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MEXICO: An Introduction

Contributors:
Chevez, Ruiz, Zamarripa y Cia., S.C. Logo
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Mexico: Labour & Employment 

Almost two years after the start of the global sanitary pandemic, and December 2021 marking Andrés Manuel López Obrador’s presidential mandate midterm, Mexico has undergone many political and social shifts and challenges, resulting in industries having to adapt to the “new normal”.

Particularly from a labour and employment standpoint, the most relevant changes the country has gone through in the last year and which will have a major impact in the years ahead, lie in: (i) the implementation of the 2019 Federal Labour Law Reform, (ii) the first application of the USMCA Rapid Response Labour Mechanism, and (iii) the entry into force of the Outsourcing Reform.

In the aftermath of the global COVID-19 pandemic, the Mexican society and economy have been significantly impacted; however businesses have adapted quickly to the new forms of work and collaboration for ensuring economic stability, health and safety. In this respect, we intend to provide a brief overview below of these matters which are undoubtedly relevant and challenging for companies operating in Mexico today and most likely in 2022.

• USMCA 

On July 1st, 2020, with the United States-Mexico-Canada Agreement (“USMCA”), the “Rapid Response Labour Mechanism” - a novel dispute resolution process for sanctioning denial of collective labour rights by Mexican companies (freedom of association and right to transparent and free collective bargaining negotiation) -became enforceable.

2021 witnessed the first claims initiated by the US Government against two major car and automotive parts manufacturers in Mexico. In the first case, the Office of the US Trade Representative (“USTR”) asked the Government of Mexico to review whether workers at a car manufacturer facility in Mexico were being denied the right of free association and collective bargaining. In the second case, two labour organizations in the US and one union in Mexico filed a petition with the United States’ Interagency Labor Committee alleging that certain facilities producing automotive parts in the northern part of the country were constantly denying collective bargaining rights to their workers.

Both claims were resolved by the companies through remediation procedures before any further assembly and intervention of a dispute resolution panel; however, they set the tone and expectation of the relevance that the USMCA will have in the internal labour management of Mexican companies.

• Labour Law Reform 

As a result of the Labour Law reform of 2019, which created a new labour justice system in Mexico, a three-stage plan was established for its implementation across the country involving the replacement of Labour Boards with Labour Courts and the creation of a new decentralized administrative body taking over registration of collective bargaining agreements, unions, internal labour regulations and conciliation/mediation activities (previously shared between the Ministry of Labour and Social Welfare and the Labour Boards) called Centre of Conciliation and Labour Registration (“FCCLR”), along with local courts and office conciliation centres in different states and cities of the Mexican republic.

In this respect, as of this date, stages one and two have been completed resulting in the new labour justice system being up and running in the following states: Campeche, Chiapas, Durango, Mexico State, Hidalgo, San Luis Potosí, Tabasco, Zacatecas, Aguascalientes, Baja California, Colima, Guanajuato, Guerrero, Morelos, Oaxaca, Puebla, Querétaro, Quintana Roo, Tlaxcala and Veracruz. The new labour justice court and administrative system is expected to be fully set up and completed by May 2023.

Finally, in November 2021, the FCCLR started its collective labour law registration functions across the Mexican republic. This means that upon such date, any new internal labour regulations, collective bargaining agreement or any overall reviews or restatement of collective bargaining agreements negotiated between the union and the company must be registered in the new system at the FCCLR. This is a breakthrough moment as unions must now undergo consulting (voting) proceedings with the employees.

• Outsourcing 

In April 2021, the Outsourcing Reform was published in the Official Gazette of the Federation amending, among others, labour and tax regulations, and finalizing its entry into force on September 1st, 2021.

The purpose of such a reform is to prohibit the outsourcing of personnel, defined as that by which an individual or legal entity places its own workers at the disposal of another individual or legal entity, and to incorporate rules that allow only the hiring of specialized services or works, provided that they are not part of the corporate purpose or of the predominant economic activity of the beneficiary of such services and that the provider of such services is registered before the Ministry of Labour and Social Welfare.

Other novelties of the reform are that profit sharing individual distribution amounts are capped, and that the companies that engage specialized services or works will be jointly and severally liable, together with the supplier of such services, in case of non-compliance with the labour obligations with the workers of the latter.

From a tax perspective, payments or consideration paid for outsourcing personnel will not have tax effects of deduction or crediting, as well as the payment or consideration paid for the subcontracting of specialized services, when the supplier does not comply with the new applicable requirements.

In the event the labour authorities determine that either the services provider or the beneficiary of the services is non-compliant with the new provisions, several labour, tax, criminal and social security sanctions and fines could be imposed.

Such a reform entails important implications with regards to the corporate and labour structure of many companies that currently operate in Mexico through outsourcing, insourcing and similar arrangements.

• Teleworking regulations 

In January 2021, a reform on teleworking matters was published in the Official Gazette of the Federation, finally regulating this work modality in Mexico.

This reform incorporated the definitions of teleworking and teleworker, as well as the obligations for both employers and employees, including the execution of an individual employment agreement contemplating the specific working conditions, as well as the obligation for the employer to pay telecommunication services and the proportional part of electricity for teleworkers.

• COVID-19 

With the news that COVID-19 vaccination was being made available to the public, several questions were raised in connection with labour rights and obligations, both from an employer and employees point of view: can employment be conditional on getting the vaccine? Do employers have the obligation to accommodate non-vaccinated employees, or to grant leaves in order for them to get vaccinated? All these inquiries, rather than finding a clear answer, highlighted the lack of regulation thereof in Mexico, leaving employers with legal vacuums to deal with.

Generally speaking, the Mexican government mentioned that employment cannot be contingent on one’s vaccination status, considering that vaccination is not mandatory in Mexico, in addition to discriminatory issues. In the light of the above, if employers may not dismiss employees based on their vaccination status, many of them have conditioned the access to their facilities on such ground, backing this position with their obligation to ensure the safety of the workplace and of employees, and accommodating non-vaccinated employees.

With regards to granting leaves to employees in order for them to attend vaccination centres, the Mexican legal framework has also been exceeded, and a legal criterion is yet to be found in order to adequately regulate this situation. Taking into consideration the peculiar and sensitive situation that is a global sanitary pandemic, but also the constitutional right to proper health and human dignity, most employers in Mexico have taken the stand to grant paid leaves to their employees in order for them to get immunized, to ensure the safety of the workplace, setting forth the corresponding terms and conditions in internal policies.

In summary, all these issues, events and novel circumstances have created new ways of managing and regulating employment in Mexico and there is no doubt that they will serve as ground to future major changes and innovations in the labour and employment arena. Interesting times lie ahead.