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Mexican Labor Law: A Review of the Basics

14 Jun 2012

Note: Information presented in this post represents an overview of Mexican labor that applies to all employers in Mexico. Should manufacturing companies choose to incorporate their businesses in Mexico as "stand-alone" wholly-owned subsidiaries, that are fully responsible for compliance.

When a manufacturing firm chooses to operate in Mexico under the auspices of The Offshore Group Shelter Plan, The Offshore Group's Mexican entities are the parties with which Mexican Labor Law compliance lies.

What are the basics of Mexico’s Labor Law?

Labor policies in Mexico are based on the Mexican Constitution of 1917, and the Mexican Federal Labor Law (MFLL). Although wages continue to be low in contrast to the U.S., the MFLL is rigorous in its prevention of unsafe work environments and does much to uphold workers’ rights and privileges. Article 123 of that Constitution gives Mexican workers the right to organize labor unions and to strike. It also provides workplace protection for women and children, codifies the eight-hour day, and calls for a living wage.

Federal Labor Law in Mexico:

Mexico’s Federal Labor Law (FLL), enacted in 1931 and revised in 1970, is based on article 123 of the Mexican constitution. The FLL regulates employment relationships in Mexico. The FLL applies to all employees that offer individual subordinated services in Mexico, not considering nationality or the place the worker is employed. The FLL contains detailed requirements concerning the minimum employment conditions and rights, which must be granted by the employer to its workforce. Such provisions are not subject to waiver by the employee.

The FLL considers two general types of employment relationships: individual and collective. An individual employment relationship is created automatically upon a person being hired to perform a task in a subordinated position (subject to the control of the employer), whether on a temporary basis or for an indefinite length. Collective employment relationships are established when the employees are organized by a certified labor union and such union represents the employees before the employer.

The Federal Labor law of Mexico sets forth the rules and regulations regarding labor relations, labor unions, and labor courts (Board of Conciliation and Arbitration).

Mexican Federal Social Security and Housing Law:

The Federal Social Security and Housing Law deals with issues such as health care, housing, and retirement. The Mexican Federal Social Security system is funded by a mandatory charge paid by the employer, calculated on the salary paid to the employees. This money is to create social security hospitals and staff them, in order to provide full medical coverage to the employees that are registered as employees (being paid for by their employers).

In unity with the SSL, last modified on December 20, 2001, all employers must register their employees with the Mexican Social Security Institute (IMSS). Such registration relieves the employer from the following:

• Work-related risks

• Health and maternity insurance

• Disability pension and life insurance

• Retirement, advanced age and old age pension

• Childcare and social benefits

When an employment relationship is formed, the employee automatically becomes entitled to the various social security benefits, which are funded by contributions paid by both employers and employees, depending on the risk factor of the company.

The IMSS assumes all responsibility for providing the benefits and, unless the employer has not complied with its registration and payment obligations, the employer is released from any liability for work related accidents or illnesses. If the employer does not comply with its registration and payment obligations, the IMSS will nevertheless provide the benefit to the employee but it will revert the actual cost thereof to the employer and will impose penalties. Social Security benefits are provided at the IMSS facilities throughout Mexico.

Termination of Labor Relationship in Mexico:

There is abundant protection provided for labor in Mexico. Employers are not permitted to dismiss employees without just grounds. If they do so, the employee has a right to file suit for re-instatement or indemnification. The labor courts will presume that the person stating that he or she was your employee is, in fact, your employee and that you dismissed he or she without cause. The labor courts will also require proper representation of the employer. If the case is resolved in favor of the employee, he or she has the right to reinstatement plus receive all wages that would have been earned while the hearing process was transpiring. If the employee makes the decision not to seek reinstatement, then he or she may receive three months salary, all back wages, plus other items that were owed prior to the discharge.

The employer may choose not to reinstate the employee for baseless firing when:

• The employee’s manager has been an with the company for less than a year

• The employee and manager are frequently in direct communication and the Board of Conciliation and Arbitration deems that the two can not work together

• When the services provided were the rendering of socially leaning municipal services forced by law or order issue by authority

• The employee was working as an temporary worker

The labor relationship in Mexico may terminate by:

• Joint concurrence (employer/employee)

• By demise of the employee

• By completion of the job performed or by expiration of the time for which the employee was hired

• By mental or physical incapacitation of the employee or by resolution of the Conciliation and Arbitration Board.

