The Supreme Court confirmed that ceilings on severance payments are constitutional

Section 14 bis of the Constitution determines that: "Labor in its different forms shall enjoy the protection of the laws, which shall ensure the worker: (...) protection against arbitrary discharge."

In relation to arbitrary discharge, legal scholars and court decisions have understood it to be the unfounded termination of the employment contract by the employer with no legal grounds on which to stand.

In view of the constitutional rule and of court decisions and legal scholars' opinions prevailing, labor laws have provided for severance payment for discharge without a just cause.

At present and by virtue of Law No 25,013, the Labor Reform Law, effective as of October 3, 1998, two severance payment regimes coexist, according to the date the worker was taken on. For those workers taken on before October 3, 1998, section 245 of the Law of Employment Contract is applied, and for those workers taken on or after that date, section 7 of the Labor Reform Law is applied. Both norms establish severance payment against arbitrary discharge.

Section 245 the Law of Employment Contract establishes that: "In those cases of discharge decided by the employer without a just cause, whether or not there is forewarning, the employer shall pay the worker a severance payment equivalent to one (1) month's salary for each year of service or a fraction thereof longer than three (3) months taking as a base the highest monthly normal and habitual remuneration, paid during the last year or during the time of rendering of services if shorter."

For those workers taken on after October 3, 1998, section 7 of the Labor Reform Law establishes that: "In those cases of discharge decided by the employer without a just cause, whether or not there is a forewarning, the employer shall pay the worker a severance payment equivalent to one twelfth (1/12th) of the highest normal, habitual monthly remuneration paid during the last year or during the time of service, if shorter, for each month of rendering of services or fraction greater than ten (10) days."

Both sections establish a ceiling on severance payment on the basis of the calculation to be used. Said base cannot be greater than three times the monthly amount of the sum resulting from the average of all remunerations provided for by the Collective Wage Agreement applicable to the worker at the time of discharge for a legal or conventional day's work, seniority excluded.

The Ministry of Labor and Social Security is the authority that must establish and make known the amount applicable together with the salary scales for each collective wage agreement.

Moreover, both sections contemplate the situation of employees not covered by collective wage agreements. For those employees, the ceiling on severance payment to be applied is that of the collective wage agreement applicable to the business where services are rendered, or the more favorable collective wage agreement, in the event there is more than one.

Lower Courts and Courts of Appeals have declared that section 245 of the Law of Employment Contract is unconstitutional in most cases where the difference between the best normal and habitual remuneration and the ceiling of three times the average of all the remunerations provided for by the collective wage agreement applicable to the worker, could be considered disproportionate.

Nevertheless, the Supreme Court has been unanimously upholding the constitutional nature of the ceiling on severance payment set out in section 245 of the Law of Employment Contract .

In a recent decision, the Supreme Court, backing the ruling by the Attorney General, confirmed the constitutionality of the ceiling on severance payment. The Attorney General, in accordance with the decision of the appellate court, had stated that the ceiling set, although was substantially lower than the amount that could have arisen from using the full remunerative level of the appellant, neither showed suppression or distortion of the right for which protection was sought, nor had it been established in an absurd or arbitrary manner. It was then added that such opinion, in any case, should be affirmed or revoked by the Supreme Court, once the significance of the amount calculated according to the legal instructions has been considered .

It is important to point out that this decision by the Supreme Court was subscribed by the new Justice, Juan C. Maqueda, it being possible to infer therefrom that in spite of the changes that have recently occurred in the Supreme Court, the criteria set down in relation to the constitutional nature of the ceiling on severance payment will not vary.