On November 30, 2012, the Decree containing the so called "Labor Reform" consisting of the first significant update to the Federal Labor Law in over 30 years was published. While the Labor Reform may not be perfect or complete (it is almost silent on issues of union transparency), it is without doubt a step in the right direction that will likely contribute to the development and improvement of employment relationships in Mexico. These in turn will help attract foreign investment, promote formal employment and serve to improve working conditions.
Given the significance of the Labor Reform, one should stay tuned to how the new changes will be interpreted by the Mexican labor authorities and competent courts. The following is a summary of the most relevant aspects of the Labor Reform. The attorneys of Cacheaux, Cavazos & Newton would be pleased to answer any questions and/or comments with respect to this special edition of the CCN Mexico ReportTM.
The most significant aspects of Mexico's new Labor Reform include the following:
1.- General Principles of the Federal Labor Law. The Federal Labor Law provides the following general principles: (a) dignified employment, which refers to no discrimination in the workplace based on ethnicity or nationality, gender, age, disability, socioeconomic status, citizenship, health, religion, sexual preference or marital status, including freedom of association, the right to strike, and freedom of collective bargaining; (b) equality between men and women, and access to the same opportunities given their biological, social and cultural differences; (c) promoting applicable competency certifications, productivity, quality and a good work environment; (d) prohibition against harassment in the workplace, and punishment of abuses of power; and (e) regulation of outsourcing where a contractor or third party performs work or provides services with its employees for the benefit of the contracting party that requests such work to be performed by the contractor and supervises its performance and execution. It should be noted that in order to legally justify the use of outsourcing, the nature of expertise required in the service provided must be proven, and such must not be the same or similar to the activities performed by the employees of the contracting party, with the written services agreement serving as evidence of such fact. Contractors must have proper and sufficient means to meet their obligations and contracting parties will be required to provide supervision from the time the outsourcing begins, with the further requirement that parties requesting outsourcing services continually oversee the contractor's compliance with applicable legal obligations. In the event of failure to comply with such obligations, the contracting party will be deemed to be the employer. If it is proven that the party contracting for outsourcing services has deliberately transferred its employees to a contractor, the contracting party will be subject to a fine of between 250 and 500 times the Mexican minimum daily salary in effect in Mexico City.
2.- Individual Employment Relationships. Relevant aspects of the chapter on individual employment relationships include: (a) a prohibition against hiring minors under 14 years of age, with potential jail terms of between one and four years, and fines of between 200 and 5,000 times the daily minimum salary in effect in Mexico City for employers who violate this provision; (b) the obligation to establish in a written employment agreement the nature of the employee's hiring (fixed project or fixed time, indefinite time, temporary, initial training, for a trial period or for a unit of time (per hour) in the individual employment agreement); (c) the establishment of requirements for Mexican employees who render services outside Mexico but who are hired in Mexico; and (d) requirements for Mexican employees recruited in Mexico to render services outside Mexico through procedures agreed to by the Mexican government with foreign governments. It is important to highlight these new forms of individual employment agreements with respect to hiring by unit of time or per hour, the hiring of employees for a trial period and for initial training. It is expected that this flexibility in hiring employees, so that employees will no longer automatically receive indefinite employment agreements, without liability to the employer or the need to provide indemnification, will create jobs in Mexico. Furthermore, this should put an end to many abuses and unfair practices for both employees and employers.
3.- Term of Employment Relationship. Hiring for fixed project or time and for indefinite time will remain unchanged. However a new form of hiring is included for both indefinite time agreements and fixed project/ time agreements lasting more than 180 days (six months), a "Trial Period" which may be extended only one time, for 30 days. These agreements may be extended for 180 days (six months) only for employees in management positions or who perform general managerial functions (better known as executive employees) and those who perform specialized technical or professional work. The Labor Reform provides that in order for the employer to terminate such trial period at its own discretion without incurring any liability, it must consider the opinion of the Mixed Commission for Productivity and Training (which must be created by the employer), as well as the nature of the work and employment position. A second new form of hiring is included known as "Initial Training", which may also be renewed or extended only once, during which time the employee may obtain the knowledge and abilities necessary to perform his or her job functions, for a term of three to six months for employees in management positions or managerial functions and for those who perform specialized technical or professional functions. In order for the employer to terminate the employment agreement without incurring any liability, based on an employee failing to demonstrate his/her capacity for the job, as determined by employer's discretion, the employer must take into account the opinion of the Mixed Commission for Productivity and Training , as well as the nature of the employment position in question. Finally, a third new form of hiring is included in indefinite term employment agreements consisting of temporary or seasonal employment arrangements which do not require the rendering of services for the entire week, month or year.
