Labor Modernization Law (No. 27,802): Analysis of the Reform to Argentina's Employment Contract Regime, Severance, Working Hours and Labor Registration

Labor Modernization Law (No. 27,802): Analysis of the Reform to Argentina's Employment Contract Regime, Severance, Working Hours and Labor Registration

Enacted today through Decree 137/2026, the law introduces structural changes to the Employment Contract Law (LCT), creates the Labor Assistance Fund, redefines the scope of labor law and establishes incentive regimes for employment formalization and investment.

Argentina's Official Gazette published Decree 137/2026 early this morning, through which President Javier Milei enacted Law No. 27,802, known as the Labor Modernization Law. The legislation had been passed by Congress on February 27, 2026, at the close of the extraordinary sessions, with 42 affirmative votes, 28 negative and 2 abstentions in the Senate. The final text incorporated the amendments introduced by the Chamber of Deputies, which had eliminated article 44 of the original bill concerning medical leave. The decree bears the signatures of the President, Chief of Staff Manuel Adorni and Minister of Human Capital Sandra Pettovello.

This is a sweeping reform. The text comprises 218 articles organized in 26 titles and amends the Employment Contract Law No. 20,744 (LCT) across multiple areas: scope of application, labor registration, working hours, severance, union and employer contributions, platform work, collective bargaining rights and labor judicial procedure, among others. Most provisions take effect upon publication, with specific timelines for certain instruments: the Labor Assistance Fund (FAL) will begin operating on June 1, 2026, while certain changes related to employer contributions for health insurance funds will take effect on January 1, 2028.

The following is an analysis of the main pillars of the reform and their practical implications for employers, workers and legal practitioners.

Scope of Application of the LCT: New Exclusions

Law 27,802 amends Article 2 of the LCT to expand the list of relationships excluded from its scope. In addition to the traditional exclusions (public administration employees, domestic workers under a separate regime, agricultural workers), the reform explicitly incorporates independent workers and their collaborators as defined in Article 97 of the Bases Law No. 27,742, independent service providers on technology platforms pursuant to their specific regulation, crew members under Navigation Law No. 20,094, and incarcerated persons.

The exclusion of digital platform workers is one of the reform's most politically charged provisions. The law creates a specific title (Title XII) regulating independent workers providing mobility and delivery services through technology platforms, classifying them as independent workers rather than employees in a dependent relationship. The text grants them freedom regarding schedules, connection and order rejection. The provision aims to resolve the legal uncertainty surrounding a sector that had generated increasing litigation, though critics argue it entrenches a structural lack of protection.

Another significant change affects the presumption of employment under Article 23 of the LCT. The reform provides that the presumption shall not apply where service or work contracts are supported by invoicing or bank payments, a criterion that will also have implications for social security purposes. This effectively redraws the boundary between dependent employment and independent contracting.

Simplified Labor Registration

The law establishes that registration of the employment relationship with the Tax and Customs Collection Agency (ARCA) shall be sufficient to evidence the employment relationship for all legal purposes. No other agency may require additional registrations. Digitization of employment records becomes mandatory, with full legal validity and a ten-year retention obligation. Employment certificates (Article 80 of the LCT) may be delivered in physical or digital format, provided receipt is duly documented. If the information is fully available on the social security agency's website, the obligation shall be deemed fulfilled.

The reform also eliminates the fines under Law 24,013 (Employment Law) for unregistered or deficiently registered employment. In their place, incentive mechanisms for regularization are created: the Registered Employment Promotion Program, which allows forgiveness of up to 70% of contribution debts and penalties for those who regularize their situation, and the Labor Formalization Incentive Regime (RIFL), which reduces employer contributions to 8% annually and provides additional benefits for hiring previously unregistered workers, former simplified-regime taxpayers or former public sector employees.

Working Hours and Hour Bank

Law 27,802 introduces flexibility mechanisms in the organization of working time. The daily workday may be extended up to 12 hours, provided there is a written agreement between employer and worker and a minimum rest period of 12 hours between shifts is observed. The hour bank system is created, allowing overtime to be compensated with equivalent rest periods at another time. Collective bargaining agreements may also establish average-based workday calculation systems, adapting hour distribution to the productive needs of each activity.

This schedule flexibility regime was present in embryonic form in Chapter IV of Title V of the Bases Law No. 27,742 (Articles 86 to 97). Law 27,802 deepens and integrates it directly into the LCT, making it part of the general regime.

Severance Regime

New Calculation Basis

The reform amends Article 245 of the LCT (severance for dismissal without cause). The calculation basis becomes exclusively the normal, regular and habitual monthly remuneration. "Habitual" is defined as those items received in at least 6 of the last 12 months; for variable compensation, the more favorable average between the last six months or the last year shall be used. The Annual Supplementary Salary (aguinaldo), vacation pay and non-monthly bonuses are excluded from the calculation. The severance cap remains at three times the average salary under the applicable collective bargaining agreement, but a minimum floor equivalent to 67% of the calculated remuneration is introduced, to prevent excessive reductions from the application of the cap.

The law provides that severance shall constitute the sole remedy for dismissal. This is a clear signal against the accumulation of fines and aggravated severance that had characterized labor litigation in recent years.

