Country Focus

Be Prepared: Mexico Making Big Labor Law Changes

Stephenie Overman


Japanese businesses doing business in Mexico need to brace for regulatory changes in worker benefits, outsourcing and more as the country’s labor landscape undergoes upheaval.

Mexico is in the process of significantly reforming its labor laws, making it critical that HR executives for Japanese companies doing business there stay up to date on the changes.

New legislative efforts “require Mexico to develop a new judicial system, reengineer the collective negotiations with unions, and refocus state policy regarding use of outsourcing,” according to Monica Schiaffino, a Mexico City-based shareholder at Littler – an employment and labor law practice representing management – and Rogelio Alanis Robles, an associate in Littler’s Monterrey office.

In an e-interview, Schiaffino and Robles laid out the particularities of the Mexican Federal Labor Law (FLL). The effects continue to be seen, they say, with the reforms expected to be implemented by May 2023.

Mexico’s “job-stability” principle governs the employment relationship, the two note. This means that employment may only be terminated “for cause (as specifically outlined within the FLL) or by mutual agreement, making personnel management more rigid. Any termination without cause triggers the employee’s entitlement to a formula-driven severance pay.”

“Unions and collective bargaining are virtually unavoidable – for the time being,” they say. Until the Federal Center for Conciliation and Labor Registry initiates operations (expected within the next two years), any union may call to strike any company that does not have a collective bargaining agreement in place at the time.

Enforcement of company policies is also challenging, according to Schiaffino and Robles. Having an internal policy may not be enough if the employer cannot prove it was made known to the employees and included in the Internal Labor Regulations. Internal Labor Regulations is a document “that employers should draft and file with the Labor Board in order for it to be effective and for the employer to be able to discipline employees who fail to observe any policy.”

Added to that, Mexico is still basically paper-based. “Although electronic documents are not illegal, the same have almost no evidentiary support. Employers are required to keep on file all the documents related to the employment relationship, making the administration of personnel files a burdensome, sometimes less-efficient task than if administration were paperless.”

Japanese HR professionals doing business in Mexico also should be careful when dealing with outsourced employees or workers from contractors. “Sometimes it is easy to treat them the same as direct employees. However, a clear line must be drawn in order to avoid the appearance that those non-employees could be considered company employees for all legal purposes and entitlements,” they say.

Other HR concerns that Schiaffino and Robles highlight are:

  • Profit-sharing. Employers must distribute 10% of their pre-tax annual income among their employees on a pro-rata basis.
  • Overtime. Everyone is legally entitled to overtime. There are no “employee categories” such as exempt and non-exempt employees.
  • Paid leaves of absence. Maternity (12 weeks) and paternity (5 days) are paid leaves of absence. While maternity leave is paid by the Social Security Institute (provided the mother meets eligibility criteria), paternity leave is paid by the employers.
  • Social Security. This insurance is paid by employer, state and employee contributions. It covers medical attention for job-related risks (accidents and illnesses) and general accidents/illnesses, and pays employees’ salaries during their disability periods (when applicable). Employees may not opt out of this insurance, and employers cannot offer other types of insurance in lieu of social security. Social security can, however, be complemented with private insurance policies.

Because employment relationships in Mexico are governed by the job-stability principle, termination may only occur by: Mutual consent; employee’s death; termination of the agreed term or project; employee’s physical or mental disability that makes performance of employment impossible; and termination with cause (without liability for the employer or the employee, as applicable).

Termination with cause requires special consideration. “To avoid paying severance, the employer may only terminate with cause under any of the few causes as established by the FLL. Not only must the employee’s conduct fall into one of these causes, but the employer must also follow a formal process and prepare a detailed termination notice including specifics (such as date and time, place and manner of the events) to provide the employee.”

Often that process results in litigation, they say, “whereby the employer must produce evidence supporting employer’s action to terminate. In practice, it is a somewhat complex process that should be tailored for each case.”

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Stephenie Overman is a contributing editor to The HR Agenda. She is based in the Washington, D.C. area and is author of “Next-Generation Wellness at Work.”


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