OUTSOURCING THROUGH TEMPORARY PERSONNEL AGENCIES
Given that our employment law specifically allows for the outsourcing of personnel, it is common practice for companies in Argentina. However, certain legal requirements should be met and certain risks must be assumed as some situations may generate risks.
There are different options to outsource personnel: (i) company service providers (“Contractors”) which outsource services such as payroll, logistics, client services, etc and; (ii) temporary employees’ agencies which provide personnel for specific temporary situations.
The purpose of this publication is to analyze the pros and cons when hiring employees through temporary personnel agencies. This analysis could be used as a basic guide to the Argentine labor law issues that companies may face on temporary employments contracts and hiring temporary personnel agencies.
2. Description of the temporary employment contract
Temporary work is that which is, in principle, non-permanent and caused by an extraordinary job, inherent or not to the company’s ordinary course of business, and that is finalized with the performance of such work, the carrying out of the relevant act or the provision of the service for which the worker was hired. Due to its extraordinary nature, the temporary employment contract is not foreseen to continue in time.
Although both the fixed term employment contract and the temporary employment contract, are within the determined-term employment type of contracts –as opposed to the undetermined term employment contract– because they are not expected to continue in force for an indefinite period of time, the term of the fixed term employment contract is certain, whereas that of the temporary employment contract is uncertain.
Law No. 24,013 limits in time the hiring of temporary employees aimed at covering extraordinary market demands. According to such law, the cause that generates the use of these contracts may not exceed six months per year up to a maximum of one year in a three-year term.
Law No. 24,013 mentioned above has established certain regulations for these contracts, as follows:
(i) If the temporary employment contract was executed to temporarily replace permanent workers who were under legal or collective bargaining agreement leaves of absence, or who were entitled to have their work positions kept for an uncertain period, the contract must expressly mention the name of the replaced worker.
(ii) If, upon return of the replaced worker, the worker hired under this modality continued rendering services, the contract shall be converted into one for an undetermined period of time. A similar consequence would exist if the rendering of services continued once the term for the leave of absence or keeping of work position of the replaced worker (section 69 of Law No. 24,013) ended and services continued rendered thereafter.
(iii) It is forbidden to hire workers under this modality to substitute workers who do not render services as a consequence of legitimate measures taken by a trade union (section 70 of Law No. 24,013).
(iv) Companies that have produced suspensions or dismissals of workers due to lack or reduction of work during the 6 (six) previous months, may not use this modality to replace personnel affected by these measures (Section 71 of Law No. 24,013).
It is important to note that the employer is not obliged to provide prior notice of termination of the contract (Section 73 of Law No. 24,013) and that no severance shall be owed when the labor relationship is terminated as a consequence of the end of the work or job assigned, or of the termination of the cause that gave rise to the temporary hiring. Otherwise, the provisions of the LCL shall be applicable (Section 74 of Law No. 24,013).
3. Temporary employees’ agencies (TEAs)
With similar requirements in terms of justification and duration, temporary employees may be hired through TEAs.
Law No. 24,013 and Decree No. 1694/2006 contemplate certain requirements for a company to be entitled to use the services of a TEA.
Pursuant to such regulation, a TEA shall be understood as an agency the exclusive purpose of which is to offer personnel (industrial, technicians, commercial or professional) to third parties in order to carry out temporary tasks, previously determined extraordinary services or extraordinary and temporary demands of the user company.
From the internal perspective of each TEA, the main issues are the following:
The labor relationship between the TEA and its employees hired to cover the user companies’ needs are subject to the following terms and conditions:
The period of suspension of services between one appointment and the following may not exceed 45 consecutive days or 90 days, in an anniversary year.
If the employee does not receive a notification of a new appointment in the above-mentioned term, the employee will have the right to consider him/herself dismissed and will be entitled to receive severance under the termination of the labor contract without just cause and without prior notice.
Temporary employees may only be appointed to a user company when there is an actual cause for the need of temporary employees, as follows:
To cover the absence of a permanent worker, although only for as long that absence remains.
To cover a leave of absence regulated under the law or any collective bargaining agreements leaves of absence or suspensions, although only for as long as such absence remains, except in the case of strikes, force majeure and lack of or lessening off of work.
