Labour reform in Argentina and its impact on M&A transactions

April 2026 | SPOTLIGHT | MERGERS & ACQUISTIONS

Financier Worldwide Magazine

April 2026 Issue

Argentina is currently debating what may become the most consequential labour reform in more than five decades. The country’s core employment statute – the Labour Contract Law (Law No. 20,744) – was enacted in 1976 and has shaped the legal framework governing employer–employee relationships ever since. Although amended on multiple occasions, its foundational structure has remained largely intact.

The proposed Labour Modernization Bill, approved by the Senate in February 2026 and now under review by the lower chamber of Congress, introduces structural adjustments not only to individual employment relationships but also to collective labour law and procedural rules.

For international investors, private equity sponsors and strategic acquirers, the relevance of this reform extends well beyond technical legal refinement. Labour exposure has historically been one of the most sensitive variables in Argentine transactions, frequently influencing valuation, indemnity frameworks and post-closing integration strategies. The reform signals an attempt to recalibrate that risk landscape.

Subcontracting and independent contractors

Independent contractor structures and outsourced personnel have long been central points of scrutiny in Argentine due diligence exercises. In sectors such as technology, logistics, energy and manufacturing, service-based models are common. However, expansive judicial interpretations of joint liability have often resulted in significant reclassification exposure.

The ‘Ley Bases’ (Law No. 27,742), enacted in 2024, already introduced material clarifications. It removed contracts for works and services from the scope of the Labour Contract Law, reinforced the requirement of legal subordination for an employment relationship to be presumed and strengthened the evidentiary value of invoicing in independent contractor arrangements.

It also limited the joint liability of user companies and recognised their right of recourse against the formally registered employer. In addition, trade union protection rules were restricted in their application to temporary workers operating within user companies.

The new reform advances this direction. Joint liability in subcontracting arrangements would be limited to activities carried out within the contracting company’s premises, expressly excluding ancillary or complementary services.

Moreover, a principal company that complies with defined documentary control obligations – including verification of labour registration, salary payments and social security contributions – would be exempt from liability.

For transactional stakeholders, this shift is significant. Historically, Argentine courts have extended liability based on economic benefit or operational linkage alone. The proposed framework instead anchors exposure to demonstrable non-compliance or deficient oversight. In practice, this may allow acquirers to focus due diligence more sharply on compliance verification rather than assuming structural liability across service chains.

Corporate group liability

The reform also addresses section 31 of the Labour Contract Law, which regulates joint liability within corporate groups. Under the proposed text, solidarity among entities belonging to the same economic group would apply only in cases involving fraudulent conduct.

This clarification carries weight in multinational corporate structures operating through multiple local subsidiaries. Past case law has occasionally extended liability based on economic interdependence, generating uncertainty for holding structures and cross-entity operational models.

By conditioning liability on fraud rather than affiliation, the reform seeks to align exposure with abuse of corporate form rather than mere economic coordination. For cross-border investors evaluating Argentine targets within broader regional platforms, this development could materially affect risk modelling and internal structuring decisions.

Litigation predictability and interest rates

Argentina has historically exhibited high employment litigation levels. Beyond volume, a major source of uncertainty has been the lack of uniformity in interest rates applied to labour claims. Different courts and jurisdictions have adopted varying update mechanisms, often producing significantly divergent financial outcomes.

The reform introduces a unified nationwide interest rate calculated as the consumer price index (CPI) plus 3 percent annually. While several courts had already adopted similar standards, statutory consolidation provides consistency and enhances predictability.

From a financial perspective, this is more than a procedural adjustment. When potential exposure varies depending on jurisdictional criteria, provisioning and valuation become speculative exercises. A standardised update formula reduces volatility in contingent liability assessments and supports more reliable financial forecasting in transaction contexts.

The bill further allows final labour judgments to be paid in instalments – up to six instalments for large companies and up to 12 for micro, small and medium-sized enterprises (MSMEs) – subject to the same CPI plus 3 percent formula.

Although the nominal liability remains unchanged, this measure may meaningfully affect liquidity management and restructuring strategies in distressed acquisitions or turnaround scenarios.

