Unconstitutionality of the 13% reduction in civil service salaries

1.    Background

The Federal Court of Appeals in Contentious Administrative Matters (Room V) granted the measure applied for by Leonidas Tobar against the Federal Government and declared the unconstitutionality of section 1 of Decree No. 896/01 and section 10 of Law No. 25,453 (hereafter the "Challenged Regulations") ordering that the amounts deducted from the wages as from August 30, 2001 be returned.

2.    The Challenged Regulations

The Challenged Regulations establish that when budgeted resources are insufficient to meet the full amount of the budgeted liabilities, the liabilities to the entire national public sector should be reduced proportionately, so as to maintain balance between operating expenses and budget resources. This reduction should affect these liabilities in the proportion necessary to achieve such an end, and should be applied even to payments of regular remuneration for whatever reason. In the context of the regulations challenged, Decree No. 934/01 empowered the Head of Cabinet to determine the salary reduction, which was finally set at 13%.

3.    Grounds given by the Court of Appeals

The Court of Appeals has held that the regulations challenged altered the terms of public sector employment and that the amount of the reduction (13%) is arbitrary and unreasonable, as it violates constitutional rights as services to be rendered by the worker, the State is altering the balance of the service, making the new remuneration unfair.

In addition it considers that the reduction is not transitory because its enforcement implies restricting the right to property in a definitive manner and the measure has represented the suppressing of compensation (rather than a limitation).

4.    Court ruling

The Supreme Court ruled that as the Challenged Regulations did not establish that the State could suspend the emergency measure if the conditions that gave rise to it were altered, it was therefore impossible to allege the reasonable exercise of the power to reduce wages.

In addition, it pointed out that the Challenged Regulations established no limits as to percentages or duration, and there is no indication of their reasonability nor their proportionality to the end pursued.

By recalling that it is not possible to alter the substance of the contract by modifying the employment relationship until it becomes distorted, the Supreme Court has understood that the Challenged Regulations in fact do so, as they do not impose a reasonable and temporary limitation on the integrity of the wages of civil servants.

In this context the Challenged Regulations have been declared unconstitutional as they have been considered to represent a regime exceeding the discretionary powers of the Government in the determination of remuneration.