Impact of COVID-19 on labour and employment

February 2021 | EXPERT BRIEFING | LABOUR AND EMPLOYMENT

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As in most countries, the coronavirus (COVID-19) pandemic has had a great impact on the Argentine labour market and company production. The mandatory isolation decreed by the Argentine government on 20 March 2020 drastically immobilised everyone from non-essential activities and came with a series of emergency measures to control the health crisis, mitigate its impact on the economy and protect jobs. In practice, these measures implied a series of restrictions for the economy as a whole.

As a result, companies had to adapt, in the most Darwinian sense possible, to these new legal regulations. They faced difficulties restructuring their organisations and had to be creative in order to survive during the crisis, while remaining competitive.

In the long term, most of the adopted changes will remain, deepening trends within the labour market that were already present in the context of an economy led by globalisation.

Analysing the Argentine case will contribute to a better understanding of how the pandemic has affected labour and employment, how the governments of countries in crisis have responded to it, and what the impact will be in the medium and long term around the world, if any.

The Argentine response to the COVID-19 crisis

In March 2020, the Argentine government decreed mandatory isolation and issued resolutions through the labour administrative authority that expressly forced non-essential companies to work remotely. In addition, it provided exemption from attending workplaces with suspected COVID-19 cases, close contacts and confirmed cases, pregnant women, employees returning from abroad and employees within groups at risk. It also set the ‘justified absence from workplace’ for those who needed to take care of their children by virtue of the suspension of school classes throughout the national territory.

Congress even passed a law to regulate remote working once mandatory isolation is over. Among the central aspects of this law are the equalisation of remote employees with those in the workplace, the requirement to formalise the modality in writing, the right of reversibility and digital disconnection, the possibility to adjust working schedules so that they are compatible with childcare, and the obligation of employers to provide equipment and working tools and to compensate for the costs of electricity consumption, connectivity and other services.

However, the measure that had the most impact for companies was the prohibition of dismissals and suspensions without just cause, issued by a presidential decree in March 2020. This prohibition added to a restriction that the government had already decreed in December 2019, which doubled indemnifications in cases of dismissal without cause.

In order to try to mitigate the impact on companies, the government also implemented economic support measures for micro, small and medium-sized enterprises, such as preferential rate loans, working capital loans and, perhaps most relevant, the Emergency Assistance Program for Work and Production. The latter included reductions in employers’ contributions and subsidies for employees’ salaries in private companies affected by the pandemic.

How were these regulations handled?

The COVID-19 pandemic and resultant restrictions have had a major impact on businesses in Argentina. Indeed, the latest survey conducted in November 2020 by the Argentine Chamber of Commerce and Services estimated that 53.6 percent of companies are operating normally, while 39.2 percent do so partially, and the remaining 7.2 percent still cannot operate. Regarding the current state of sales, compared to pre-pandemic, 67 percent suffered setbacks, while 26.8 percent registered more sales than before March 2020. Only 6.2 percent did not see the result of their work affected by the pandemic and the associated restrictions.

Faced with this situation, companies resorted to legal instruments that allowed (not without risks) the reduction of personnel without executing dismissals without cause. Many companies implemented voluntary retirement plans to massively reduce personnel – the most paradigmatic case being the voluntary retirement plan implemented by Yacimientos Petrolíferos Fiscales (YPF), the largest company with majority state participation in the oil & gas market. In individual terms, the mechanism of mutual agreement for employment termination was used pursuant to Section 241 of the Labour Contract Law, in exchange for an extraordinary payment.

However, not all companies had enough economic capacity to make payments equivalent to statutory severance for cases of dismissal without cause, which includes double indemnification. This situation may hold for the future. Companies that participated in the survey stated that, over the next three months, 42.3 percent plan to reduce their personnel, 6.2 percent expect to hire more employees, and 51.5 percent do not expect changes.

To carry out suspensions, companies used Section 223 bis of the Labour Contract Law (excluded from the prohibition) which allows individual or collective agreements for suspensions that must be approved by the Labour Ministry, in exchange for non-remunerative payments. Even the most far-reaching union in Argentina, the General Labour Confederation, signed a nationwide agreement with the Argentine Industrial Union, approved by the Labour Ministry, allowing smaller unions and companies to carry out suspensions in exchange for a non-remunerative payment.

Companies also had difficulties retaining high-profile personnel in this adverse economic context. According to the National Institute of Statistics and Census (INDEC) of Argentina, economic activity fell by 25 percent in April and 20 percent in May (compared to the same months in 2019), and inter-annual inflation was 37.2 percent in October 2020. This meant that many executives of multinational companies were discouraged from operating in the country. Companies have also sought to retain talent or managerial positions through different measures, such as dollarising salaries to guarantee purchasing power in the face of high inflation, and even opting to pay salaries abroad to avoid foreign exchange restrictions.

Though mandatory isolation is not currently in force, at least in the metropolitan area of Buenos Aires, economic and production activity continue to struggle, and the government has maintained (with extensions expected) prohibitions and limitations on terminations. After more than 200 days, companies no longer seem so willing to comply with emergency regulations to the letter.

The long-term impact on the labour market

The COVID-19 pandemic and the emergency measures set in response to it will inevitably leave their mark on the labour market in Argentina.

Digitalisation, hand in hand with the possibility of working remotely, is encouraged by opportunities to improve productivity and reduce fixed costs. According to a survey carried out by Willis Towers Watson, only 3 percent of companies stated that they will not apply remote work in the ‘new normal’. The vast majority (82 percent) will alternate between two and three days of home office with face-to-face work, 9 percent plan to implement it only once a week, and another 9 percent will do so four days per week.

Another trend has been the substitution of certain jobs. Businesses across industries, public institutions, including the judicial branch of Argentina, among others, are providing almost 100 percent digital services. Certain activities are expanding, such as online commerce, food delivery, and online entertainment and learning.

Further changes that the pandemic will bring are still uncertain, but it would seem that changes anticipated by globalisation and the development of new technologies are deepening.

Final comments

Companies in Argentina have had to adapt to an adverse health context which is constantly changing the rules of the game. Thus, they have been forced to adjust their way of operating within the context of necessary social distancing.

This adaptation by the labour force, together with long term legislative measures, is likely to have a permanent impact on the labour market in Argentina. There are many uncertainties in the global context, but perhaps one certainty can be highlighted: employment will never be the same again.

Enrique M. Stile is a partner and Javiera Martínez Correa is an associate at Marval, O’Farrell & Mairal. Mr Stile can be contacted on +54 (11) 4877 2307 or by email: ems@marval.com. Ms Correa can be contacted on +54 (1) 4310 1620 or by email: jamc@marval.com.

Enrique M. Stile and Javiera Martínez Correa

Marval, O’Farrell & Mairal