Wednesday, March 27, 2013

Mexico - The recently enacted changes to the Federal Labor Law of Mexico are truly a game changer

By Juan Nájera[1], Najera Danieli & Asocs

They bring more flexibility to the workplace but carry more compliance requirements


Labor matters such as individual employment contracts or collective bargaining, labor outsourcing, termination, salary and benefits, profit sharing, workers compensation, labor unions or strikes, are regulated in Mexico at the federal level by the “Ley Federal del Trabajo” (Federal Labor Law or “LFT”). These changes were enacted and entered into force on December 1st, 2012.

Key labor issues

The LFT is a public interest law very protective of workers or employees, irrespective of their national origin or residency status, and applies even if there are any contradictory provisions in the secondment, relocation or assignment agreement between the Company and the expat employee.

Under the LFT system, a labor contract or employment agreement is deemed to exist whenever a person renders his or her personal services to any other person[2], business or employer (including foreign embassies, consulates or offices of international organizations), even if an intermediary is used under an “independent contractor” or “labor outsourcing” agreement and regardless if the employee goes to work regularly or not.

Absent a written agreement, or if the current written agreement does not include a specific provision required by law, or its provisions are against the law, then the labor relation is governed by the LFT.

Total salary in Mexico must include payments for the following: i) 1 or 2 resting days per week; ii) Christmas bonus of 15 days each year (or fraction thereof); iii) annual vacations + a 25% vacation premium; iv) employee profit sharing.

Employment may be terminated for cause, provided that the employer has sufficient proof to support the cause of termination. Wrongful dismissals can be costly, as the wrongfully dismissed employee may be adjudicated with a mandatory severance payment of 3 months + 20 days of salary per each year of service, plus accrued unpaid salary while the lawsuit proceeds[3], among others.

Labor outsourcing

It is very common that Mexican subsidiaries of international companies use a dual corporate structure involving an operating company and a labor outsourcing company. By using this structure, the outsourcing company acts in fact as the employer of record and is responsible for the payment of salaries, fringe benefits and any other social obligations of all employees of the business in Mexico.

The most important effect of the labor reform on this dual corporate structure is that it now incorporates the concept of “outsourcing”, effectively outlawing it as commonly used in the Mexican structure and thus rendering the outsourcing companies useless for the purpose they were initially devised, since the law now imposes a number of obligations on employers with the purpose of preventing them from resorting to this strategy with the intention of avoiding certain “undesired” labor obligations. Now, if the mandatory requirements are not met, then the party receiving the outsourcing services is deemed to be jointly and severally liable, and it might be even considered as the employer of record, with full liability, since the ultimate beneficiaries of the work are now held liable for all salaries and benefits, including profit sharing, in favor of all employees within a workplace.

Under the new law, outsourcing all work positions to a related or unrelated third party:

          Is not allowed if its purpose is to reduce labor rights (i.e. to lower PTU).

          Must not include all work activities performed in the workplace (total outsourcing outlawed); it must be justified by reason of requiring specialized workers and cannot consist of the same or similar tasks performed by the rest of the workers employed by the company.

          The company must inspect at all times that the contractor permanently complies with applicable safety, health and environment at work laws and regulations, through a verification unit duly accredited and approved.

          Ultimate beneficiaries of the work are now held jointly liable for all salaries and benefits, including PTU, in favor of all employees within a workplace.

Although there is not a set deadline or final date for eliminating total outsourcing schemes, provided that the contracting company is in compliance with these new obligations, we recommend acting immediately on this issue, as any employer found using outsourcing in a “malicious way”, may be fined between USD$1,250.00 and USD$25,000.00 per each occurrence[4].

In any event, make sure that the outsourcing agreements with third party companies immediately incorporate the changes in the law regarding specialization, supervision, limitations of liability, etc. and that your company is prepared to continuously perform compliance supervision that these outsourcing contractors comply with all applicable environmental, health and safety at work laws and regulations or, in the alternative, select and hire a suitable government authorized “verification unit”.

Specific aspects of the Labor Reform

·         Introduces new types of labor agreements:

·         By season. - i.e. Christmas, summer, special campaigns, etc.

·         Per time unit (hours).- Is now allowed, provided that the legal maximum hours are not exceeded, all labor rights are respected and social security is paid.  Total salary, despite the number of hours worked, shall not be less than a day’s salary.

