Amendment to the Labor Relationships Termination Regime

On January 6, 2002, Argentine Congress passed Law Nº 25,561 titled “Public Emergency and Exchange Regime Amendment”, which provides that dismissals without cause are suspended for a term of 180 days. If any dismissal should be resolved in violation of said provision, the employers shall pay the terminated worker twice the relevant compensation.

By means of Decree Nº 264 (the “Decree”), section 16 of Law 25.561 was regulated, establishing the proceeding to be followed in case dismissals are made during the above mentioned 180 days period. The applicable proceeding will depend on the number of workers affected and the number of employees of the company.

Whenever terminations or suspensions affect more than (i) 15% of the workers of a company of less than 400 workers; (ii) 10% of the workers of a company of less than 1000 workers; or (iii) 5% of the workers of a company of more than 100 workers, the employer must file the Crisis Prevention Procedure (“CPP”) before the Labor Ministry.

The purpose of the CPP is to reach an agreement between the Employer and the Union, by which the employer will be able to reduce labor costs and prevent any crisis, affecting the employees as little as possible. During the procedure all measures that could be enacted by the employer, the Union or the employees are suspended.

If those percentages are not met, employers shall notify the Labor Ministry and the Union 10 days prior to terminating any labor relationship or suspending any employee, expressing the cause which gave origin to the termination.

In case the employer fails to comply with the above described proceedings, the Labor Ministry will be entitled to demand the immediate ceasing of the terminations, taking the necessary steps to protect the preservation of the labor relationship and to demand the payment of unpaid wages.

Moreover, in those cases in which the Company tries to dismiss personnel invoking economic causes, if the Decree's procedures are not complied with, the employer will not be able to invoke section 247 of the Labor Contract Law (“LCL”) or section 10 of Law 25,013, regarding termination for economic reasons, the terminations will be considered as done without justified cause, and the twofold increased compensations.

Finally, Decree 264/02 is a clear attempt of the National Government to somehow stop the mass-dismissals currently happening in Argentina as a result of the ongoing economical and financial crisis.

Even if the Decree does not prohibit dismissals, the truth is that with its passing a sieve has been created, trying to delay and make difficult mass- dismissals.

In our opinion, the Decree is clearly an infringement of the National Constitution and is generation a opposite effect to that looked for by the Government, since in spite of the dam tried to be imposed, mass-dismissals (either without justified cause or disguised as termination by mutual arrangement agreements according to section 241 LCL or resignations) are still taking place.