The  employer in Mexico may terminate the labor relationship due to:

• Deception or scam by the employee with his fellow workers, relative to the employees capabilities

• Delinquency, terrorization or injuries by the employee

• Behavior by the employee outside the work place which effects the employer, the administrative personnel or their families

• Deliberate damages or bigotry to the employer or his assets while working

• Credulity or unpardonable negligence by the employee placing the business or personnel therein in an unsafe situation

• Immoral acts at the place of business by the employee

• Revealing trade secrets of the employer

• Having more than 3 absences from work within 30 days, without justification or the employer's permission

• Baseless insubordination by the employee relative to his employment

• Rejection by the employee to adopt precautionary measures to avoid accidents or illness

• Drunkenness or drinking of intoxicants at the place of work, save by medical prescription and notification thereof to the employer

• Imprisonment of the employee

As well, there is justified suspension of the labor relation (usable by the employer and the employee), when:

• The employee has a transmittable sickness

• There is temporary incapacitation of the employee due to an accident or illness, which does not constitute a work related risk

• Preventive detention of the employee, followed by an absolving decision

• The arrest of the employee

• Representation of socially oriented public services imposed by law or order issued by authority

• Depiction of services as representative of labor related posts, such as members of Conciliation and Arbitration Boards and others

• When the employee does not have certain credentials required by law to work (sanitation cards, driver's license)

Willing Departure:

If the employee resigns, then the employer will pay the employee the balanced part of his/her vacation premium and year-end bonus. If the employee has worked there for more than 15 years, without interruption, then the employee shall receive an additional sum equivalent to 12 days salary (calculated on the last salary received prior to resigning) for each year he/she will have worked for the employer.

When the employee has worked for the employer for less than one year, the employee will be compensated in a sum equal to one half of the salaries of the period he/she worked for the employer. If this period is greater than one year, then the compensation is to be equal to a sum equal to six months salary of the first year and twenty days per year for each of the following years.

In order to determine the amount payable for compensation they are to use the base salary of the employee corresponding to the date on which the right to receive this payment occurs.

Worker Training in Mexico:

All employers are required by law to prepare their employees. The employer must have a training curriculum registered and approved by the Ministry of Labor.v A Mixed Commission must implement the program for Training and Development comprising an equal number of representatives of the employees and of the employer.

Overtime Rules for Workers in Mexico:

The maximum number of hours in which an employer may require its employees to work without having to pay overtime is 48 hours per week for the day shift, 45 for the mixed shift and 42 for the night shift. The standard hours may be dispersed throughout the week as needed. The employer must pay for the first nine hours of overtime work at 200%, and overtime work exceeding nine hours at 300% of standard pay. An employer must not require its employees to work overtime for more than nine hours per week. At least one paid full day of rest per week must be observed. Sunday work is subject to a 25% premium, independent of any overtime premium that may apply.

Mexican Worker Salaries:

The FLL establishes a minimum amount that must be paid to all employees in cash, without deductions or withholding taxes on a weekly basis. The National Minimum Wage Commission determines the minimum wage, which varies in the three economic regions into which the country is divided. A general minimum wage applies to all employees within each economic region, except those employees that qualify under certain categories defined by the FLL as professional categories for which a specific professional minimum wage applies.

Maternity Leave in Mexico:

All employers must provide their female employees with a fully paid maternity leave of six weeks prior to their approximate delivery date and six weeks thereafter. After this 12-week period, employers must offer these employees their former positions, including any accrued rights there under such as those that pertain to accrued seniority and vacation leave pay. The Mexican Social Security Institute will normally cover the employer’s expense during such maternity.

Paid Legal Holidays In Mexico:

The following are the paid legal holidays, which must be observed. Employees required to work on any of these holidays must be paid at the rate of at least three times their normal wage:

• January 1 (New Year’s Day)

• First Monday of each month of February (Constitution Day)

• March 21 (only in 2006)

• Third Monday of each month of March effective as of 2007 (Benito Juarez Day)

• May 1 (Labor Day)

• September 16 (Independence Day)

• Third Monday of each month of November (Revolution Day)

•December 1, every 6 years, upon inauguration of a new President

• December 25 (Christmas)

• Days determined by the federal and local electoral laws as election days

Legally Prescribed Vacation Time in Mexico:

Employees have the right to an annual vacation, which cannot be less than 6 working days. For every year the employee continues to work for the employer, he/she will receive an added 2 working days. After four years, the employees vacation period will increase only 2 working days for every additional five years he/she works for the employer. The employee will also have a right to no less than a 25% vacation premium calculation on his/her salary for the vacation period.

