On February 29, the National Supreme Court made an important change regarding the application of interests by modifying the Resolution N° 2764 of the National Appellate Courts, reducing the labor costs considerably.

1. What does Resolution 2764 establish?

In September 2022, the Appellate Courts resolved the introduction of a new calculation method applicable to labor credits, due to the high inflation in Argentina. 

This new calculation method consisted in the application of interests accrued plus an annual capitalization. This capitalization should start from the date when the defendant is served notice of the claim and would continue to be applicable successively until the day of the final payment. This new calculation was applicable to all ongoing labor lawsuits where the final judgment was pending as to the date the Resolution entered into force (September 2022).

The application of this new calculation method led to very negative results derived from this successive capitalization, resulting in exorbitant increases of the labor debts which are usually subject to lengthy court proceedings.

These negative impacts led some corporate associations as well as the Bar Association of the City of Buenos Aires to submit formal requests to both the Appellate Courts and the Supreme Court with the clear intention to revoke the terms of this Resolution in the aim of avoiding unpredictable and unfair economic results that may even lead to the closure of businesses and sources of employment.

These entities based their arguments on reports from the University of Buenos Aires (UBA) and the Argentine Industrial Union (UIA), which were checked by a reputed accounting firm. These reports pointed out inconsistencies derived from this calculation method.

2. What did the Supreme Court decide?

The Supreme Court, in re “Oliva, Fabio Omar vs COMA S.A.” concluded that calculation method decided by the Labor Appellate Courts is not supported by the Civil and Commercial Code provisions, since the general rule clearly states that "interest is not owed on interest". Although this rule has a few exceptions, the Civil and Commercial Code refers to one single capitalization but not to successive capitalization. Therefore, the method of calculation used by the Labor Appellate Courts contradicts the general principle established by the Civil and Commercial Code, thus creating an exception that lacks legal grounds.

The Supreme Court found that the periodic and successive capitalization of interests, as ordered by the lower courts, led to an unjustified economic outcome with no legal justification.

In this particular case, the initial capital awarded to the plaintiff amounted to ARS 2,107,531.75. After applying the annual and progressive interest capitalization method this amount increased dramatically to ARS 165,342,185.66, representing an exorbitant increase completely out of proportion (7745.30%).

While this court decision has no “erga omnes” (it is only binding for the parties involved in the case), it is undoubtfully an important precedent that would likely be followed by lower courts, giving certain predictability for companies from a labor litigation cost perspective.