An Overview of the Labor Law System in Mexico
The Mexican legal system was influenced by the four great European systems of common, codified and customary law, and the principles contained in the Códigos Napoleónicos and Germanic Codification. Currently, the Mexican legal system is governed by the 1917 Constitution, which has fully integrated into the social rights and the regulations of working conditions for social development and stability.
Labor law in Mexico regulates the interactions and relations between workers and employers. There are ten important sources of employment laws in Mexico such as: a) Treaties b) Constitutional Articles c) Federal Labor Law d) International Labour Standards e) Company Collective Agreements f) Directives issued by the Ministry of Labour and Social Security ("STPS") g) Opinions and Resolutions of the Supreme Court h) General rules and agreements of the Local Conciliation and Arbitration Tribunals i) Standard Contract Templates j) Case Law
The Federal Labor Law (Ley Federal del Trabajo) ("LLTT" or the "Labor Code") is the main source of Mexican labor law. The Federal Labor Law is a federal bill regulating labor relations and applicable to all employers, workers, and entities of the public and private sectors, with national jurisdiction. The Labor Code aims to ensure the protection of workers in the labor force and their rights; concedes more privileges to workers for collective bargaining and strikes; and adds the rights of unionized workers to establish court assistance in order to enforce their acquired rights. The LLTT establishes which provisions can not, in any case, be subject to individual or collective organ representation. It also notes employers have an obligation to provide work to the employees and to keep them employed. Labor contracts, written or verbal, require a worker’s expertise and a specific task from the employer. The contracting process in Mexico, although not regulated in the Labor Code, is exclusive to the employer (employer choice), unlike other countries , as the parties have relative freedom to choose the conditions of the contract. Neither the employer nor the employee can support an unequal or burdensome agreement. The Labor Code allows an employer to fire an employee for lack of efficiency (ineptitude) at work. The factors determining this type of dismissal are: i) Industry nature ii) Work tasks ii) Worker’s age iv) Health of the worker v) Habitual working performance vi) Training received vi) Inducement factor viii) Worker’s education ix) Nature and impact of the contracts obligations x) Longevity of the worker xi) Allowances, salaries, bonuses and social benefits received by the employee An employer can dismiss a worker, according to the Labor Code, only for one of the causes, in a serious manner, following: i) Lack of honesty ii) Lack of good faith iii) Missing to observe orders from a superior iv) Disobedience v) Failure to comply with obligations resulting from a labor contract vi) Causing violence or bullying during work hours vii) Engaging in violence against persons, objects, buildings, or goods belonging to the employer viii) Harmful behavior affecting the health of employees, committed by a worker, who has responsibility for the prevention of occupational hazards ix) Copying, using, and industrially exploiting, without permission from the employer or owner, registered secrets, confidential documentation, documents, or items belonging to the employer x) Airing information in favor of a political party x) Absence to work, without justification, more than three times within 30 days The Federal Labor Law grants the right to strike to workers. Strikes can be declared lawful or unlawful, depending on the following: i) Strikes are lawful when the cause is: a) Non-compliance with the labor contract, except for the family help b) Wrong operation of the enterprise, and c) Bad treatment from the employer towards the workers ii) Strikes are unlawful when the cause is: a) Inhibition to the granting of salaries b) Interruption or delay of work activities c) Causes of protest against the trade unions’ leadership or criteria of workers’ representatives, and d) Depriving workers of their essential needs. The primary objective of the Federal Labor Law is to regulate labor contracts under conditions of peace between employers and employees.
Employment Agreements in Mexico
Employers in Mexico will prefer to enter into indefinite term employment contracts with their employees; however, temporary or seasonal employment contracts are permitted under the Mexican employment laws in certain circumstances. In addition, the employment statutes in Mexico contain regulations dealing with the execution of on-call contracts which are commonly used in the food, health, hospitals and the oil and gas industry.
Indefinite term contracts are those contracts that are executed for an indeterminate period of time. Indefinite term contracts must contain specific clauses that establish the following:
Temporary employment contracts are limited to a one-year term for periods of time that do not exceed 180 days. The term of all temporary contracts (i.e., contracts for less than 180 days) in any 3-year calendar period may not exceed 20% (210 days) of the employee’s time in service. For example, an employee has worked for 720 days in a 3-year period. The employer can execute a maximum of 54 temporary contracts for 180 days or fewer and 1 temporary contract for 30 days or fewer. An employer may also hire a Mexican attorney as a director and such contract is considered a temporary employment contract. However, an employer may not execute multiple temporary contracts for the same employee for a fixed or indeterminate period in the same calendar year. Seasonal contracts are employment contracts that are executed to render services for periods of time that are dependent upon the season. An example of a seasonal contract is to provide services during the harvest or production of certain crops. Regardless of the nature of services to be rendered during the term of an employment contract, if the employee will work in an established position, then the contract will be deemed an indefinite term contract.
