"Payment off the record" to an administrative manager of a business corporation

Tribunal A of the Commercial Court of Appeals held that an administrative manager of a corporation, may not invoke to his benefit acts (“off the record payments”) that are contrary to legal and statutory obligations, and given his greater responsibility, the plaintiff must assume the consequences of such acts (“doctrine of responsibility for own acts”) (in re: “Breuning, Guillermo Manuel vs. Ancers SA and others", decision of June 15, 2004).

The plaintiff began to work for the defendant as manager of the company, with a monthly pay of AR$ 5,000, of which he collected AR$ 3,197.40 "off the record", that is, without it appearing in the account books.

According to the statements made by the plaintiff, between June 1998 and August 1999, the defendant decided to no longer pay him the sims that were "off the record". Therefore, he demanded to be duly registered by the Company. This was denied by the defendant. The plaintiff considered himself dismissed and claimed the dismissal compensation fines of the Law of Employment and also argued that the cap on severance pay provided for by section 245 of the Law on Employment Contract was unconstitutional.

In its answer to the complaint, the defendant admitted the employment contract, the tasks described by the manager and the work schedule; but specifically denied the date of entry to the Company, the wages collected, the medical certificates flied by the plaintiff and the employment category.

The first instance judge found that there was evidence that the plaintiff salary amounted to AR$ 5,000 a month, and admitted the severance pay demanded by the plaintiff. Nevertheless, the judge rejected the unconstitutionality claim against section 245 of the Law of Employment Contract.

Both parties appealed the decision.

Mr. Peirano, Judge of Tribunal A of the Commercial Court of Appeals, in his vote found that:

a) It had not been proved that the plaintiff collected a salary of AR$ 5,000.

b) Having acted as administrative manager of the company, the plaintiff could not invoke to his benefit acts that are contrary to legal and statutory obligations; given his greater responsibility, plaintiff must assume the consequences of such acts (“doctrine of responsibility for own acts” ).

c) It had not been proved that the plaintiff began to work for the company on a date earlier than that appearing on his salary receipts.

The Judge held that “being so closely related to the representation of the company to the extent that he was chosen to head its management, the plaintiff cannot then expect to be taken as a stranger to the situation; this evidences a kind of complicity in the hypothetical fraud in labor matters or a degree of collusion with those who the plaintiff now sues in relation to the matter, when he was or should have been fully aware of the matter”.

The Judge also held that "in the case under consideration, it cannot be said that the manager has complied with his legal obligations when he admits, tacitly, but without any doubt, that he has settled salaries "off the record", including his own. Therefore, it goes against the doctrine of responsibility for own acts that “the plaintiff should attempt to sue on the basis of those legal values, a company that he himself managed during several years, positioned within the administration, just as were the remaining members of the Board, a situation that does not merit protection by law”.

In view of the above, the Judge held that the claim for payment of the items on the basis of the provisions of sections 10 and 15 of the Law of Employment could not be admitted either.

On the other hand, the balance of wages that had not been paid as annual bonuses were held proven. Therefore, it was decided that there was sufficient cause and motive for the plaintiff to consider himself dismissed. Having proven the cause of the dismissal, it was decided that the plaintiff should merit the severance pay according to the provisions of section 245 of the Law of Employment Contract.

In relation to the unconstitutionality of the cap on severance pay provided for in section 245 of the Law of Employment Contract, the Judge held that said claim could not be admitted. The grounds for this decision were that, "in fact, the Supreme Court has decided that the establishment of the cap per se is not unconstitutional, unless it is proven in each case that the application of said cap on severance pay constitutes a suppression or distortion of the right that it is attempted to guarantee (Supreme Court, in re: "Botti vs. Somisa", February 8, 2000, B. 478 XXXIV)".

For similar reasons, Judges Viale and Miguez concurred with Judge Peirano. Therefore, the Court of Appeals decided to find that the plaintiff had a claim for the balance of unpaid annual bonuses and severance pay for dismissal.