·         Employees sent abroad ('seconded' from Mexico).- Living accommodations must be provided free of charge. The secondment agreement must be approved by the JFCA.

·         Trial period.- Now allowed for a period of 30 days (180 days for employees for management positions, managerial and other persons involved in the management or administration), if the labor contract is for an indefinite period of time or for more than 180 days .

·         Initial training period. - Now allowed for a period of 90 days (180 days for management positions, managerial and other persons exercising management or administrative duties), so that the employee acquires knowledge or skills required for the activity for which employee is to be hired.

·         More data required. - It is now mandatory to include additional employee’s data, such as National Id and Tax Id information on the labor agreements. Employees are allowed to perform work or tasks related or complementary to their main line of duty. All forms of discrimination, including pregnancy are banned. The work done remotely using information technologies and telecommunications is now governed by the LFT.

·         Employee Manuals.- Must be duly recorded for each workplace with the competent local Labor Board, which shall made copies of it available to any interested party.

·         Fonacot. - Obligation to enroll employees in the National Fund for Employees Consumption (“Fonacot") and to enroll the workplace with Fonacot (before December 1st, 2013).

·         Training.- Increased training obligations, e.g. mandatory Joint Commissions, for Training and Productivity when the workplace has more than 50 employees. This implies registration of Commissions and related Plans and Programs.

·         Employees’ profit sharing (PTU). – All people performing work activities within the workplace of a company are now considered to be part of it for purposes of employees’ profit sharing.

·         Mandatory application of regulations (NOMs) on safety, health and environment and for making adjustments for People with Disabilities. - When workplaces have more than 50 employees, it is mandatory to display those NOMs in a visible place.

·         All forms of discrimination outlawed. - It is now expressly prohibited to ask for “certificates of non pregnancy” to all female applicants. If a female employee gets pregnant, or changes her marital status or has minor children, these factors shall not prevent her from being eligible for a promotion and does not give the right to the employer to terminate her employment.

·         Additional grounds for termination for the benefit of Employer. - i) dishonesty or violence against customers or suppliers; ii) harassment or sexual harassment against any person in the workplace, and iii) lack of necessary documents for the service attributable to the employee in accordance with applicable regulations.

·         Additional grounds for termination for the benefit of Employee. - i) when the employer, his family or any of its representatives, within the workplace, engage in harassment and / or sexual harassment against the employee, spouse, parents, children or siblings and ii) when the employer requires the performance of acts, conduct or behavior that undermine or is against the dignity of employees.

·         Payment of salary and benefits by bank transfer now allowed. - At the prior request or consent of the employee, at the full expense of employer.

·         Flexible maternity leave. - Transfer up to 4 of the 6 weeks of the pre-birth maternity leave to the 6 weeks post-birth period. Additional time shall be granted if the newborn has a disability or a serious disease. A 6 weeks post-birth time also applies in case of adoption of a child.

·         Paternity leave.- Must be granted to all male employees for five days with full pay (also applies in case of adoption of a child).

·         It is now mandatory to provide written or electronic notice of accidents occurred.- Within 3 days. In addition to this, it is now mandatory for all authorities exchange Information with the Department of Labor (STPS) and the Social Security Administration (IMSS).

·         Employment of minors (less than 14 yrs. old) prohibited.- And is now punished with jail.

·         POA requirements.- All employer’s representatives must now be licensed lawyers . All POAs shall include the authority to enter into a compromise binding his/her client;

·         E-discovery now allowed.- Photographs, films, fingerprint records, audio and video recordings, or any other information and communication technology, such as computer systems, optical or electronic media, fax, email, digital documents signatures or passwords are now admitted as proofs in trial and are subject to electronic discovery if so requested.

·         Punitive salaries in case of litigation when decided in favor of employee plaintiff now limited.- To no more than 12 months of full wages. If the litigation elapses for more than 12 months, interest accrues at the legal rate.

·         New procedure for "Social Security Individual Conflicts".- A new, separate  procedure to claim social security benefits, including Infonavit and Retirement Funds, as well as those are applicable under collective bargaining agreements.