4.- Suspension of Employment Relationship. The Labor Reform provides for a suspension of the employment relationship in the event of an event or contingency affecting safety in the workplace during which employers must pay the minimum daily salary for the duration of the contingency, for a period of up to one month.
5.- Termination of Employment Relationship. In regard to employment terminations, the Labor Reform establishes the following: (a) a new ground for termination without liability to the employer or employee has been added, as applicable, for harassment and/or sexual harassment. (b) Notice of termination of the agreement in writing may now be delivered personally to the employee or communicated to the corresponding Labor Board of Conciliation and Arbitration within five business days following the date of termination, in order for labor authorities to serve notice of the termination, however, the employer must ensure that the employee is notified, otherwise, the statute of limitations for the employee to file a claim for wrongful termination will not commence. (c) If the employer does not prove the grounds for termination in the event of a lawsuit, the employee will have the right to recover the corresponding lost wages (wages not received throughout the duration of the lawsuit) until the date payment is made for a maximum period of 12 months, however, if the lawsuit continues, the employee must receive the interest generated on the amount of 15 months of salary at the rate of 2% per month, compounded at the time of payment. If the employee dies, the calculation of lost wages ceases at death. This amendment to the Federal Labor Law is very important because it limits the amount of possible indemnification payments paid to employees after a lawsuit alleging wrongful termination has been filed, which is then postponed or prolonged. This limitation will help eliminate litigation delay tactics with the sole purpose of increasing the financial liability of employers who are unable to prove the grounds for termination of the employment relationship. This will result in an expedited and efficient administration of justice for labor matters.
6.- Employment Conditions. The possibility for employees to perform work that is related to or complimentary to their main work is established with the payment of the corresponding salary.
7.- Salary. The following is established: (a) The possibility of salary payment for a unit of time (per hour), as long as such is indicated in the agreement and the maximum legal work schedule is not exceeded. In this case, payment may not be less than that corresponding to a daily work schedule. (b) When an employee grants his/her consent, payment by any electronic means will be allowed at no cost to the employee.
8.- Profit Sharing. The Labor Reform establishes that the employees of a company form part of such for profit sharing purposes.
9.- Employer Obligations. This chapter establishes the following employer obligations: (a) employers must have adequate facilities for persons with disabilities when the employer has more than 50 employees; (b) employers must have medication and first-aid supplies on hand in the event of workplace accidents; (c) employers must disclose information on labor risks and dangers that employees may be exposed to in the workplace; (d) employers must make deductions and payments for alimony; (e) employers must grant men five days of leave for the birth or their children or for the adoption of an infant; (f) employers must not discriminate against employees; (g) employers are prohibited from demanding evidence that a female employee is not pregnant (certificate of no pregnancy), firing or forcing female employees to resign as a result of being pregnant, changing their marital status, or as a result of having to care for minor children.
10.- Productivity and Training of Employees. The most relevant aspects of this chapter are: (a) The obligation for employers to provide job training and for employees to accept such during work hours, except for that consisting of commencing, continuing or finishing basic, intermediate and advanced schooling; (b) The obligation for employers with more than 50 employees to create a Mixed Commission for Productivity and Training, which must have the same number of employee and employer representatives; and (c) The obligation for employers to implement systems in order to determine the form and amount of incentives, bonuses and commissions for employees who contribute to increasing the company's productivity.
11.- Preferential Rights. A chapter is established on preferential rights which provides an obligation for employers to prefer Mexican employees over others, those with greater seniority, those responsible for families with a sole source of income, those with the minimum level of education required, those who are best qualified and those with the best abilities and knowledge.
12.- Women in the Workplace. This chapter establishes: (a) The option for expectant mothers to use up to four weeks from their six week maternity leave prior to delivery until after the delivery with the prior authorization of their attending physician and taking into account the opinion of the employer; (b) When adopting an infant, mothers will have the right to enjoy six weeks of paid leave as of the date they receive the infant; and (c) The nursing period will be for a maximum of six months with two 30 minute breaks per day and reducing the work day by one hour pursuant to prior agreement with the employer.
13.- Minor Employees. An obligation is established for minors to have a work authorization and a medical certificate evidencing their capacity for work. Work hours and types of work that may and may not be performed by minors are also regulated.
14.- Field Workers. The type of employment agreement that field workers can have is regulated (whether permanent, temporary or seasonal) as long as they work in rural areas, with employers having the obligation to execute an agreement in writing.
15.- Work from Home. This category is included, defined as that work which is performed from home or a distance using information technology and communication.
