On November 29, 2012, departing Mexican President Felipe de
Jesús Calderón signed a comprehensive reform of
México's Federal Labor Law (FLL), instituting more than
300 changes, effective December 1, 2012. Many of the more
significant amendments favor employers and, as a result, could
potentially lead to future economic growth in México. These
changes have implications for current and future United States
employers with operations in México. This Client Alert
provides a summary of the foundation of Mexican labor law and
notable FLL amendments that are relevant to employers with
operations in México.
Background
The Mexican Constitution is the basis for Mexican labor law: it
guarantees workers a set of minimum rights and grants the federal
government exclusive power to enact labor laws to carry out and
expand upon those rights. México's government passed its
first labor law in 1931; the law has been amended several times -
most significantly in 1970 and, now, in 2012. Additionally,
México enacted the federal Social Security and Housing laws
(these laws are not covered in this summary). Several government
agencies and tripartite commissions implement, oversee and enforce
Mexican labor laws. Generally, the constitutional, statutory and
regulatory labor laws apply to all workers in the country,
including those workers employed in México by United States
employers. Failure to comply with Mexican labor laws can result in
significant penalties and financial liability for employers.
Major Amendments to the FLL
Wage Payments
The Mexican minimum wage is expressed in pesos per day. The amended
FLL formalizes the system for paying employees an hourly rate,
directing that employees may not receive less than the equivalent
of the daily minimum wage. Employers, therefore, must calculate an
employee's hourly rate accordingly. In addition, the amended
FLL formally permits employers to issue wage payments by check,
direct deposit, transfers or electronic means, with the
employee's consent.
Employment Contracts and Temporary Employment
The amended FLL now permits employers to enter into limited
duration contracts with employees for seasonal work and for initial
training agreements. Initial training agreements must provide a
minimum term of three months for general employees and six months
for executive employees.
The amended provision is significant because every employee must
enter into a written employment agreement with his/her employer
setting out the terms and conditions of employment and the duration
of employment is presumed indefinite. Prior to the amendment,
contracts for a limited duration were only permitted in the
following situations: work on a vessel, work on a limited and
defined project, or to hire artists and athletes, medical students
and substitute workers.
Discrimination
The amended FLL outlaws discrimination based on ethnicity, national
origin, age, disability, socioeconomic status, health, religion,
immigration status, political opinion, sexual orientation, or
marital status.
Outsourcing
As amended, the FLL seeks to regulate the outsourcing of jobs.
Previously, employers would outsource employment to avoid paying
worker benefits. Now, among other requirements, employers may only
hire temporary workers or independent contractors if those
individuals will not be performing work similar to the work already
performed by other employees of the company. In other words, the
outsourced employees must perform work of a specialized
character.
Employers may not outsource jobs to subcontractors to avoid labor
law obligations. All outsourcing contracts must be in writing, and
the employer has an affirmative duty to ensure that the contractor
complies with Mexican labor laws. If the employer violates these
new requirements, the outsourced workers will be considered
employees of the employer, subject to the protections and benefits
of full-time employees, such as notice requirements, severance
payments, profit-sharing and social security.
Termination and Back Wages
The amended FLL permits employers to terminate employment at any
time for "just cause." Under the statute, just cause for
termination includes, among other situations, falsifying employment
application materials, immoral conduct on the job, insubordination,
using drugs or alcohol while at work, or refusing to comply with
safety requirements. The FLL amendments add bullying and sexual
harassment to this list. Note, however, that an employer must
terminate the employee within 30 days of the event justifying the
termination.
The amended FLL also requires employers to obtain an advisory
opinion from the Joint Commission for Productivity and Training
before terminating initial training or probationary
employees.
Keep in mind that employers must still provide written notice of
termination to each employee prior to termination. If an employee
refuses to accept the notice, the employer must provide the written
notice to the Conciliation and Arbitration Board. The notice must
include the grounds for termination to establish that the employer
had just cause for the termination. Regardless of the grounds for
termination, certain workers are entitled to severance and bonus
payments based on their years of service.
Employees have two months from the date of discharge to challenge
their termination. Employees may challenge their termination as a
wrongful or constructive discharge. A successful employee may seek
reinstatement with back wages or, alternatively, indemnification
equal to three months' salary, back wages and any accrued
salary and bonuses. The amended FLL limits back wages to one year
(plus interest after fifteen months), significantly reducing an
employer's liability for a wrongful termination.
Productivity and Training
The FLL amendments created a National Productivity Committee to
oversee other agencies and to establish state-based committees.
Employers must undergo training and provide training for workers to
increase and optimize productivity. The amendments require
stakeholders (employers, unions, employees, academia and
government) to reach agreements to measure and increase
productivity. Finally, the amendments regulate the promotion
process and eligibility, giving a worker's skills and
productivity greater weight than seniority.
Union Elections and Transparency
The initial proposal to amend the FLL included vast reforms to
union democracy and transparency. Mexican unions are powerful
entities that have long influenced policy and legislation.
Consequently, there is very little union transparency.
Due in part to the unions' political prowess, most of the union
reform proposals did not survive the legislative process. For
example, President Calderón attempted to pass a measure to
permit employees to vote on their own contracts, but the Mexican
Congress removed this provision from the bill.
Nonetheless, three notable reforms were passed. First, unions are
now required to have labor leader elections by free and secret
ballot. Second, unions must provide an accounting of all union
finances to the government every six months, and employees may
pursue a cause of action against the union if the union fails to
provide the employee an accounting of union finances. Finally, the
amended FLL repeals the "closed shop" laws, which
required membership in the union.
Conclusion
Keeping in mind the fact that employees may not waive their
constitutional labor and employment rights, the FLL amendments have
broad implications for employers with operations in México
and for employers seeking to establish operations in México.
Because the potential financial penalties and liability for
non-compliance can be significant, and because this summary is not
exhaustive, companies with operations in México should
consult with Godfrey & Kahn, S.C.'s Labor, Employment and
Immigration Practice Group regarding their obligations under
Mexican labor laws.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.