·         Disciplinary fines for lawyers, litigants or representatives.- Now set from USD$500.00 to USD$5,000.00, for any such person promoting any legal actions, exceptions, incidents, diligences, offer of proof, appeals or any other procedural motion which is deemed frivolous or grossly inappropriate, with the purpose of extending, delaying or impeding the proceedings, adjudication or resolution of a labor dispute.

·         Increased compensation in case of death.- Now set at 5,000 days of minimum salary (equivalent to USD$25,000.00 at the current exchange rate). This will also have a direct and immediate impact on civil liability and the cost of insurance premiums. It is most important to update insurance coverage.

·         Alimony.- The employer must withhold any such payments owed by any employee to his/her beneficiaries and must pay the withheld amounts to them as well as to report termination of an employee paying alimony to all competent authorities and beneficiaries, within five business days.

Key social security issues

Social security -IMSS-, housing -INFONAVIT- and retirement savings -SAR- are all regulated by federal law and enforced by federal authorities. It is important to mention that recently enacted amendments to the Social Security law impose strict reporting requirements (and penalties) upon labor outsourcing companies and their clients, which make it easier for the authorities to monitor compliance by primary and secondary employers.

Affiliation of employers and enrollment of all permanent or temporary employees is not optional. Lack of compliance may carry stiff fines and penalties.

There are useful ways to eliminate or minimize double taxation on Social Security or Pensions by requesting the issuance of coverage or transfer certificates under a current bilateral Social Security or Pension Transfer Treaty. There are also Social Security or Pension Transfer Treaties signed by Mexico with other countries, which are promoted by the International Labor Organization, an agency of the United Nations.

Please keep in mind that Mexican law expressly prohibits the procurement of insurance coverage from foreign insurance companies not licensed in Mexico and punishes this as a federal crime. Life or medical insurance may be procured locally to supplement social security coverage.

Key immigration issues

Visas, resident aliens and immigration matters are regulated at federal level by the brand new Migration Law (Ley de Migración). The competent authorities are the National Migration Institute (Instituto Nacional de Migración or “INM”) and the Mexican Consulates in more than 130 countries.

It is important to mention that it is no longer possible for a foreign person to enter Mexico as a tourist or with a temporary visa and then change it to a work or residency visa. All work or residency visas must now be granted through Mexican consulates outside Mexico, although the employer must process the visa application locally. Foreign persons not properly documented must leave Mexico and may only be readmitted upon obtaining a new visa.

Practical implications

The change with the most important financial effect is the employee’s profit sharing (PTU), which now has to be made among all employees of all of the company’s workplaces. This might turn into an additional cost of up to 10% of the gross taxable income of your business in Mexico, so it is important to consider this issue very carefully to minimize costs while securing full compliance.

These changes also imply that Mexican employers must start working immediately in the review of any and all documents used in labor management, including any other documentation that contains any reference to employer/employee relationships to make sure they are in conformity with the new law and to amend labor agreements to include additional employee’s data, such as National Id and Tax Id information and review the job descriptions to make them more flexible according to the new law.

It is also important to make sure that all Employees’ Manuals, Joint Commissions for Training and Productivity and related Plans and Programs are recorded with the JLCA of each workplace and that the company is enrolled with the National Fund for Employees Consumption (“Fonacot").

Other recommendations

·         Identify any applicable regulations (NOMs) on safety, health and environment and required adjustments for People with Disabilities on all of the company’s workplaces.

·         Properly report, record and document any dishonest act or violence against customers or suppliers; or harassment or sexual harassment against any person in the workplace.

·         Provide written or electronic notice to the Ministry of Work (STPS) of any labor related accidents within 3 business days from their occurrence.

·         Make sure that all employer’s labor representatives are licensed lawyers and that their POAs include the authority to enter into a compromise binding the grantor.

·         Plan for e-discovery and confine or protect sensitive information.

·         Update insurance coverage in case of death to 5,000 days of minimum salary (from 730) for all of the company’s facilities, equipment and vehicles.

·         Give written notice of termination of any employee paying alimony to the competent authorities and to all beneficiaries, within five business days.

·         Review all current outsourcing agreements with third party companies to incorporate the changes in the law regarding specialization, supervision, limitations of liability, etc.