To cover an increase in the activity of the client company that occasionally and extraordinarily requires a greater number of workers.
To cover the user company’s involvement in organization of congresses, conferences, fairs, exhibitions.
To perform a work that cannot be postponed (accident prevention, safety measures, or repairs), provided that work cannot be completed with the assistance of regular personnel of the company.
In general, when –taking into account extraordinary or temporary needs– the user company needs to perform certain duties that are beyond its ordinary course of business.
The provision of temporary employees shall be done in a reasonable and justified proportion of temporary employees vis-à-vis permanent employees of the client company, as well as a reasonable relationship between the duration of the assignment of a temporary employee and the duration of the service for which he/she was provided. The above mentioned limitations (i.e., reasonability in terms of number of employees and duration) will be determined by means of collective bargaining agreements.
For purposes of hiring temporary employees through a TEA, any of the situations described above must be present, as otherwise the user company would violate the legal provisions and, thus, would be subject to the consequences described in Section 3.4.
3. 1. Burden of proof
As regards the burden of the proof in relation to which party must prove the nature as temporary of the hiring, case law has said as follows:
a) “The beneficiary of the services must prove that the worker was hired to render temporary services through a temporary services company” (National Labor Court of Appeals, Room VI, September 30-986- Perrolla, Gladys N. C. Gastón Empresaria S.R.L.), DT, 986-B, 1672.
b) “The proof of the extraordinary services, or of the extraordinary and temporary demands of the user company, must be produced by the temporary services company and by the user, which must prove the existence of some of the cases contemplated in section 3 of Decree No. 1455/85, because the demonstration of the temporary nature, as an exception to the joint and several liability contemplated in the first paragraphs of Section 29 of the labor contract law, must be made by the employer”. (National Labor Court of Appeals, Room I, October 21 – 988 – Alí, Marcela A. c. Index S.R.L. and other), DT, 1989-B, 1332.
c) “The user company must prove the temporary and transitory nature of the services” (National Labor Contract Law, Room I, April 30-992 – Quintana, Miguel c. Propuesta Laboral S.A. and other), DT, 1992-B, 2055.
In light of the above, it could be concluded that both the user company and the TEA must prove the temporary nature of the relationship. Thus, in the event of a claim initiated by a worker arguing a permanent labor relationship, the user company and the TEA should prove the temporary nature of the relationship.
3. 2. Duty to withhold by the user company
Section 29 bis of the Labor Contract Law establishes that: “The employer that employs workers through temporary service company authorized by the competent authority shall be joint and severally liable with the latter for all labor obligations, and shall withhold from the payments to be made to the temporary service company the social security payments and make such payments in due time. The worker hired through a temporary service company shall be governed by the collective bargaining agreement, represented by the Trade Union and benefited by the health care organization of the activity or category in which he/she actually renders services in the user company”.
Such section and court precedents contemplate the joint and several liability between the user company and the TEA for all labor obligations related to the hired employees; the user company being in charge of withholding from the payments made to the TEA, the pertinent social security amounts payable to the Social Security System.
The user company must deposit such amounts within the legally established period.
As observed, from the payments made to the temporary services companies, the user company must withhold the social security payments payable to the Social Security System in relation to the temporary employees and deposit them in due time. In that sense, Section 12 of Decree No. 1694/2006 sets forth that: “Those employers who hire workers through temporary services companies authorized by the competent authority must act as withholding agents”.
Likewise, section 2 of General Resolution No. 3983/95 of the Tax Authority (AFIP), provides that: “The companies that hire workers through temporary service companies must act as withholding agents and request their inclusion in this system of withholding and the sole tax identification code (CUIT), in the event they do not have one already, in the form established by General Resolution 3692 and its amendments, indicating in the affidavit form 560: ‘General Resolution 3983’”.
When the withholding is not made, the user company shall be directly liable for the social security payments not withheld, interest and other related payments. Criminal and administrative contingencies exist as well, as provided for under applicable law.
