Cause is not required for termination of employment; however, it is required to avoid payment of statutory severance. There is no exhaustive and/or exemplary list of behaviors that constitute cause for dismissal; therefore, whether a dismissal is with or without cause will depend on judicial judgment on a case by case basis.
Who is subject to termination laws?
Prohibited or restricted terminations
Public employees and union delegates cannot be dismissed without cause and without complying with the statutory procedure for these terminations. All other employees can be dismissed with payment of statutory severance, which will differ based on the case (maternity, illness, etc.)
Pregnant employees are protected from dismissal. If a pregnant employee is dismissed within the period of 7-1/2 months before or after the date of childbirth, the pregnancy will be considered to be the cause of the dismissal, entitling the employee compensation for the discrimination equivalent to their annual salary, in addition to the applicable severance payment.
Further, if a dismissal occurs 3 months before the marriage of an employee, or 6 months after it, the dismissed employee will be entitled to a special compensation.
In order to dismiss employees on sick leave, employers must pay a special severance (full severance payment applicable for dismissal without cause, plus the salary which would be payable for the entire period the illness would be expected to last, according to medical opinion).
Third-party approval for termination/termination documents
Under Decree No. 1043/18 (effective as of November 14, 2018), employers wishing to dismiss indefinite term employees without cause must notify the Ministry of Production and Labor at least 10 business days before the decision goes into effect. This Decree is effective through March 31, 2019.
As this decree was issued recently, there is no administrative or judicial case law interpreting the Decree.
Mass layoff rules
Prior to a mass dismissal, an employer must provide notice to the respective trade union that regulates the employer's industry. Collective consultation may be required depending on employee headcount.
Prior to executing or communicating dismissals or suspensions due to force majeure, economic or technological causes that affects more than:
- 15% of the employees where total headcount is less than 400
- 10% of the employees where total headcount is between 400 and 1,000 and
- 5% of the employees where total headcount is greater than 1,000
Employers must comply with the Preventive Procedure of Companies Crisis (PPC) before the Ministry of Production and Labor. During this procedure, the company will engage in negotiation with the respective union acting on behalf of their members. The aim of this procedure is to avoid business shutdowns or bankruptcy. After the company files the request at the Ministry of Production and Labor, the Ministry will forward the claim within 2 business days of the filing to the other party for its response. After a response is made, a settlement hearing will be scheduled within the next 5 business days. If a settlement is not reached, the Ministry will open a "negotiating period" that must not extend beyond 10 business days. If the parties still do not reach to an agreement within that period, the PPC process will conclude. Notwithstanding this, in practice, this procedure normally takes longer than the law sets out.
In order to proceed with termination, employers must give notice to employees before the dismissal.
The term of this notice will depend on the seniority of employees:
- During their probationary period, notice must be given to employees 15 days before termination
- In order to dismiss employees who have completed the probationary period but who have less than 5 years of seniority, notice must be given 1 month prior to the dismissal and
- Employees with more than 5 years' seniority must receive 2 months' notice before their dismissal
Statutory right to pay in lieu of notice or garden leave
Employers are permitted to pay in lieu of notice. Current legislation does not regulate nor prohibit garden leave.
An employee who is dismissed without reasonable cause is entitled to statutory severance of 1 month's salary for each year of service, or period longer than 3 months. This amount is calculated using the employee's highest monthly, regular compensation received in the last 12 months of work. This baseline cannot be more than 3 times the "monthly payment," which is the average of all compensation set out in the applicable CBA at the time of the dismissal (this average is periodically published). The Ministry of Production and Labor governs the updating of this average for every authorized trade union.
If the employee is not subject to a CBA (typically, senior employees), the limits applicable to the activity in which he/she performs duties will apply. In no case will the amount of the compensation payable be less than 1 month of real salary.
Currently, in the Vizotti case, the Supreme Court of Justice has raised the basis for calculating compensation subject to a limit, establishing that it will be 67% of the employee's monthly and usual compensation, the amount to be multiplied by the years of service of the employee, based on constitutional reasons and in cases where the application of the legal limit imposes a reduction to the severance payment of more than 33%.
This severance payment may be reduced or increased in other types of termination (eg, force majeure and lack or reduction of work; death of the employee; employer's bankruptcy; employee's retirement; employee's illness; employee's pregnancy; etc.)