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backLATINtalk April, 2012

Argentina: 2012 Salary negotiation – Will the Government succeed?

The economic conditions that Argentina has been facing over the past few years, particularly given the real annual inflation rate of over 20%, has led to a depreciation in employees' salaries and purchasing power. Collective salary negotiations is one of the major challenges for Human Resources Managers and Labor Relations Experts in Argentina.

This inflationary process has caused very intense union activity causing employers' representatives to negotiate salary increases on an annual or semi-annual basis. One of the economic strategies that the Argentine Government is pursuing to fight inflation and address the overall economic situation, is to limit salary negotiations and "impose" a cap on negotiated salary increases. However, the progress of collective negotiations in the first months of 2012 suggest that the Government will struggle to achieve this objective.

Official governmental parameters "proposed" for salary negotiations for 2012-2013

Normally, unions are reluctant to accept limitations to collective negotiation parameters, especially when salaries and other economic benefits to workers are at stake. The 18% cap that was initially recommended by the National Government on annual salary increases for the 2012-2013 term, was challenged by the first collective negotiations that have resulted in salary increases in 2012 so far. For example, Edible Oil Workers Union agreed to a 24% salary increase for 2012, although for a nine (9) month term that will expire in September of 2012. Despite the National Government's intention to limit the annual salary increase, the Ministry of Labor "accepted" this agreement.

Moreover, most of the relevant Unions have commented extra-officially that they would ask for an annual salary increase at a higher rate than the one proposed by the National Government.

Productivity and non-remunerative allowances as a mechanism to mitigate the impact of salary increases to employers.

Another key concern of employers is the constant increase in the cost of hiring employees and the monthly costs that each employee represents for its employer. Some options have been explored to reduce and mitigate the economic impact on employers, and these alternatives are likely to be used during the forthcoming negotiations. One is the negotiation of extraordinary payments for productivity or payments related to companies' profits. In this regard, at the local and regional level there are negotiations restricted to specific companies.

Also, there are currently different bills at the Argentine Congress, the most supported bill being the one proposed by the Employment General Confederation ("Confederación General del Trabajo" CGT), that establishes a profit sharing scheme. None of these bills, however, have been formally discussed yet at either House of the Congress.

Besides these initiatives, unions are striving to obtain an increase in the exempted amount for the withholding of income tax, as the increase in monthly salaries has a major impact in terms of taxes on those salaries.

Lastly, and as arose during previous negotiations, another resource to mitigate the impact on the employers' financial situation could be agreeing the payment of non-remunerative allowances. However, following recent Labor Courts' rulings based on Supreme Court of Justice precedent in Re: "Gonzalez vs. Polimat S.A.," this alternative is, at the present time, extremely risky.

According to Argentine employment regulations, any compensation that employees receive as a consequence of rendering services for an employer is salary, and therefore, subject to social security taxes and contributions. The judicial precedents referred to above state that non-remunerative allowances agreed in the collective negotiations, and even approved by the Ministry of Labor, should be deemed a breach of the National Constitution and International Labor Organization (ILO) regulations duly incorporated to the Argentine legal system. As such, it is no longer advisable to execute collective or other agreements including non-remunerative allowances that could be reasonably challenged by an employee at the time at which he/she is claiming for the proper calculation of his/her termination payments.

Conclusion

The challenges that the economic situation in Argentina presents for employers and Unions are increasing year by year. Persistent inflation, the political environment deriving from the public controversies between the National Government and the Head of the Employment General Confederation (one of the strongest Union's representatives) and judicial precedents challenging non-remunerative allowances are all key ingredients that need to be considered when negotiating salaries for 2012.

What in principle seemed to be the main obstacle for agreeing salary increases, that is the official salary increase rate, appears in practice to have little effect.

Companies are also facing the additional challenge of keeping the spread between unionized and non-unionized compensation. Companies will need to work hard to retain talent and maintain a good working environment.

Source: Baker & McKenzie - GAI

For more information or to contact Baker & McKenzie, please click here.

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