Employment Substitution

January 23, 2007
Employment Substitution

Mexican Federal District Courts, with the assistance of directive given by the Supreme Court of Justice of Mexico, have established that asubstitution of employer takes place when the party acting as the employer transfers directly or indirectly its business to a third party.According to the concept of employment substitution, the transferring employer is jointly responsible with the transferee employer regardingall labor and Social Security obligations for a term of six months with respect to any acts or obligations arising prior to the transfer. Withrespect to housing benefits, the joint liability has a term of two years. Various causes may lead to a substitution of employer, including someof the most common: i) when a company or individual acquires the labor force being used by a third party; ii) when a third party acquires amajority or totality of the productive assets of a company and continues using them in the same business, and iii) when a company, underthe same corporate scheme, manages its employees, assets and production capacity and desires to separate its employees into a differentcompany distinct from the one that maintains its assets and production capacity.

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