16.- Domestic Employees. The following are established: (a) Obligation upon employers to give domestic employees one daily break that is a minimum of nine continuous hours, in addition to a minimum three hour break between morning and evening work. (b) The right to one weekly day and a half of rest that is uninterrupted, preferably on Saturdays and Sundays each week.
17.- Mining Workers. A specific chapter is included that regulates rights and obligations for applicable employers and employees in this industry.
18.- Unions, Associations and Leagues. With respect to such: (a) the election process for its leadership positions is regulated; and (b) rules are established for accountability of leaders to their members
19.- Employment Hazards. The following are noteworthy from this chapter: (a) An obligation for employers to assume responsibility for the safety and hygiene and the prevention of employment risks and hazards; (b) The payment of indemnification by the employer to beneficiaries of a deceased employee is increased from 730 to 5,000 days of minimum salary if the employee was not registered with the Mexican Institute of Social Security (IMSS); and (c) the employer may give notice in writing or by electronic means within the 72 hours following an accident to the Labor Conciliation and Arbitration Board, the Department of Labor and Welfare and the labor Inspector.
20.- Local Conciliation and Arbitration Board. This chapter establishes that: (a) the acting president must be a licensed attorney, over 30 years of age and have experience in labor matters; and (b) the presidents of the special boards, clerks, assistants and the conciliation officials and clerks must be attorneys with a good reputation.
21.- Labor Procedural Law. The following is noteworthy from this section: (a) The attorneys-in-fact for the parties to a labor lawsuit must be licensed attorneys with their respective professional identification card or law clerks with the authority to appear granted from the competent government authority. (b) When unions make an appearance by means of a legal attorney-in-fact, the latter must be a licensed attorney or law clerk, although the Conciliation Boards may not require these degrees if they are convinced that the individual does in fact represent the union, association or league. (c) During any part of the proceeding, the parties may, through conciliation, enter into an agreement that brings the lawsuit to an end. (d) Now, agreements executed before Labor Conciliation and Arbitration Boards to terminate employment relationships will have the plenary legal effect of a final judgment or award.
22.- Evidence. The following is included in the chapter on evidence: (a) Cinematographic films, fingerprint records (especially to prove work attendance), audio and video recordings, different forms of information and communication such as computer systems, electronic optic means, fax, e-mail, digital documents, electronic signatures or passwords. It is important to note when offering these types of evidence that the party offering such evidence must provide the Conciliation Board with the instruments, equipment or elements necessary so that it may assess the content of such records and reproduce the sounds and images for the time necessary for the presentation of evidence, and only in the event that the offering party properly demonstrates the impossibility of providing such instruments or equipment will the Board provide such. The Labor Reform defines the following concepts: certifying authority, access code, digital certificate, password, private key, public key, recipient, digital document, issuer, electronic signature, advanced electronic signature, signatory, means of electronic communication, electronic means, data message, personal identification number (NIP) and information system; (b) The party offering this type of evidence must present a copy or copy of the digital document and include the minimum information for the identification of the digital document on the electronic medium in which it appears and the labor board will designate the expert(s) required to make the necessary determination. (c) The obligation upon employers to evidence the regular and special work schedule when such does not exceed nine hours.
23.- Development of Labor Lawsuits. The Labor Reform establishes that in order to appear at a hearing, a representative or attorney-in-fact for the employer must have the authority to undertake the conciliatory resolution that binds its principal.
24.- Individual Social Security Conflicts. In the chapter on special proceedings, there is a new chapter called individual social security conflicts, which is intended to allow employees, insured parties, retirees or beneficiaries to file a claim for benefits in cash or in kind, deriving from the Social Security (IMSS) Law or the National Fund for Worker Housing (INFONAVIT) Law, directly from such institutes or directly from the pension fund management service companies (AFORES) or those that arise from the collective bargaining agreements or legal agreements that provide for social security benefits.
25.- Fines. The number of minimum daily salaries due by employers for violations is increased and may vary between 250 and 5000 times the daily minimum salary depending on the violation.
26.- Term. Finally, it is important to note that the first transitory article of the Labor Reform establishes that the new changes will come into effect on the day following their publication in the Official Journal of the Federation, except for the adaptation of facilities for individuals with disabilities (36 months later) and the affiliation with the National Fund for Worker Consumption (FONACOT) (12 months later).
In our view, the above changes comprise the most relevant amendments to the Federal Labor Law. Other provisions were amended and may be reviewed with our firm's Mexican labor law attorneys, if required. Although many of the provisions of the law were amended, others still remain pending and, in time, will likely be incorporated into a total reform that will likely further Mexico's competitiveness in the global labor market by providing transparency in the operation of labor unions.