3. 3. Formal requirements
The user companies and temporary service companies must have a special section in the Salaries and Wages Book Regulated by Section 52 of the Labor Contract Law. Such special section must contain:
a) name of each worker rendering services through a temporary service company;
b) professional category and duties to be performed;
c) entry and termination date;
d) remuneration informed by the temporary service company or aggregate amount invoiced;
e) name, denomination or corporate name and domicile of the temporary service company through which the employee was hired.
The user company must register in such Book all the information mentioned in relation to all employees hired under the temporary employment contract modality.
3. 4. Description of contingencies
From the user company’s point of view, it is important to outline certain contingencies in case the extraordinary situation required for the use of temporary employment contracts does not exist:
Section 29 bis of the Labor Contract Law regulates the joint and several liability between the user company and the TEA for all labor obligations created in the period during which the temporary employee rendered services;
If the temporary worker renders services for overtime work for a consecutive period in excess of 6 months, that situation could be interpreted, in case of a court claim, as the existence, of an undetermined term labor relationship;
The worker could argue having a direct labor relationship with the user company and, consequently, claim the existence of an incorrectly registered undetermined term labor relationship (see Section 3.5 regarding “Direct Liability”);
If the temporary employee was hired directly by the user company after rendering services through the TEA, in the event of a hypothetical future dismissal, the employee could claim a higher severance payment as a consequence of the time of services rendered in favor of the user company through the TEA;
In this case, a risk would also exist that the employee could claim fines created for unregistered or incorrectly registered employees under Law No. 24,013, alleging the existence of a hypothetical incorrect registration of the labor relationship, if the user company did not include the time of service since the original entry through the temporary service company; Such penalties would be similar to those discussed in Section 3.5 regarding “Direct Liability”);
Even if the user company had made all social security payments due to its withholding agent obligation, a debt could be assessed by the Tax Authority (AFIP) on grounds of a hypothetically owed amount in such respect, although as direct employees of the user company, if they were considered as such;
The user company could be subject to inspections by the labor administrative authority, which could determine the existence of a breach to labor laws in relation to hiring modalities and impose fines.
3. 5. Direct liability
3.5.1. Existence of a labor relationship
Under certain situations, a labor judge may interpret that the services are provided under a non-registered employment relationship with the user company.
According to Section 21 of the Argentine Labor Contract Law No. 20,744 (the “LCL”), the principle to be taken into account is the “principle of reality”, whereby, an employment contract shall exists if it arises from the factual circumstances surrounding the services rendered to a company, regardless of the legal nature allocated to the contract by the parties.
In such regard, it is important to note that any mention in the agreements executed with the TEA, as to their nature as independent parties would not be binding in the event that the actual circumstances of the contractual relationships between them demonstrated that TEA´s employees are, in fact, employees of the user Company.
In addition, Section 23 of the LCL establishes that the mere rendering of services causes the presumption of the existence of an employment contract, unless otherwise proved by the parties.
3.5.2. Typical features of a labor relationship
If the typical features of a labor relationship were proved to exist, the acknowledgement of an unregistered labor relationship could be claimed by the TEA´s employees, the Tax Authority (AFIP) and/or the labor administrative authority.
In relation thereto, courts, legal authors and administrative authorities have taken into account the following elements to determine the existence of the typical features of a labor relationship:
(i) Principle of reality
In light of this principle, when the existence of a labor relationship is doubtful, the reality of facts shall prevail, regardless of the denomination or legal form that the parties may have agreed on (corporate agreement, concession agreement, contract for services, independent contractors, consultants, etc.).
In relation to the execution of contracts in breach of the labor public order, Section 14 of the LCL establishes that “It shall be null any contract by means of which the parties may have incurred in simulation or fraud to the labor law, either by means of executing alleged non-labor figures, including third parties concealing the real employer or otherwise. In such cases, the relationship between the parties shall be governed by this law”.
(ii) Legal, technical and financial subordination
In cases of doubtful labor relationships, not only legal authors but also court precedents have considered the existence of legal, technical and financial subordination to determine the existence of a labor relationship.
The technical subordination exists when the activity of the worker must be subject to a certain methodology and production system established by the user company.
The financial subordination exists when the compensation in money is of an alimentary nature and constitutes the main income source for the worker. It is closely related to the continuity and stability guarantees established by labor law.