Administrative simplification

Administrative complexity has traditionally added friction to Argentina’s labour environment. The reform promotes a unified employment registration system before the national tax authority, the Agencia de Recaudación y Control Aduanero. Compliance with this single registry would be deemed sufficient to satisfy labour and social security registration obligations.

For multinational groups consolidating local operations, streamlined reporting reduces formal compliance risk and administrative inefficiencies. While operational implementation will determine its practical impact, the reform reflects an intent to simplify day to day employment management in an historically bureaucratic environment.

Labour cost structure and seniority

The bill introduces an important clarification regarding seniority recognition. If more than two years elapse between termination and subsequent rehire by the same employer, the prior period of service would not be counted for seniority-related benefits.

These benefits include statutory severance calculations, paid leave accrual and salary coverage during non-work-related illness. In the context of workforce reorganisations, carve outs or asset transfers where rehiring may occur, this rule may significantly influence long-term cost modelling and post-transaction integration strategies.

This clarification introduces a clearer temporal boundary to legacy obligations and reduces ambiguity in recurring employment scenarios.

Termination flexibility

Termination mechanisms also undergo targeted modernisation. During the first six months of employment – corresponding to the probationary period – employers would no longer be required to provide advance notice prior to termination. This enhances flexibility in early-stage employment evaluation.

Resignation procedures are modernised through digital validation mechanisms, replacing in-person formalities. The reform further introduces a presumption of mutual termination where two months elapsed without either party expressing an intention to continue the employment relationship, addressing prolonged inactivity scenarios.

In cases of dismissal without cause, the bill codifies jurisprudential criteria regarding the salary base used for severance calculations under section 245 of the Labour Contract Law.

Non-monthly items such as annual bonuses, vacation payments and extraordinary incentives are expressly excluded from the indemnity base. Although this approach was already reflected in prevailing case law, statutory clarity reduces interpretative disputes.

The reform also allows employers to establish a dedicated termination fund or system to finance severance obligations or negotiated exit packages, introducing greater optionality in cost management.

The Labour Assistance Fund

Perhaps the most structurally innovative element of the proposal is the creation of a Labour Assistance Fund. The system establishes individual employer accounts administered by entities authorised by the National Securities Commission. Employers would make monthly contributions calculated as a percentage of payroll used for social security contributions.

For large companies, the contribution would be approximately 1 percent, with the possibility of increasing to 1.5 percent. For MSMEs, the rate would range between 2.5 percent and 3 percent. Accumulated funds could be used to cover statutory severance or agreed termination amounts.

While the mechanism introduces an additional recurring payroll cost, it also promotes advance funding and reduces the financial impact of sudden termination events. From a capital allocation standpoint, it resembles pre-funded severance systems observed in other jurisdictions and may gradually reshape how labour contingencies are reflected in financial statements.

Conclusion

The Labour Modernization Bill does not dismantle Argentina’s historically protective employment regime. Rather, it recalibrates areas that have long generated uncertainty in transactional and investment contexts.

For M&A practitioners, the implications are concrete. Subcontracting exposure may become more manageable through structured compliance controls. Corporate group liability may be more clearly delimited. Litigation provisioning may benefit from uniform interest standards. Termination mechanisms may gain operational flexibility, and advance funding tools may alter cost planning frameworks.

Ultimately, the reform’s impact will depend on its final legislative form and subsequent judicial interpretation. Argentine labour law has historically evolved through case law as much as statute. Nevertheless, from a market perspective, the proposal signals a policy orientation toward predictability, clearer risk allocation and improved transactional transparency.

In a jurisdiction where labour exposure has frequently shaped deal viability alongside macroeconomic variables, enhanced legal certainty may represent a meaningful step toward strengthening investor confidence.

Enrique M. Stile is a partner and Rodrigo Mora Pereira is an associate at Marval, O’Farrell & Mairal. Mr Stiel can be contacted on +54 (11) 4310 0134 or by email: ems@marval.com. Mr Pereira can be contacted on +54 (28) 8429 2227 or by email: rmora@marval.com.

Enrique M. Stile and Rodrigo Mora Pereira

Marval, O’Farrell & Mairal