Retirement Accounts in Mexico:

The employer is required to regularly deposit into a banking account, for the employee, a total equivalent to 2% of his/her salary, as a savings account for the employees' retirement (SAR). The deposits must be made in an "AFORE" account that is individually identified by each employee. There is also to be a periodical payment to INFONAVIT (federal housing authority for workers) of a sum equivalent to 3% of his/her salary.

INFONAVIT(Instituto Nacional para el Fomento a la Vivienda para Trabajadores).

The National Institute for the Development of Living Quarters for Workers was created in the early 1970's today it is known as the National Living Quarters Fund. It places a small tax on the employer, calculated on the salary paid to the employees. This money is used to create "social" living quarters (small housing) for the working populous. The employees are to qualify for a loan through INFONAVIT to purchase (repair or debts related to) a house, a monthly sum is automatically subtracted form the employee's salary and then used to make the monthly payment foe the mortgage of the house. The National Living Quarters Fund requires employers to give 5% of their employees' salaries to INFONAVIT.

Under the original structure of the INFONAVIT, the agency became the builder of low income housing for workers, which it then sold to employees who requested the same and who were declared qualified for credit granted by the agency itself.

Labor Unions in Mexico:

Labor unions are acknowledged under the Federal Labor Law as a means of the employees uniting to defend their general employment rights. There are large labor unions existing in Mexico. As a result of the labor unions, collective labor contracts are signed between the employer's representative and the representative of the labor union. Labor union collective contracts are reviewed every two years. A labor union is permitted in a place of employment provided that at least 20% of the employees belong to it. Even so, the registry process is slow and complicated.

Profit Sharing in Mexico:

Employees are to participate in the earnings of their employees, based on the percentage determined by the National Commission for workers' Participation in their Employers' Earnings.

This earning is to be distributed among the employees of the employer. The distribution must be made within 60 days following the date in which they are to pay their annual income taxes.

Voluntary Employee Benefits:

Employers may voluntarily enhance the minimum benefits required by law or provide additional benefits as they see fit. It is common for specific industries or service sectors to provide special benefits such as productivity bonuses designed specifically to meet the needs of that sector. Benefits such as savings funds, punctuality and attendance bonuses, cafeteria and transportation subsidies, enhanced medical coverage, and so on are provided voluntarily by many employers in order to remain competitive.

Mexican Labor Contracts:

There is a presumption under Mexican law that an employment relationship is for an indefinite period, the underlying objective being to provide employees with job stability and security of tenure. Therefore, unless the nature of the services to be performed are such that they are necessarily only for a specific or a determined period, the FLL deems the labor relationship or the Individual Labor Contract to be for an indefinite period. The different types of Individual Labor Contracts considered by the FLL are those that cover:

• An undetermined period

• A specific job

• A determined period.

Strikes in Mexico:

A strike is defined as an impermanent suspension of work carried out by a league of workers. Strikes are limited to the simple act of suspending such work. The objectives of a strike are limited to the following:

• Obtaining balance between the production factors and harmonizing the rights of labor with those of capitalists

• Obtaining from the employer the implementation of a CBA and demanding its revision upon expiration thereof

• Obtaining from the employer a signed obligatory CBA

• Demanding compliance with the CBA or mandatory CBA in the enterprise in which employee rights have been violated

• Demanding compliance with the legal provisions on profit sharing

• Supporting a strike if the objective thereof is one or more of the above-mentioned

Once the strike begins, the employer is not allowed to perform any kind of work and is forbidden to cross the “picket line”. During the strike, the employees are not allowed inside the employer’s premises.

Most laws are designed to properly shield an often-undereducated worker from being taken advantage of, but their widespread mandated-by-law requirements leave tremendous power to the employee, resulting in a huge amount of employee legal action annually. Every year in Mexico, 90% of labor lawsuits filed are lost by the employer—some with severe consequences such as: closing of companies, bankruptcy and the loss of investments.

As stated above this post is meant to constitute an overview of Mexican Labor Law, and is not meant to be a comprehensive and/or definitive source of information on the topic.  Those requiring further detail should contact a party with the applicable legal expertise.  The Offshore Group can be of assistance in locating such an individual. 

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