The legal subordination is evidenced in the power of the employer to give orders and instructions, which must be obeyed and complied with by the worker. Such faculty is known as the direction, control and disciplinary powers of the employer.
3.5.3. Description of the main contingencies
In light of the elements described above, depending on an analysis that should be performed on a case-by-case basis, if the typical features of a labor relationship, such as, but not limited to, the technical, financial and legal subordination, existed, the TEA´s employees could claim to have such labor relationship acknowledged and duly recorded, and, in default of such acknowledgment and recording, claim certain severance and fines.
In that scenario, the TEA´s employees could file claims of a labor nature. Moreover, as a result of inspections conducted by the Tax Authority (AFIP) and/or the labor administrative authority, the existence of non-registered employment relationships could be determined.
Below are the main labor and social security contingencies:
If the typical features of a labor relationship existed, while the relationship with the user company is in effect or even after it has been terminated, the TEA´s employees could consider that they hold or held an employer-employee relationship with the user company and, thus, they could claim statutory labor payments and severance payments, as well as special fines in the event that the existence of unregistered labor relationships was proved to exist.
Social Security contingency
In the case event that the TEA’s employees were considered employees under an unregistered employment and no taxes or social security were paid or withheld by the TEA, the social security contingency would consist in of the non-payment of social security contributions plus monthly interest of two (2) % and up to four (4) %, from the commencement of the relationship with the user company and the relevant penalties, which could amount to up to 200% of the debt to be determined, depending on the position adopted by the Company vis-à-vis the Tax Authority (AFIP).
It should be noted that a potential assessment of the debt by the Tax Authority (AFIP) could be generated in a routine inspection, in a full inspection arising from a labor claim filed or as a consequence of a labor court judgment against the organization which determining the existence of a veiled employer-employee relationship.
The statute of limitations for actions seeking collection of amounts on account of social security contributions is of ten (10) years as from the date when the debt became due and payable.
Liability of Members, Directors, Administrators and Managers
In case the event of a potential claim in court it could be claimed that a lack of registration of one or more employment relationships implies a labor and social security fraud and thus attempt to enforce Sections 54, 59 and 274 of Law No. 19,550, considering that the organization has used such device to violate the law, the labor public order (contemplated in Sections 7, 12, 13 and 14 of the LCL), the good faith standard (Section 63 of the LCL) and frustrate third parties’ rights.
If that was the case, in the event of a judgment adverse to the user company, labor courts could attach the organization actions directly upon its members, directors, administrators and managers that made it possible, who could be held jointly and severally liable for the contingencies described above.
Labor administrative authority
The Labor Ministry, in its capacity as labor administrative authority, may make an inspection and, should it were be of the opinion that an unregistered labor relationship existed, imposed a fine ranging between AR$ 1,000 and AR$ 5,000 per for each unregistered employee.
3. 5. Indemnity clause
In order to cover the adverse effects that could result from the contingencies described, it is common practice to obtain an indemnity clause from the TEA, by means of which such company undertakes to indemnify and hold the user company harmless from any claim, loss, dispute or otherwise, made by temporary employees supplied or by any third party in relation to the services provided by such temporary employees.
In this regard, it is always convenient, whenever possible, to retain the services of well-known and solvent temporary services companies.
4. Outsourcing activities through company service providers
As an additional comment, it is important to bear in mind that in case a company outsource its activities through a company services provider, notwithstanding the prospective joint and several liability (Section 30 of LCL which is not subject of this analysis), under Section 29 of the LCL the user company might hypothetically also be considered a direct employer of the Contractors’ employees who had been hired for the exclusive or almost exclusive purposes of rendering services to the contracting company.
Under this scenario, reasonably no claim from a social security point of view should exist because the Contractor should have paid all its employees’ social security obligations and withheld required amounts. However, in the event that the Contractor was an insolvent company, no taxes or social security were paid or withheld, as applicable, and it was considered that the contracting company directly or indirectly helped the Contractor to complete its evasion, criminal actions could may not be disregarded.
On the other hand, solvent Contractors could still expose the contracting company to direct labor liability and social security payments, but would reduce risk of criminal actions.