Minimum Wages and Compensation Packages
Mexico has a national minimum wage that is established annually and applies uniformly to all areas of the country. For 2018, the daily minimum wage rate is $88.36 pesos, or approximately US $4.85, in Mexico City and $87.21 pesos (US $4.82) in the remaining municipalities. The minimum hourly rate in the Free Zone along the US border is $82.41 pesos (US $4.56) and the daily rate is $118.35 pesos, or US $6.57, in the Barrancas del Cobre Area of Chihuahua (which is a particularly dangerous area). The self-sufficient minimum wage for the year 2018 is set at $93.69 pesos (US $5.19) in Mexico City. The Comisión Nacional de los Salarios Mínimos sets the minimum wage annually. As a result, and depending on inflation, the minimum wage increases or decreases once a year with effect as of January 1. Employers in Mexico must pay their employees on time in cash. In practice, many employers, especially larger ones, pay employees on a biweekly or semimonthly basis. Payments may be by cash, check or deposited to a savings account designated by the employee, depending on local custom. The law grants employees certain benefits which are in addition to salary, including: In addition to the foregoing, certain benefits in cash or in kind are common in practice among employers in Mexico: In Mexico, store credit, grocery coupons or tickets, particpation in profit sharing, Christmas bonuses (aguinaldo), vacation days and vacation premiums, and life insurance are not mandatory, although they are standard practice.
Work Hours and Overtime Policies
Mexico’s Federal Labor Law ("FLL") establishes maximum working hours for employees and specifically regulates the payment of overtime, which is a right for employees who comply with certain assumptions contemplated in the law.
The FLL contains daily and weekly working time limitations. Thus, under Article 61 of the FLL, the working day must not exceed eight hours for day shifts, six for night shifts, and seven for mixed shifts. In addition to the above-mentioned, Article 123 of the Political Constitution of the United Mexican States ("Constitution") establishes that the maximum working day shall be 48 hours for day shifts and 42 for night shifts.
Legal working shifts are defined in the FLL, and any deviations to these work shifts require the employee’s written consent (except in the case of force majeure) and must be reduced to writing. However, notwithstanding the ability to contract shifts other than those established in the FLL, the Constitution provides that if the worker provides services to multiple employers, the aggregate workday shall not exceed 48 hours per week. It is worthy of note that when calculating the workday limit, the total time spent in the different types of shifts shall not exceed the 48 hours limit.
In addition to complying with the daily and weekly work limits, overtime shall be accrued when there are extra hours of work required from an employee, including (i) work accrued on official and regular workdays, (ii) work accrued on a rest day (i.e., a day in which the employee does not have the obligation to work, such as in the case of work schedule flexibility, etc.), and (iii) extra work accrued beyond an employee’s normal working hours during the workdays.
Overtime is to be calculated over the daily salary of the employee. The calculation shall be divided according to the following assumption: 100% for extra work during working days, 200% for work during rest days, and 300% for work performed on public holidays.
Employee Rights and Benefits
The Mexican Constitution establishes remedies for the unlawful termination of employees: (i) reinstatement, personal injury damages and moral damages, or (ii) payment of 3 months’ salary, severance pay and moral damages. Reinstatement is the preferred option (lawyers representing employees will almost always request reinstatement, forcing employers to provide a significant package for a settlement based on severance). In Mexico, an employee’s labor relationship is presumed to be indefinite and cannot be terminated without just cause. Upon hiring, the employer must notify the employee the causes of termination or discharge arising from the existence of an organizational necessity or economic reasons; any other termination will be deemed unjustified. Terminating employees for discriminatory reasons, including (but not limited to) age, gender, religion, race, sexual orientation, nationality, political views, union membership, or disability is expressly prohibited in Mexico.
