Major legislative victory for Javier Milei in Argentina: Congress approves his labor 'modernization' bill

The Congress of Argentina approved Javier Milei's labor reform. After months of tension in the streets and changes to the Labor Modernization Act, the libertarian president succeeded in fulfilling one of his big campaign promises. The last stumbling block was the Senate, which ended up approving the bill with 42 votes in favor, 28 against and two abstentions.

According to Milei's government, the main objective of the reform is to generate incentives to combat the underground economy and informality, which currently reaches 43% of the workers. To this end, it seeks to make the labor market more flexible and reduce and update certain regulations that have not been modified for more than fifty years.

"HISTORIC. We have labor modernization. VLLC!" celebrated the president on his X account.

The reform was initially approved in the Senate, which had to vote again due to a change introduced by the Chamber of Deputies, which modified an article related to workers' sick leave. Finally, the deputies approved the reform with 135 votes in favor and 115 against, just above the majority of 129.

The article, which was not in the original Government bill and was included during the first session in the Senate, generated a lot of noise, both externally and internally. It stipulated that employers could pay less to workers in case of illness or "risky activities."

Without this article, the text was approved and sent directly to the desk of President Milei.

The key points of Milei's Labor Modernization Law

The central axes of the reform aim at taking power away from the unions and generating incentives for formal hiring.

Since it did not have a majority in Congress, Milei's Government was forced to negotiate and to make many modifications to its original bill. Negotiations took place with other political spaces, unions and especially governors.

Putting an end to the "trial industry"

Currently, Argentina has 30 times more labor lawsuits than Spain and 16 times more labor lawsuits than Chile. Lawsuits can occur because of incorrect registration of the worker or because some part of the agreement was not complied with.

In case of a lawsuit, judges have full discretion to say how much the employer has to pay in fines, interest and updates. As argued to the Government, this often led to disproportionate amounts that ultimately ended up hurting the financial situation of small and medium-sized companies.

Therefore, the reform would place limits on the discretion of judges as to how much the employer must pay in the event of a lawsuit, adding a parameter that gives it proportionality. Specifically, a mechanism will be established to fix interest, according to a rate set by the Central Bank, giving more certainty to employers.

Incentives for investment and formal hiring

The reform also creates the Regime of Incentive to Labor Formalization (RIFL), one of the central points to encourage registered employment. This regime provides for the possibility of regularizing unregistered or deficient labor situations in certain cases, reducing or eliminating penalties, debts and criminal actions against employers.

At the same time, Milei's Government will implement the Regime of Incentive for Medium Investments (RIMI), with the purpose of facilitating and encouraging productive investment by small and medium-sized companies. For example, they will be able to access special credits and different amortization plans to make these investments.

Small and medium-sized companies will be able to use this mechanism forinvestments between US$150,000 and up to US$9 million in new goods or works destined to productive activities.

12-hour working day?

Although it has gone viral that the reform would impose a 12-hour working day, what it does is to make the working day more flexible. In this way, it authorizes extending the daily workday from 8 to 12 hours, always respecting the mandatory 12-hour rest between workdays and the 40-hour workweek.

This is intended to allow the worker and the employer to negotiate under a more flexible hours scheme, with the possibility of adding working hours when necessary and then compensating it with days off.

What about solidarity contributions to unions?

Unlike what happens in the United States, in Argentina the presence and power of unions is stronger. It is estimated that between 25% and 35% of salaried workers in Argentina are affiliated to a union, while that number is barely 10% in the United States.

In this context, in the South American country, there is a mechanism known as 'union dues,' which is a voluntary payment made by the worker to the union to which he/she is affiliated.

On the other hand, there is the 'solidarity contribution,' which is not voluntary. All workers in the sector, whether they are affiliated or not, must pay a percentage to the union. This contribution is deducted from the salary and goes directly to the union in question, which justifies the charge by arguing that when it negotiates it does so in favor of all workers, whether they are members or not.

Although the Milei Administration did not manage to eliminate this contribution with the reform, it will be reduced to a maximum of 2% per month for a period of two years.

Collective Bargaining Agreements

The Collective Labour Agreements (CCT) are agreements negotiated between a labor union and a business chamber that set the labor rules for an entire activity or economic sector, for example, gastronomy, mining, etc.

Unlike what happens in the United States, in Argentina, when an agreement is signed and approved by the government, it becomes binding for all companies and all workers in that sector, whether or not they are members of the union.

Currently, that sectoral agreement is above what may be agreed upon at the company or company group level. Therefore, the reform would reverse that order, defined as 'priority,' so that the lower-level agreements (collective agreements agreed between companies or groups of companies) are above the sectoral ones.

If there is an agreement, the lower-level agreement would be above the sectoral agreement. If there is no lower level agreement, the sectoral agreement remains in force.

The Government assures that this will allow labor agreements to be modified according to the realities of each region and province without having the same standard for companies in the capital of the country and in a northern province, which do not have the same costs.