Termination of the double severance payment system

In such regard, it should be remembered that section 16 of the Economic Emergency Law No 25,561, published in the Official Gazette on January 7, 2002, established the suspension for 180 days of all dismissals without cause, ordering employers that laid off employees in breach of such suspension to pay the dismissed employees twice the corresponding severance payment.

The mentioned 180 day term was extended by the Executive Power through successive emergency decrees. Then Law No 25,972, published in the Official Gazette on December 17, 2004 further extended such suspension until the decrease of rate of unemployment informed by the Instituto Nacional de Estadística y Censos (“INDEC”) be less than 10%.

Later, by Decree No 2014/2004, the severance payment increase provided for by section 16 of Law No 25,561 was reduced to 80% based on the decrease of the unemployment rate.

Finally, Decree No 1433/2005 reduced such payment to 50% based on the grounds that during the third quarter 2005 the unemployment rate was 11.1%.

Therefore it could be interpreted that upon the announcement made by the INDEC that the unemployment rate for the last quarter 2006 was 8.7%, the double severance payment system is terminated automatically and by operation with no need of any additional law or decree declaring the termination of this system in force since 2002.

Besides, the INDEC has also informed that if the Head of Household benefit plans (Planes Jefas y Jefes de Hogar) had not been taken into account, the rate of unemployment would have been 10.1%. In such regard, some experts believe that those benefiting from said plans should be considered unemployed since they do not have a genuine job, therefore ratifying the continuity of the double severance payment system.

To conclude, the National Minister of Labor, Carlos Tomada, announced that the Government will soon ratify the termination of this system.

In our opinion, the announcement by the INDEC of the reduction in the unemployment rate generated the automatic termination of the increased severance payment system. However, since no express regulation has been passed in such regard, no assurance can be given as to whether disputes may arise in respect of dismissals not subject to such increased severance payment.