Argentina is on the verge of enacting one of the most far-reaching Labor reforms in the past fifty years, already approved by Congress and pending formal enactment.

The so-called “Labor Modernization Act” (Ley de Modernización Laboral) introduces structural changes that substantially alter hiring rules, severance calculations, working time organization, and the role of Labor Unions.

From both a legal and economic standpoint, this reform represents a paradigm shift: the system moves away from a highly employee-protective framework—long perceived as rigid and litigation-prone—toward one focused on contractual flexibility, cost predictability, and the promotion of formal employment.

The present memorandum has been prepared based on the text of the law approved by the National Congress. It may be subject to modifications upon its promulgation by the President of the Nation and its publication in the Official Gazette. Below, I will outline the main aspects of the reform and its expected impact.

1. New Scope of Labor Law Application: End of Automatic Presumption of Employment Relationship

One of the most significant changes is the redefinition of what constitutes an employment relationship.

Historically, Argentine Labor law presumed the existence of an employment relationship whenever personal services were rendered, unless proven otherwise.

The new law introduces a more restrictive standard: the mere provision of services or issuance of invoices will no longer automatically qualify as an employment relationship.

In practical terms, this means:

  • Civil, commercial, and independent professional relationships are expressly recognized as valid.
  • The issuance of invoices will no longer be considered automatic evidence of misclassified employment.
  • The automatic application of the Labor Contract Law (LCL) is limited.

The law explicitly excludes from the LCL’s scope:

  • Independent contractor agreements, service contracts, agency agreements, transportation, and freight agreements governed by the Civil and Commercial Code;
  • Independent workers and their assistants; and
  • Independent service providers operating through digital platforms.

This change is complemented by modifications to joint liability rules. Contracting companies may now avoid joint liability if they demonstrate adequate compliance and oversight of their contractors, significantly strengthening corporate legal certainty.

Expected impact:
This is expected to substantially reduce employment litigation risk arising from worker misclassification—historically one of the most significant legal contingencies in Argentina.

2. Changes to Severance Calculation and Creation of the Labor Assistance Fund (LAF)

The reform redefines the basis for calculating severance compensation in termination without cause cases.

Traditionally, severance calculations included multiple compensation components. The new framework limits the calculation to regular compensation, excluding items such as:

  • Annual bonus (13th salary)
  • Overtime pay
  • Extraordinary bonuses
  • Non-recurring compensation items

This change structurally reduces severance exposure and improves employer cost predictability.

Creation of the Labor Assistance Fund (LAF)

The reform creates a new mechanism known as the Labor Assistance Fund (LAF), an alternative to the traditional severance system.

This fund:

  • Will be financed through periodic employer contributions;
  • Will cover all or part of severance liabilities; and
  • Functions as a pre-funded capitalization system for termination costs.

This structure is comparable to systems in countries such as Austria and Brazil and is intended to reduce financial uncertainty associated with workforce termination.

3. Payment of Labor Judgments in Installments

Another significant change allows companies subject to adverse labor judgments to negotiate payment in installments, with a maximum of twelve (12) monthly payments.

This mechanism has two key effects:

  • Reduces the risk of insolvency resulting from large Labor judgments; and
  • Improves companies’ financial planning capabilities.

This represents a meaningful departure from the prior framework, under which labor judgments were generally payable immediately.

4. Working Time Flexibility and Creation of the “Hours Bank” System

While the reform maintains the 48-hour weekly limit, it introduces flexibility in how those hours may be distributed.

Specifically, it allows:

  • Daily shifts of up to 12 hours; and
  • Flexible time compensation through deferred accounting systems.

The new “Hours Bank” system allows employers to:

  • Accumulate excess hours worked during peak operational periods;
  • Offset those hours later with reduced working time or additional rest periods; and
  • Avoid mandatory overtime payments in cash under certain conditions.

For example:

  • An employee may work 10 hours per day during a busy week;
  • Those additional hours may later be compensated with shorter workdays or paid time off.

This system partially replaces the rigid mandatory overtime payment model and allows companies to better align Labor utilization with operational cycles.

5. New Medical Leave Verification and Digital Certification Requirements

The reform introduces stricter medical leave controls, including:

  • Mandatory digital medical certificates;
  • Electronic verification systems; and
  • Expanded employer medical audit authority.

These measures are intended to reduce abuse and improve oversight and traceability of medical leave.

6. Reduced Union Influence and Strike Limitations

The reform introduces structural changes to Argentina’s union framework, including:

  • Limitations on centralized collective bargaining;
  • Greater priority given to company-level agreements;
  • Expansion of sectors classified as essential services; and
  • Restrictions on strike activity in certain sectors.

This marks a shift toward a more decentralized labor relations model.

7. Elimination of Automatic Extension of Collective Bargaining Agreements

Historically, collective bargaining agreements remained in force indefinitely until replaced by new agreements (the so-called “ultra-activity” principle).

The reform eliminates this principle.

This means:

  • Agreements may expire without automatic extension;
  • Direct negotiation between employers and employees is permitted; and
  • Structural union leverage is reduced.

This change significantly alters Argentina’s Labor negotiation dynamics.

8. Expected Macroeconomic Impact

From a macroeconomic perspective, the reform seeks to correct a structural anomaly in Argentina’s Labor market: informality exceeding 40% of the workforce.

Expected effects include:

8.1. Increased Foreign Direct Investment (FDI)
Labor risk reduction is one of the key variables influencing investment decisions in Argentina.

8.2. Reduced Structural Labor Costs
Greater predictability and flexibility reduce expected hiring costs.

8.3. Growth in Formal Employment
The reform includes tax incentives and payroll tax reductions to encourage formal hiring.

8.4. Development of the Local Capital Market
The Labor Assistance Fund could channel billions of dollars into the financial system.

9. Microeconomic Impact on Companies and Investors

From a business perspective, the reform significantly improves operational predictability.

Key benefits include:

  • Reduced labor litigation exposure;
  • Lower expected termination costs;
  • Greater operational flexibility;
  • Improved alignment between productivity and labor costs; and
  • Enhanced control over absenteeism.

These changes materially improve Argentina’s risk profile from an investor standpoint.

10. Conclusion: A Structural Transformation of Argentina’s Labor System

The Labor reform represents a structural transformation of Argentina’s Labor law framework.

From a comparative perspective, the new system aligns Argentina more closely with Labor regimes in countries such as Chile, Peru, Spain, and several Eastern European economies.

Argentina will now have one of the most flexible Labor systems in its modern history.

For foreign investors, this represents a substantial improvement in legal predictability—historically one of the most critical factors in evaluating investment opportunities in Argentina.

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DISCLAIMER: This memorandum is provided for informational purposes only and does not constitute legal advice. Specific situations should be evaluated with qualified legal counsel. Please feel free to contact us should you require further analysis.

Marcelo Loprete

Buenos Aires, 02 de marzo de 2026