·         Plan for the transition

[1] JD, Universidad Iberoamericana -UIA-, Mexico. LLM UOL. Diploma in International Commercial Arbitration (ICC Mexico-ELD). LLD Universidad Panamericana, Mexico. Doctoral Researcher in Tax Law at the University of Salamanca, Spain. Member of the ICC Committees of Arbitration and International Trade, the Committee of the Diplomat in Foreign Trade of the ICC and the Escuela Libre de Derecho and the Committee for revision of Incoterms 2000-2010. Former teacher of “Labor Relations in Mexico” joint program between UIA and UCSD. Associate member of the ABA. Comments and requests are welcome to:
[2] Domestic personnel is considered to be a worker under the LFT and the Social Security Law.
[3] However, this is not automatic, so be careful yielding to pressure to pay any such amount just by the mere threat of being sued.
[4] Regardless of any other infractions or measures, including the closure of buildings due to lack of compliance with disabled persons’ access and safety regulations, or mandatory distribution of profit sharing.


United Kingdom: Recent Cases on Discrimination in the Workplace

 By Amity Farrar, Farrer & Co LLP

European judgment on right to religious expression at work

In mid-January of this year, the European Court of Human Rights ("ECHR") issued its judgment in
Eweida and others v United Kingdom, four cases from the United Kingdom which deal with employees' rights to manifest their religious beliefs at work.

One of those claims was brought by Ms Eweida, a Christian, who was a member of British Airways' ("BA") check-in staff.She was not permitted by BA to wear a visible cross as this was contrary to its uniform policy. The Airline's policy provided that "no other items are acceptable to be worn with the uniform" and that "any item of jewellery that does not conform to the above regulations" could not be worn.Ms Eweida felt she was discriminated against because male Sikh employees could wear a turban or Sikh bracelet and female Muslim staff were allowed to wear a hijab in BA-approved colours.After a series of negative media reports, BA relaxed its policy but, until it did, Ms Eweida chose to stay at home without pay rather than comply with the uniform policy.BA did not compensate her for loss of earnings for the period she was at home.

Ms Eweida lost her discrimination case in the UK and then brought her case to the ECHR, on the basis that UK law failed to protect her right, under Article 9 of the European Convention on Human Rights ('the Convention'), to manifest her religion or beliefs.

The ECHR found that the Court of Appeal had accorded too much weight to BA's desire to project a particular corporate image, and the fact that BA subsequently changed its uniform policy to allow employees to wear symbolic religious jewellery suggested that the issue of religious jewellery was not ultimately that important to BA.The ECHR concluded, therefore, that Ms Eweida's Convention rights had not been protected sufficiently under UK law.

However, the ECHR rejected the complaints of the other three employees, agreeing with the decisions of the UK courts in relation to their discrimination claims:

The Chaplin v Royal Devon & Exeter NHS Foundation case had some similarities to the BA case. Ms Chaplin, a nurse, had been prevented from wearing a cross on a chain at work due to her hospital employer's health and safety regulations. Like BA, the hospital had a uniform policy.Unlike the BA situation, however, this policy was designed to "minimise the risk of cross infection".To reduce the risk of injury when dealing with patients, necklaces were prohibited.Ms Chaplin refused to comply with the policy and was transferred to a temporary, non-nursing position. Shortly after the transfer, she resigned. 

Ms Chaplin brought discrimination proceedings in the UK but was unsuccessful.The ECHR found that the aim of protecting the health and safety of staff and patients was 'inherently of a greater magnitude' than BA's desire to manage its corporate image, and that managers at the hospital where Ms Chaplin worked were better placed to make decisions about clinical matters than a court.

The other two cases dealt with religious beliefs and same-sex couples.In Ladele v London Borough of Islington and McFarlane v Relate Avon Ltd, the ECHR found that the UK courts were entitled to reject the Claimants' discrimination claims following their dismissals for refusing to perform certain aspects of their jobs on religious grounds.

Ms Ladele refused to officiate at civil partnership ceremonies (which have been legal since the 2004 Civil Partnership Act), and Mr McFarlane refused to counsel homosexual couples.Ms Ladele argued that she felt forced by Islington, which had an equality and diversity policy, to choose between her faith and her job.Islington initially allowed Ms Ladele to switch duties with colleagues on an informal basis so she did not have to conduct civil partnership ceremonies.However, two colleagues raised concerns that her refusal to conduct the ceremonies was discriminatory.

