moody’s Ratings, over time the labour reform should encourage the creation of formal employment. However, in the short term, transaction costs associated with the reconfiguration of the labour market are likely to arise, including increased layoffs in sectors still adjusting to the macroeconomic stabilisation and fiscal consolidation process.

Looking ahead to the medium term, various analysts noted that the impact of the reform will depend on investment and growth prospects. Nevertheless, the law does provide greater predictability, particularly by simplifying, clarifying and narrowing the margins for interpretation in relation to severance payments.

There are also some “myths” and “controversies” that Stile addressed. Under the hours bank system, companies and workers may agree to compensate overtime with time off instead of additional payment. For example, more vacation days, taking the next day off after an intense working day, or ending the week at midday on Friday, in response to younger generations’ demand for flexibility.

Twelve-hour shifts have also been authorised, with a twelve-hour rest period in between, although the 48-hour weekly limit may not be exceeded. Vacation leave has also been modernised to allow it to be split by agreement with the employer, rather than being taken all at once, including during winter holidays, something that already occurred in practice.

“In all cases, negotiation is voluntary and by mutual agreement. If the employee does not want it, they do not accept it, because the law comes first. No provisions on overtime, labour institutions or working hours were amended; all of that remains unchanged. The reform seeks to break the old collective bargaining structure and allow flexibility to be legally authorised. I do not know whether it will generate more formal employment, because the microeconomic situation is weak. But undoubtedly, if hiring stops being a headache for companies, it will help. Someone who has gone through a lawsuit will probably not want more employees; but it may be different for new entrepreneurs,” Stile concluded.

Link: https://www.lanacion.com.ar/economia/se-promulgo-la-reforma-laboral-cual-es-el-impacto-real-en-la-vida-de-las-empresas-y-de-sus-empleados-nid06032026/