Employees have a right to maternity leave for a period of 3 months, and may not be terminated during that time. If a company provides a stronger protection, such as a longer period, that protection governs. Family and medical leave is another important concern in Mexico . An employee may take 6 days of paid leave if his/her child is born, 5 days for special leave, 2 hours per day in order to breastfeed or care of family members (with reasonable notice), up to 3 days in case of a family member’s death (additional time may be given in the event that an employee has to travel long distances). Similarly, the Mexican Constitution provides specific protections to veterans and disabled individuals and protects against termination, excluding employees hired under the Federal Labor Law.
The Federal Labor Law includes additional protections for workers’ occupational safety and health. Employees are entitled to general safety, accident, occupational hazards, hazardous substances, special jobs, enteral nutrition, work with visible and non-visible radiation, workplace violence, and noise protection. Inspections are mandatory in Mexico and are conducted by the Ministry of Labor and Social Welfare ("Ministry"). The Ministry is responsible for compliance in labor matters through continuous monitoring of the private and public sectors. To this end, the Ministry has access to all public and private workplaces. Inspectors can apply fines, injunctions, and work stoppages.
Termination and Severance Provisions in Mexico
In addition to providing a minimum standard of living, the Constitution expressly prohibits terminating an employment contract without cause, and mandates a "severance payment" where termination occurs. The minimum term otherwise mandated by law is 5 years. Additionally, the Constitution provides employees with a right to reinstatement following a dismissal, if they so desire.
In terms of substantive grounds for termination, the Labour Statute divides grounds into those referred to as "just cause", or "culpa patronal" (laboral culpable) that are provided in Article 47 of the Labour Statute, and all other grounds. In the context of termination for just cause, the employer is entitled to the severance payment set out in Article 47 of the Labour Code on account of violations of employees’ obligations or commitments under the employment contract. The principal violations specified in Article 47 of the Labour Statute include the following: Employees who seek to obtain severance payments in court, must first demonstrate that the reason for their dismissal was not justified. Should the Court decide differently, employees may be ordered to pay costs to the employer. On termination of employment without cause, the employee may claim the payment of a monthly salary for each year of employment, which is known as the "severance payment". The following are considered to be termination "without cause": In cases where the termination is without cause, an employee has a right to receive a termination payment equal to three times his or her salary, including mandatory bonuses, paid vacations and extra-legal bonuses, multiplied by the number of years the employee has worked for the company. From the perspective of the employer it is thus more advantageous to terminate an employee with cause, and it is also advisable to ensure participation of the FJL Certain specific procedures are required before an employer can legally terminate an employee. The employer must first notify the employee in writing of the reason for termination and allow the employee a period of five days to correct the offending behavior. Failure to do so gives rise to significant liability. The employer must also present the employee with a notice of termination stating the date on which employment will cease, and payment will be made. A temporary moratorium of 30 days is allowed from the date of dismissal to make such payment. As a general rule, the Labour Statute requires the prior authorization of the Secretary of Labor before any employee can be declared redundant. The employer must notify the Department of Labor at least 30 days in advance and usually the Labour Authorities then send out representatives to verify the circumstances on the ground.
Collective Bargaining Agreements
Under the Mexican Constitution, employees may establish unions to further their common economic interests. Given the importance of unions to the protection of employees’ rights, union activity is protected by constitutional guarantees that are applicable to both employers and unions. For example, employer discrimination against union leaders is expressly prohibited by the Mexican Constitution. The Mexican Constitution establishes a very complex legal regime that applies to both labor unions and collective contracts. Union representatives at a minimum must be elected by secret ballot among employees. Unions, to function, require recognition by employers (certificación) (by means of the signature of collective contracts). These contracts, however, are subject to registration by the appropriate labor authority which requires compliance with certain legal formalities. Most of the detailed rules regarding the obtaining of certifications and registrations are contained in the Federal Labor Law . There are, for example, requirements regarding the minimum number of employees for the establishment of a union, qualifications of union leaders, rights and obligations of union leaders and union members, requirements for collective bargaining and requirements for the validity of collective contracts. There are even formalities applicable when there is a revision or a termination of a collective contract. Collective contracts in Mexico generally have a term of twelve months from their original signature. Contracts that are negotiated this way are called "collective bargaining agreements." These agreements are subject to review prior to their expiration, similar to collective contracts. In addition, employees that are not represented by unions may request collective bargaining. Specific rules apply for labor strikes. Most importantly, strikes may be convened only by union leaders. Before a strike is convened, a process of conflict resolution is required. This involves, among other things, that the labor authority (Secretaría de Trabajo y Previsión Social) determines whether the intention of the strike is justified or not.