Mexico - Reform to Mexican Labor Law; A First Step

By Ernesto Velarde Danache, Ernesto Velarde Danache, Inc.

In November 2012, the Mexican Federal Congress approved a bill submitted by President Calderon which contains a reform to the Mexican Federal Labor Law. This reform will be enacted within the next few weeks once it is promulgated by the President and published in the Federal Official Gazette.

It is important to mention that the still existing Law was enacted in 1970 and, other than minor, cosmetic, insignificant procedural modifications in the 1980’s it had not undergone any substantial modifications ever since.

Employee and employer groups, unions and politicians from a variety of backgrounds and political beliefs still consider that the reform did not address the most needed changes or additions in order to update the Law and have Mexico compete in a globalized economy, or provide additional protection or better rights and more benefits to employees, or the required certainty, ability to plan and manage controls for the benefit of employers.

The reform is, however, a first step that, despite allegations by many of the parties involved in the process, does represent a substantial modification to existing rules that will necessarily better position the country in this very competitive era.

Herein below I am going to present, and analyze, the highlights of the new legislation.

The concept of “outsourcing” is now being introduced in the Mexican labor system. Indeed, many companies, particularly those in the manufacturing sector with seasonal needs, were using outsourcing companies to provide them, at least partially, with the required labor force. By following this strategy, the outsourcing company remained the employer of record and was responsible for the payment of salaries, fringe benefits and any other social obligations. The reform now imposes a number of obligations on employers with the intention of prohibiting employers from resorting to this strategy in order to avoid compliance with labor rules. If the mandatory requirements on the party contracting the outsourcing services are not met, then that party is to be construed the employer of record with all inherent obligations.

Mexican employers are now going to be able to execute labor agreements for seasonal workers (not permanent employees), for initial training or for trial periods. As to training agreements, the duration may be for up to 90 days for regular employees and up to 180 days for higher management, administrative positions. Trial periods can be used with a duration of up to 30 days  or up to 180 days, the latter for employees in management, administrative, professional or technical positions. The reform goes on to allow for termination without liability on the employer if the employee’s performance is not satisfactory. It is important to mention that training or trial agreements cannot be renewed or extended.

On the other hand, there are a number of new rules, requirements and obligations imposed on employers who are transferring Mexican employees to operations abroad.

New language is incorporated to Article 47 of the Law which establishes the causes of termination of employees, with cause and without liability to the employer. As a result, any actions, violence or ill treatment by employees against clients or suppliers of the employer will result in termination with cause. For the first time, the concept of sexual harassment in the work place is introduced and is now a cause of termination.

It is very important to bear in mind that for a termination to be justified it will have to meet all necessary requirements AND be notified directly to the employee or through the labor board.

Labor litigation in Mexico often takes several months or years to conclude. Most labor cases involve allegations of wrongful termination where dismissed employees seek severance compensation which in Mexico tends to be higher than in other jurisdictions. As per the terms of the Law now being modified, an employer losing a labor action for wrongful termination is liable for the payment not only of severance but also back salaries computed from the day of termination and until the final judgment is issued. The reform now sets a limit of a maximum of one year of back salaries and the payment of interest if the dispute remains unresolved after this term.

Attorneys and labor department officials using dilatory tactics or just willingly delaying the labor process are now going to be penalized.  If articles addressing these issues are actually enforced, that by itself will represent substantial savings for the parties in conflict as well as to states and federal governments when litigating labor matters before them since a lot of lawyers, with the tacit complacence of labor authorities, do abuse the many loopholes of the system and the Law, prolonging trials with the sole purpose of forcing the counterparty to settle out of frustration and desperation or just to delay an unavoidable defeat and related expense.

New concepts as to what constitutes discrimination are now incorporated; same rights for women and no discrimination based on ethnicity, health, opinions, sexual preferences, pregnancy.

It is not uncommon in Mexico that when an employer directs, particularly a unionized employee, to perform tasks that do not directly correspond to the ones contained in his/her job description the respective employee will refuse to obey alleging that he or she was not hired to perform those tasks. The new Law states that employees in Mexico will have to perform tasks which are complementary to the ones in their job description.

As per the terms of Article 83 of the new labor law, employers will now be able to hire employees by the hour as opposed to by the day as is the case under the 1970 Labor Law. As a result, employers will now have discretion as to the amount of hours an employee is needed to work. This is going to be beneficial for both sides since currently employers are prevented or reluctant to hire people who only wish to work reduced shifts.

There are many articles in the still existing Law that were long overdue for change. But there is one in particular that illustrates how outdated the 1970 Law is. This Law mandates that the payment of salaries to Mexican workers needed to be made during the shift and in cash. Needless to say, this latter obligation causes considerable concerns to Mexican employers, particularly those with large number of employees that needed to have that cash available on pay day with the related risk associated with having large amounts of cash, especially at a time when violence and criminal activity in Mexico are at a very high level. The new Law now allows for payment to be made through a deposit into an employee’s bank account, debit cards, wire transfers or any other electronic means.

Another novelty implemented by the reform is that male employees will now enjoy five fully paid days off in case of birth or adoption of a child.

As of the time of enforcement of the approved reform, Mexican employers will not have the right to ask female employees for certificates of non-pregnancy. Additionally, the fact that a female employee is pregnant, or changes her marital status or has minor children will not prevent her from being eligible for a promotion and does not give the right to an employer to terminate her.

Employees will no longer have the right to use tools and other equipment provided by the employer for personal or third party use, they will not be allowed to do or perform any type of propaganda in the work place (especially political) and most importantly they are now prohibited from engaging in sexual harassment practices against fellow employees.

As part of the new rights being granted to working mothers, if a physician so supports, they will have the right to transfer and add 4 of the 6 weeks of the maternity leave to the 6 weeks post-delivery leave. Additional time off will be granted if the baby is born with disabilities or a disease.

Employers should review and revise any existing documents they use in their day to day operations such as collective or  individual labor agreements, shop rules, termination letters, administrative reports, full and final releases and in general any other documentation that contain any reference to employer/employee relationships to make sure that when they are to be used after the new law goes into effect, they do not violate any of its terms.