Adjustment of Labor Claims

A new adjustment mechanism is established: labor claims shall be adjusted by the Consumer Price Index (CPI) plus an additional 3% per year. This system replaces the judicial discretion that existed in this area and seeks to provide employers with predictability regarding the potential cost of litigation. In case of rehiring by the same employer, prior severance payments shall be deducted as adjusted by CPI.

Labor Assistance Fund (FAL)

The reform creates the FAL, a fund designed to cover the costs of employment terminations. It will be financed through monthly employer contributions: 1% of remuneration for large companies and 2.5% for micro, small and medium enterprises. The Executive Branch may increase these percentages to 1.5% and 3%, respectively, subject to approval by the Bicameral Commission. Each employer will maintain an individual account as separate, specifically designated, independent, non-transferable and non-attachable assets, managed by entities authorized by the National Securities Commission. The FAL will begin operating on June 1, 2026, and will only provide coverage for registered workers with seniority of no less than twelve months.

The law also provides that collective bargaining agreements may create labor termination funds with individual capitalization systems, a model already used in the construction sector (Law 22,250). The possibility of partially replacing traditional severance with a capitalization system is one of the most debated aspects of the reform.

Vacation Leave

The summer leave period remains between October 1 and April 30, but the law allows the parties to agree on leave outside that period. Workers shall be entitled to enjoy their vacation during the summer season at least once every three years. The most operationally significant change is the possibility of splitting vacation into periods of no fewer than seven consecutive days, introducing flexibility to a regime that previously required leave to be taken in full.

Employer and Union Contributions

The reform introduces changes to the contribution structure that will directly impact labor costs. Employer contributions to business chambers or associations may not exceed 0.5% of remuneration and will become voluntary as of January 2028. Union dues for workers (both members and non-members) will be capped at 2% of remuneration. The mandatory 6% contribution for health insurance funds is maintained. The law eliminates the ability of employers to act as withholding agents for union dues without the express consent of the worker; in other words, union due withholding now requires individual authorization.

In parallel, the Modernization and Investment Incentive Regime (RIMI) is created, aimed at promoting technology adoption and business expansion, complementary to the reduction of social charges.

Wages

The reform confirms that salary payments may only be made through banks or official savings institutions, excluding the use of digital wallets. This provision runs counter to the payment digitization trend that the government itself promotes in other segments and has drawn criticism from the fintech sector. The concept of "dynamic salary" is introduced, a modality that may be agreed upon in collective bargaining agreements and ties a portion of compensation to the individual worker's performance or merit.

Right to Strike and Essential Services

The law regulates the exercise of the right to strike in essential services. In activities such as healthcare, drinking water distribution, telecommunications, commercial aviation and port control, a minimum of 75% of the workforce must remain active during industrial action. For services classified as of "transcendental importance" (passenger and freight transport, media, steel, chemical, cement, food, construction, airport and mining industries, among others), the minimum operating floor is 50%. These restrictions formalize a trend that already existed in the Ministry of Labor's conciliation practice, but until now lacked an explicit legal basis of this scope.

Labor Judicial Procedure

The reform introduces new rules for the payment of labor court judgments. Large companies may pay final judgments in up to six consecutive monthly installments. For MSMEs and individual employers, the term extends to twelve installments. This substantially modifies the existing regime, which required immediate full payment of judgments, and seeks to reduce the financial impact that a labor court judgment can have on smaller enterprises.

Digital Mobility and Delivery Platforms

Title XII creates a specific regime for independent providers of private mobility and delivery services using technology platforms. The law defines them as independent workers and grants them autonomy in choosing schedules, platform connection and acceptance or rejection of orders. This regime seeks to provide legal certainty for delivery and mobility platforms operating in Argentina, closing the debate over the nature of the relationship that had been resolved on a case-by-case basis in labor courts. However, platform worker organizations have already announced challenges, arguing that the regime violates the constitutional protection of labor.

Summary and Takeaways for Businesses

Law 27,802 is the most comprehensive labor reform Argentina has seen in recent decades. Its central pillars aim to reduce the cost of formal employment (elimination of fines, registration incentives, contribution reductions), introduce flexibility in the organization of working time (hour bank, workdays of up to 12 hours, vacation splitting), redefine the boundaries between dependent employment and autonomous modalities (digital platforms, exclusion of the Article 23 presumption where invoicing exists), and provide predictability on termination costs (severance cap and floor, FAL, installment payment of judgments).

For employers, the reform requires a comprehensive review of hiring, registration and payroll practices. The implementation of the FAL beginning June 2026 will require opening individual accounts with administrators authorized by the CNV, involving new administrative and financial management. Legal and human resources departments will need to update contract templates, internal regulations and compensation policies. The 2% cap on union dues and the express consent requirement for withholding will change the dynamics of the relationship with unions.

For companies operating platform-based models or engaging independent service providers, the exclusion of the employment presumption where regular invoicing exists and the creation of the specific digital platform regime reduce the risk of judicial reclassification, but do not eliminate it. Contractual documentation and payment flows will need to be carefully aligned with the new legal criteria.

At JFC, we will closely monitor the regulatory implementation of each title of the law and the judicial rulings that will inevitably test its limits. For companies with operations in Argentina, adaptation to this new framework is not optional: most provisions are already in effect.

This note is for informational purposes only and does not constitute legal advice. For a specific analysis, contact our team at contact@jfcattorneys.com.