THE MAJOR PRINCIPLES OF MEXICAN LABOR LAW
By:
Edgar H. Garza-Morales
New York
Mexico's first comprehensive labor law was promulgated in 1931. The Federal Labor Act of 1970 (as amended) authorizes the government to regulate all labor contracts and work conditions. Mexican labor laws grant workers (i.e., any person who renders personal services to another in exchange for the payment of a wage) inalienable rights to payment, fringe benefits, vacations, mandatory paid holidays, collective bargaining and strikes, occupational hazards, and profit sharing. Such rights may not be waived or altered by agreement. Investors interested in the Mexican market should keep in mind that even though Mexico has liberalized most of its trade and investment laws, its labor laws remain quite complex and generally protective of labor. Summarized below are some of the main provisions of Mexican labor laws. Furthermore, foreign investors should understand that these provisions apply to expatriates working in Mexico for Mexican subsidiaries or branches of foreign companies.
Individual employees generally are subject to lifetime job security. An employment agreement is deemed to be executed for an indefinite term unless: (i) the particular type of service to be performed requires an employment agreement for a specific job or term; or (ii) the worker is hired to temporarily substitute for another worker.
Unlike the United States where employment-at-will is the general rule, an employer in Mexico may dismiss an employee without liability only if there is cause for dismissal. The following types of conduct are cause for dismissal: (i) use of false documentation to secure employment; (ii) dishonest or violent behavior on the job; (iii) disruption of work discipline; (iv) intentional damage to employer's property; (v) immoral behavior in the workplace; (vi) disclosure of trade secrets or confidential information; (vii) more than three unjustified absences in a 30-day period; or (viii) reporting to work under the influence of alcohol or nonprescription drugs. A discharged employee has the right to appeal a discharge before a governmental agency called the Conciliation and Arbitration Board. In any hearing before the Conciliation and Arbitration Board, the employer would carry the burden of proving that the dismissal was for cause. If the employer fails to satisfy this burden, the worker may request either (i) reinstatement to his previous job or (ii) an indemnification equivalent to three months' full salary (which includes premiums, bonuses, com-missions and any other fringe benefits) plus 20 days' salary for each year of seniority. In addition, the worker would be entitled to receive back pay with no offset for interim earnings. The employer would not be obligated to reinstate the employee in cases where: (i) the employee worked for the employer for less than a year; (ii) the employee would work in direct and constant contact with a manager (such as a personal secretary); or (iii) the employee rendered domestic services or worked on a temporary basis.
In cases where the employer dismisses a worker without cause, as well as in those cases where an employee resigns having fifteen or more years of seniority, the employee is also entitled to a severance premium equivalent to 12 days' salary for each year of service rendered; however, the severance may not exceed twice the minimum annual salary in effect in the economic zone where the employer is located. This is in addition to the severance indemnification discussed above.
Additional benefits to which all workers are entitled are as follows: (i) a Christmas bonus equivalent to at least 15 days' wages; (ii) a yearly vacation period the length of which depends on the worker's seniority; (iii) a vacation premium equivalent to 25% of salary paid to the employee during vacation; and (iv) mandatory paid holidays.
All workers, other than the chief executive officer (personal de confianza), are entitled to profit-sharing, consisting, currently, of 10% of the employer's taxable income (except in the case of professional associations and corporations, real estate administrators and independent professionals, in which case profit-sharing equals one month's salary). Employers have no profit-sharing obligation in the following cases: (i) companies in their first year of operation; (ii) new companies engaged in manufacturing a new product during their first two years of operation; (iii) newly incorporated companies in the extractive industry during the exploration period; (iv) non-profit private charitable institutions; (v) public agencies engaged in cultural, charitable or welfare activities; and (vi) undercapitalized companies, as determined by the authorities. In order to protect workers' seniority rights, Mexican labor law provides that, when a company's shares or essential assets to carry on a business are transferred, the new employer is subject to the prior employer's obligations respecting seniority.
