Argentina Supreme Court Clarifies Boundaries of Director Liability

Member firm, MBB Abogados, shares news regarding the Argentina Supreme Court delivering its much-discussed decision in Oviedo v. Telecom Argentina S.A. and others on July 10, 2025. The case attracted significant attention, not only for its outcome, but for its guidance on the role and limits of company directors’ liability in complex corporate structures.

The Case in Context

Javier Oviedo (“Mr. Oviedo"), a former employee of Telecom Argentina (one of the leading telecommunication companies in Argentina), hereinafter the “Company”, claimed that the Company failed to correctly register his employment since it was incorrectly registered by two smaller companies (Tel 3 S.A. and Cotelar S.R.L.) of the same group in a clear violation to mandatory labor regulations intended to avoid regulations and correct social security withholdings and contributions. The first Instance Court accepted the claim of fraudulent registration and held all three companies jointly liable for employment-related debts.

However, Mr. Oviedo also claimed to extend the liability to three directors of the Company, Telecom Argentina, arguing that they had knowledge of and participated in the fraudulent registration. The Court of Appeals agreed, finding the directors personally jointly responsible with the companies.

This extension of liability became a key issue. It triggered debate, not just about labor noncompliance, but about another matter related to corporate law: where should the line be drawn between corporate liability and director's personal liability?

Corporate vs. Personal Liability

The Supreme Court’s ruling confirmed corporate liability among the three companies, supporting the conclusion that there was fraudulent registration. However, it repealed the decision against the directors, establishing a clear limit between corporate and personal liability.

The Supreme Court decision was based in Section 59 and 274 of Argentina’s Corporate Law No. 19,550. In accordance with both sections, directors may only be held personally liable if there is clear proof that they failed to act as “good businessmen”. It is understood that this regulation requires a duty of loyalty, caution and professionalism, while recognizing that directors are not expected to oversee all operational detail of large corporations.

The Supreme Court stated that directors of these kinds of companies are responsible for setting policies and ensuring proper internal controls. Furthermore, they are not required to control each individual hiring or relationship with each employee, as this threatens the principle of limited liability in corporate law.

The Supreme Court’s Critique of the Court of Appeals

The Supreme Court found the Court of Appeals’ decision arbitrary as it extended liability on directors without a further analysis, leaving aside key issues such as whether the directors had any participation in Mr. Oviedo’s hiring, if internal control mechanisms existed and, if so, whether they were effective, and the time periods during which each director rendered their services, considering that some may not have been in office at that time.

By not considering these issues, the Court of Appeals decision was based on assumptions rather than on evidence. In this sense, the Supreme Court stated that personal liability may not be based on unfounded claims of misconduct – it must be grounded in real proof of negligence.

Liability Requires Proof, Not Assumptions

This case sends a clear message to companies and their boards. Directors of large companies are not automatically liable for fraudulent labor practices. In order to determine their responsibility, a careful study of facts, evidence and an analysis must be carried out on whether directors failed to meet the standard of diligence expected of a “good businessman”.

This does not mean that directors are released from responsibility. In contrast, the decision states that directors remain liable if they fail to apply proper controls or if they deliberately ignore signs of fraud. Therefore, the Supreme Court repealed the idea of director’s personal liability because he/she holds office during a period of time where irregularities occur.

For boards of directors, this ruling evidenced that responsibility requires evidence. Therefore, directors should ensure compliance with local regulations and apply control mechanisms that are properly documented and periodically reviewed.

Litigation Strategies and Corporate Practice

This ruling establishes important issues that could be implemented as litigation strategy. For example, a former employee, through a labor complaint, who tries to extend liability to directors will now face a higher burden of proof. It will no longer be enough to argue knowledge in such fraudulent structure; therefore, hard evidence of directors' participation or negligence will be required.

The decision is also a reminder to register internal processes carefully. Well-structured compliance systems, board meetings and proof that authority for hiring has been granted to other members of the company, may serve as evidence that directors acted reasonably and with good faith.

Finally, this ruling may determine how future Courts approach similar cases. The Supreme Court’s emphasis on further analysis and avoiding assumptions will influence lower Courts, encouraging them to be more careful before grating liability to directors.

Conclusion

The Mr. Oviedo’s case confirms the autonomy of companies while stating the boundaries of directors’ personal liability in Argentina. Also, it keeps a balance between protecting employees from fraudulent practices and directors’ responsibilities.

In this sense, this case is not only about labor and employment regulations but also related to essential aspects of corporate law in Argentina, and a reminder that the line between corporate and personal liability must be drawn carefully.

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This article was produced by MBB Balado Bevilacqua Abogados, a CELIA Alliance member firm.

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