New Regulation of Outsourcing Companies

May 17, 2008
New Regulation of Outsourcing Companies

During the last decade, Mexico has seen the creation of many outsourcing services providers, which has led to such outsourcing companies assuming labor obligations and possible labor contingency liability generated from these labor relationships. This phenomenon has been accompanied by an unintended negative consequence,which is that often the outsourcing companies do not comply with minimum requirements of their employees and frequently disappear or constantly change names to avoid the corresponding labor liability, leaving employees defenseless and without their minimum labor rights. Given the difficulty of regulating outsourcing, and the difficulty of amending the Federal Labor Law (Ley Federal del Trabajo, or LFT), the Mexican lower house of Congress (Cámara de Diputados) approved a package of reforms of the Social Security Law (Ley del Seguro Social, or LSS), which will now be debated in the Mexican Senate. The proposed reform would have the following effects: (1) clients who contract for outsourcing services would be jointly responsible for labor obligations (which is already contemplated in the LFT), that is, both companies would be responsible for responding to employees’ labor demands; (2) outsourcing companies would be required to report to the Mexican Social Security Institute (IMSS) on a monthly basis during the first five working days, the name, corporate name, domicile, federal taxpayer registration number and IMSS employer number of their clients, as well as the names and IMSS numbers of the outsourcing company’s employees; and (3) outsourcing companies would be required to issue a monthly certification indicating the name and address of their clients, where the labor services are being provided, and the salary for such services. If the new initiative becomes law, it will represent a significant move toward regulating outsourcing companies, and it will also mean that businesses relying on outsourcing companies for their employment needs could be held liable for the labor obligations of the outsourcing companies, being directly liability to the employee or employees in a given case. For this reason, it would be prudent for businesses to hire outsourcing companies that have sufficient assets and resources to cover the labor obligations Mexican law imposes on Mexican employers.

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