Mr McFarlane, a relationship counsellor, refused to advise gay couples.He said that his Christian faith prohibits him from supporting homosexuality.His employer, however, is a member of the British Association for Sexual and Relationship Therapy and follows an ethics code that provides that therapists "must…avoid discrimination, for example on grounds of…sexual orientation…"He was eventually dismissed for gross misconduct.

In both the Ladele and McFarlane cases, the employer's aim to provide services to the public without discrimination was found by the UK courts to outweigh the employees' rights to manifest their religious beliefs. The ECHR found that these decisions fell within the UK's margin of appreciation in seeking to balance competing Convention rights.According to the judgment, it was "evident that the aim pursued by the local authority was legitimate."

This judgment in relation to these four cases is the latest in a long line of decisions at the ECHR on freedom of religion and discrimination.It serves as a reminder of the UK's obligation to secure Convention rights for individuals, and to strike a fair balance between the competing interests of the individual and the community as a whole. While freedom of religion remains important in Europe, the ECHR has decided that at work there can be restrictions on this freedom, depending on the facts.It is, however, possible that this case could be appealed further; for three months after the judgment, any party may request the referral of the case to the Grand Chamber of the Court.

UK's obligation to give employees greater legal protection against dismissal on grounds of political beliefs

Like under US federal law, under English law, there is no specific protection for employees who are dismissed or subjected to a detriment because of their political beliefs.Employees may bring claims for unfair dismissal if they have sufficient qualifying service (two years for those starting employment on or after 6 April 2012 and one year for those starting before that), and in some circumstances political beliefs may qualify for protection under the religion and belief discrimination legislation.For example, in 2010, a genuine and strongly held belief in climate change was held to qualify for protection.

However, cases where employees have argued that membership in a specific political party is a protected ground have so far failed, leaving employees who have less than either one or two years' service (depending on their joining date) unable effectively to challenge a decision to dismiss them which arises from their membership in a particular political party.
In Redfearn v United Kingdom, the European Court of Human Rights suggested that this violates the European Convention on Human Rights.Mr Redfearn was employed by Serco Ltd as a driver, providing transport services for disabled adults and children.Most of his passengers, like Mr Redfearn's manager, were Asian in origin.In June 2004, Mr Redfearn was elected as a local councillor for the British National Party ('BNP').At that time, the BNP only allowed white people to become members, and was opposed to any form of integration between British and non-European peoples.

On 30 June 2004 Mr Redfearn was summarily dismissed by Serco on the basis that continuing to employ him would present a risk to the health and safety of employees and passengers, cause considerable anxiety to passengers and their caregivers and jeopardise Serco's reputation.Serco was also concerned that Mr Redfearn's political activities could potentially endangering Serco's contract with the Council to provide transport services.

As he had been with Serco for less than a year, Mr Redfearn did not have sufficient length of service to bring a claim for unfair dismissal.Instead he brought a claim for race discrimination.His claim was ultimately rejected by the Court of Appeal, which found that Mr Redfearn was not dismissed 'on racial grounds' but because he was a member of the BNP.

Mr Redfearn argued that discrimination on grounds of membership of a political party contravened various Convention rights, including Article 10 (which protects freedom of expression) and Article 11 (which protects freedom of association).He applied to the ECHR for a declaration that UK law is not compatible with the Convention in this respect.

Late last year, the ECHR found that there had been a violation of Mr Redfearn's rights under Article 11 and that UK law had erred in failing to provide sufficient protection against detriment on grounds of political opinion or affiliation.The Court noted that Article 11 applies to all associations and organisations, even those which are regarded as holding offensive views, and Mr Redfearn should have been given the opportunity to challenge the decision to dismiss him based on his membership of the BNP.

Following this judgment, it is likely that the current law will need to change to allow individuals who are dismissed because of membership of a political party to bring claims for unfair dismissal regardless of their lengths of service (although it is anticipated that such dismissals may still be fair if they can be justified for "some other substantial reason").The government recently has tabled some important amendments to the Enterprise and Regulatory Reform Bill 2012-2013, one of which is an amendment in response to this case.

For now, private sector employers are not affected by the ECHR's decision, but public sector bodies are required to act in a manner which is compatible with the Convention, so public sector employees who are dismissed because of their political affiliations could bring claims under the Human Rights Act 1998 even if they cannot bring claims for unfair dismissal.