Validity of the Extinction of an Employment Agreement by Mutual Agreement

On September 10, 2020, in the “Ocampo, Alessio Matías Yair vs BGH S.A. re dismissal” case the Argentine Supreme Court of Justice (the “CSJN” after its acronym in Spanish) validated the legality of the termination of the contract of employment, formalized through an agreement implemented in a public deed and within the framework of the concurrent will of the parties (which in academic jargon is known as termination by mutual agreement), provided for in section 241 of Labor Contract Law (LCL).

In the case, the plaintiff -who had signed an agreement before a notary public with his former employer in return for an exit bonus- six days later challenged the agreement on the grounds that it was actually an undercover dismissal and that he had been put under pressure to sign said agreement.

The First Instance Court admitted the complaint, as it considered that the agreement was valid but only as a discontinuing act. The Judge understood that such agreement did not have a releasing effect as it had not been executed before that administrative or judicial authority, nor was it approved. Consequently, the amounts paid as a bonus were considered as a payment on account of the total owed, admitting the claim and sentencing the defendant to pay the compensation provided for by the LCL in the event of dismissal without cause, salary discrepancies and certain fines.

On the occasion of the appeal filed by the defendant, Court VII of the National Labor Court of Appeals confirmed the First Instance ruling, and ordered an increase in the amount of the ruling to the sum of ARS 384,805.09 on the grounds that even though there was no evidence of malicious intent on the part of  the plaintiff, the value of the aforementioned agreement should in any case be detracted as it had not had the intervention of the judicial or administrative authority, nor mediated a well-founded decision that demonstrated the "just composition of the rights and interests of the parties" required by section 15 of the LCL.

The defendant filed an extraordinary appeal, arguing that the judges of Court VII of the National Labor Court of Appeals made the validity of what was agreed in the agreement subject to approval by the administrative authority or judicial when such requirement is not established in section 241 of the LCL (rule that only establishes as a requirement, the conclusion of the agreement by public deed). It also stated that approval is only required by section 15 of the LCL, for "transactional, conciliatory or release agreements."

The appeal was followed by a complaint before the CSJN once it was rejected by the National Labor Court of Appeals.

In split decision, the majority of the CSJN composed of ministers Elena Highton de Nolasco, Juan Carlos Maqueda and Ricardo Lorenzetti, considered that in the case it was not disputed that the worker and his employer entered into an agreement to terminate the employment relationship before a notary public, under the terms of section 241 of the LCL. And hence the requirement of both administrative and judicial approval, to validate the agreement, does not constitute a reasoned derivation of current law, since that requirement is not contemplated in the referred rule.

Therefore, the CSJN sent the file to the National Labor Court of Appeals for the issuance of a new ruling adjusted to the law.