Enacted on May 1, 1970, the Mexican Labour Act (the “MLA”) governs all labour relations in Mexico falling under the scope of article 123, section A, of the Federal Constitution (which refers to private employment as opposed to bureaucratic employment). The spirit of the law is to provide protection to employees and this explains the basis for numerous provisions of restrictive and prohibitive nature.
Under the MLA, an employment relationship is deemed to exist whenever there is subordination of one party (employee) against payment of consideration (wage) by the other party (employer, whether in the form of a corporate entity or natural person). Once an employment relationship is established the provisions of the MLA will automatically apply, regardless of how the agreement is characterized by the parties.
The MLA shall apply to any employment relationship in Mexico, regardless of the nationality of the employer or employee, the place of execution of the activities or where wages are paid.
Under the MLA, employment relationships are of a bilateral nature and thus, amendments to employment conditions by the employer entitles an employee to terminate the employment with liability on the employer.
The MLA affords all employees rendering services in Mexico (again, regardless of nationality) certain non-waivable rights. The MLA explicitly provides that employees are entitled to the following non-waivable fringe benefits per full year of employment (“Accrued Benefits”):
- a Christmas bonus equal to at least 15 days worth of wages, payable prior to December 20 of each year;
- a yearly vacation period, the length of which depends on the worker’s seniority (6 days of paid vacation for the first full year of services rendered);
- a vacation premium equal to 25% of the salary payable to the worker during the vacation period;
- Furthermore, employers in Mexico are obligated to distribute 10% of their net profits among their employees as statutory profit sharing.
An employer in Mexico may dismiss an employee without liability only if there is a cause for dismissal.
An employer may dismiss an employee without attracting only if there is a statutory cause for doing so pursuant to the MLA (a so-called termination cause). It should be noted that the MLA is rather stringent in the manner of substantiating and providing supporting documentation for a termination with cause and imposes the burden of proof on the employer.
The MLA lists the following specific events as grounds for dismissal with cause and thus, with no liability onto the employer:
- use of false documents, credentials or referrals to secure employment;
- dishonest or violent behaviour at the workplace;
- dishonest or violent behaviour against co-workers producing a disruption of discipline at work;
- threats, insults or violent behaviour to the employer or the employer’s family members (inside or outside the working facility), unless provoked or acting in self-defense;
- intentional damage to the employer’s property;
- negligently causing serious damage to the employer’s property;
- carelessly threatening workplace safety;
- immoral behaviour at the workplace;
- disclosure of trade secrets or confidential information;
- more than three unjustified absences within a thirty-day period;
- disobeying the employer without just cause;
- failure to follow safety procedures;
- reporting to work under the influence of alcohol or non-prescription drugs;
- a criminal conviction; or
- commission of other acts of similar severity to those described above.
In addition to the above, management personnel may be dismissed with cause if the employer has reasonable grounds for having lost confidence in the employee.
The employer’s right to dismiss an employee with cause expires 30 calendar days following the date on which the employer becomes aware of the statutory grounds for the dismissal.
Notwithstanding any termination with cause, an employee may appeal any such dismissal before the Labour Boards within 2 months of dismissal. The burden of proof relies on the employer at all times to properly substantiate that the employee engaged in one or more of the conducts listed in the MLA for a dismissal with cause. If the employer fails to meet this burden, the Labour Boards will render the dismissal to have occurred without cause and the employee can then seek judgment for (a) reinstatement to the former employment, or (b) a so-called Constitutional severance. Furthermore, if the Labour Board finds that the employer has failed to meet its burden of proof and therefore, renders the dismissal to have occurred without cause, the employer will also be required to pay wages accruing during the course of the litigation.
By statute, a Constitutional severance is comprised by the following items:
- 3 months worth of consolidated salary;
- 20 days of consolidated salary for each year of service;
- Seniority premium consisting of 12 days of salary for each year of service, and
- Accrued Benefits calculated on a pro-rata basis (in other words, the pro-rata portion applicable to the portion of the year worked until the date of dismissal).
The trend is to negotiate the amount of severance to which an employee is entitled to when a need for dismissal exists. In these instances, the employer should make sure to secure a resignation letter from the employee (witnessed accordingly by two working peers) and whenever time permits, cause the employee to enter into a release covenant to be passed before the Labour Boards. The resignation letter should suffice as a means to prevent the employee from asserting a future claim against the employer for severance or another type of compensation.