As a corporate HR professional, have you ever found yourself in the dilemma of needing to conduct layoffs in Mexico, a country full of challenges and opportunities, yet knowing nothing about its local laws, cultural norms, and labor market? Are you concerned that your layoff decisions might lead to employee dissatisfaction, lawsuits, protests, or even violence? Do you want to know how to protect your company’s interests while also respecting the rights and dignity of your employees? If these questions and concerns resonate with you, then this article is tailored for you.
Mexican Labor and Social Security Laws
Mexican labor and social security laws are crucial in safeguarding the rights of workers in Mexico. These regulations define the rights and obligations between employers and employees, covering aspects like wages, working hours, holidays, safety, and health. Additionally, they stipulate requirements and termination procedures for labor contracts.
In Mexico, the concept of ‘at-will employment’ does not exist. The law requires employment contracts to be in the local language, detailing the employee’s remuneration, benefits, and severance terms. Salaries should be paid in Mexican pesos, not foreign currencies like dollars. Contracts can be categorized into:
Probationary Contracts: Typically for new employees, lasting up to 90 days or 3 periods of 30 days; post-probation, employers decide on termination or offering indefinite or project-based contracts (as per job requirements). If no termination action is taken and the employee continues working with wages, it’s understood that an indefinite contract is in place, granting the employee corresponding rights.
Indefinite Contracts: Most common in Mexico, these do not set an end date for employment. Applicable to employees who have passed probation, senior employees from other companies not requiring trial training, and outsourced staff within the company’s internal payroll system. Termination without specific reasons requires appropriate contract proof and compensation.
Project/Seasonal Contracts: Must be linked to a specific project or season; like the initial probation contract, if employees aren’t notified of contract non-renewal post the agreed completion date, it often means an indefinite contract has been signed.
Reasons for Termination and Severance in Mexico
Legitimate reasons are required for legal employment termination in Mexico. Unjustified dismissals can lead to substantial severance and legal risks. The Federal Labor Law Article 47 lists various dismissible actions, such as:
Using false documents for employment;
Dishonest or violent acts towards the employer, their family, or colleagues;
Harassment or sexual harassment;
Damaging the workplace;
Reckless acts endangering workplace safety;
Immoral behavior at work;
Leaking trade secrets;
Absenteeism: over three days in 30 days without cause;
Disobedience;
Failure to take precautions or follow procedures to prevent accidents or illness;
Working under the influence of alcohol or narcotics;
Legal incarceration.
If an employer can prove any of these as the reason for dismissal, a written statement to the employee suffices. Lawyers often advise registering the termination reason with the local employment government office to avoid litigation. Employers are also responsible for compensating for due benefits and years of service.
If an employer wishes to terminate an indefinite contract without these reasons, they should provide written notice (on the termination day) and pay severance, including three months’ wages + 20 days’ wages for each year worked, plus benefits such as Christmas bonus (Aguinaldo), vacation premium, and holiday bonus. These three benefits are entitlements from employment onset, so they must be paid proportionally upon dismissal or resignation.
Considerations for Layoffs in Mexico
When conducting layoffs in Mexico, consider the following:
Employees resigning in Mexico don’t need a minimum notice period. According to Mexican labor law, they can resign immediately without penalty. Nonetheless, notice periods are common in contracts. Voluntarily departing employees are entitled to any duration of work compensation and a seniority bonus if over 15 years of service, typically equivalent to 12 days’ wages for each year worked.
Employers should avoid discrimination or unequal treatment of specific groups or individuals during layoffs. For example, the law prohibits dismissal of anyone under 16, pregnant, or nursing mothers, unless justified. Also, employers can’t dismiss employees based on gender, age, race, religion, political views, sexual orientation, or disability.
Employers should consult and communicate with unions or representative committees during layoffs. If a Collective Bargaining Agreement (CBA) exists, follow its stipulated procedures and conditions. If no CBA, respect employees’ organization and collective action rights, aiming for mutually acceptable agreements.
Employers should offer compensation or resettlement measures to mitigate impacts on employees and society. For example, providing training, counseling, job reallocation, retirement plans, etc., to help employees find new jobs or improve their quality of life.
Mexican Layoff Case Studies
To better understand the legality and practice of layoffs in Mexico, here are some real-life examples for reference:
Case Study 1: An American company with a branch in Mexico, due to operational difficulties, decided to close the branch and lay off all employees. The company did not consult or communicate with any unions or representative committees, nor did it offer any compensation or resettlement measures. Consequently, the company faced a lawsuit, and the court ordered compensation for each employee, including three months’ wages + 20 days’ wages for each year worked + benefits + fines + attorney fees. The company ended up spending millions of dollars to resolve this dispute.
Lessons learned:
In Mexico, adherence to local laws and regulations is mandatory during layoffs to avoid severe consequences.
Consultation and communication with unions or representative committees are essential to respect employee rights and opinions.
Reasonable severance, benefits, and compensatory or resettlement measures are necessary to mitigate impacts on employees and society.
Case Study 2: A Mexican company, during an economic crisis, decided to cut some employees to reduce costs. The company negotiated with unions and representative committees, reaching an agreement that included: legal severance payment by the employer; training and counseling services for laid-off employees; priority consideration for rehiring laid-off employees; cooperation with the government and social organizations to find new jobs for laid-off employees. This approach successfully completed the layoff plan while maintaining good relations with employees.
Lessons learned:
Negotiation and communication can lead to mutually acceptable agreements, avoiding unnecessary disputes and litigation.
Offering services like training, counseling, job reallocation, and retirement plans can help laid-off employees find new jobs or improve their quality of life.
Cooperation with government and social organizations can seek external support and resources, reducing negative societal impacts.
Case Study 3: A Mexican company discovered that an employee was sexually harassing others in the workplace and had evidence of such behavior. The company immediately issued a written notice to the employee, stating the reason for dismissal, and registered the termination reason with the local employment government office. The company only had to compensate for due benefits and years of service, facing no lawsuits or complaints.
Lessons learned:
In Mexico, justifiable reasons with evidence are necessary for layoffs, or it may be considered unlawful dismissal.
Issuing a written notice to laid-off employees, stating the reason for dismissal, and registering it with the local employment government office is crucial to avoid litigation.
Paying due benefits and years of service compensation is essential to respect labor rights.
