MEXICO: An Introduction to Labour & Employment

For more than 25 years Mexico’s labour legislation was characterised by its stability. A small number of relevant reforms were passed, and the employment status quo prevailed for several years. However, the last three years have been marked by important legal reforms in Mexico, particularly related to employment matters, the effects of which have impacted upon 2022. The ratification of the new USMCA, jointly with the profound Labour Law reform of 2019 regarding labour justice and collective affairs,  the teleworking reform published in January 2021 and the controversial outsourcing reform published in April 2021, have brought new rules and several consequences for companies operating in Mexico and their ways to develop business.

While the aforementioned reforms were published in past years, their implications crystallised in this year 2022, which could be summarised as follows:

•Collective affairs 

Transitory provisions of the reform to the Federal Labour Law issued in 2019 state that no later than May 2023 all collective bargaining agreements currently in force shall be subject to a “legitimation process”, which is a one-time proceeding necessary for the registration of such agreements before the new registration authority, the Federal Centre of Conciliation and Labour Registration, in order to ensure that these agreements count with the support of the employees it is supposed to cover. The aforementioned procedure shall be carried out by unions without the interference of the employer. The legitimation process mainly consists of a consultation based on which all unionised employees would have to express, through their personal, direct, and free vote, their approval or disapproval regarding the collective bargaining agreement applicable to them.

Any collective bargaining agreement that is not legitimised under the aforesaid process before May 2023 will be deemed as legally terminated.

During 2022, unions around the country have been carrying out the legitimation process in order to preserve their collective bargaining agreements, mainly in the industrial sector. However, it is likely that, after the abovementioned deadline, there will be a significant number of companies that would rather remain with a union-free environment, especially those companies that had executed “protective” collective agreements in order to avoid aggressive unions swiping in.

The main impact to be expected from such reform, from a collective bargaining perspective, is a drastic change in the employee-union relationship, because as of May 2023 unions will need to accredit that they count with the support of at least 30% of unionised workers in a given company in order to be able to execute and renew a collective bargaining agreement, meaning that unions will need to get closer to the working population and ensure that its interests are being considered if they want to maintain and secure their presence in any company.

•Teleworking (post-pandemic) 

In January 2021 a reform on teleworking matters was published in the Official Gazette of the Federation, defining teleworking as a new form of organisation of employment relationships. However, due to the fact that at the time of its publication a great number of employees in Mexico were on a mandatory lockdown due to the COVID-19 pandemic, the referred reform did not have such a strong impact for companies and was overshadowed by other reforms such as the outsourcing reform.

Now, as the COVID-19 pandemic seems to be under control and many companies are requiring their employees to return to their conventional workplaces, new paradigms arise, mostly because the pandemic showed that many employees can be equally productive working from their homes and avoiding traffic and added expenses for both employers and employees, all of which are evidence of the convenience of working from home for many employees, not counting the fact that employees can spend more time with their families.

Therefore companies in Mexico are looking internally to decide which positions would be able to remain as teleworking roles or experimenting with hybrid schemes that allow employees to go to their conventional workplace for a few days per week as the rest work from home.

The above involved companies analysing whether the new teleworking regulations would apply to them. Indeed, the aforementioned reform entails that any work that is performed more than 40% of the time from a place different to the employee’s conventional workplace shall be deemed as teleworking. This definition is relevant because companies that include teleworkers in their staff would need to comply with the new obligations associated with this new form of organisation, specifically the payments of the teleworking costs, which include communication technologies and even the pro rata use of electricity. In addition, the Ministry of Employment is pending to issue a Mexican Official Norm, aimed at regulating health and security aspects associated with teleworking. The deadline for the issuance of the referred rule was on 13 July 2022. It is expected that this auxiliary regulation will contain additional obligations for employers, such as carrying out a diagnosis regarding the health and safety of the place from where the employee would be rendering his/her services; and the issuance of a teleworking policy, among other matters.

•Profit Sharing 

On 23 April 2021 the "Decree reforming, adding and repealing various provisions of the Federal Labour Law, the Social Security Law, the Law of the National Employees’ Housing Fund Institute, the Federal Tax Code, the Income Tax Law, the Value Added Tax Law, the Federal Law on Workers in the Service of the State, which regulates Section B) of Article 123 of the Constitution, and the Law Regulating Section XIII Bis of Section B, of Article 123 of the Political Constitution of the United Mexican States" was published in the Official Gazette of the Federation.

Due to this reform, the subcontracting of personnel, also known as "outsourcing", is now banned, and new rules have been provided for companies to contract the provision of specialised services and works which are not related to their corporate business or preponderant economic activity, with different scopes in labour, tax, social security, and corporate matters.

Taking into consideration the burden that was imposed by this reform on companies operating in Mexico, the government included what could be considered a gesture towards companies, in order to incentivise compliance: a new cap rule was established on the payment of profit sharing.

As already established, among the most relevant modifications of this reform is the addition of a subsection VIII to Article 127 of the Federal Labour Law, which states: “The amount of the profit share shall be limited to a maximum of three months of the employee's salary, or the average of the participation received in the last three years; the amount that is most favourable to the worker will be applied."

Except for the above provision, no other rule relating to the calculation and payment of profit sharing was modified, so it is pertinent to conclude that the method for determining the payment of profit sharing remains unchanged.

Furthermore, in what concerns the remaining profit sharing that could result after applying the new caps referred to in the mentioned provision, such amount should no longer be considered as a profit that should be distributed among employees. That is, it shall be considered as non-distributable profit. Therefore the aforementioned remainder should not be accumulated to the profits distributable in the following fiscal year.

The foregoing, derived from the fact that for the calculation and payment of the capped profit sharing, 10% of the taxable income referred to in the Mexican Constitution, the FLL and the resolution of the Joint Commission for the Distribution of Profits were already considered as a basis. In addition, Article 122 of the Federal Labour Law makes this reference: "The amount of the unclaimed profits in the year in which they are payable will be added to the distributable profit of the following year," which means that the amount that is not distributed for having applied any of the ceilings established in the recently added section VIII of the diverse Article 127 cannot be interpreted as an "unclaimed utility" since the non-payment of the remaining profit sharing, once the aforementioned caps are applied, derives from the application of the law, so it is not susceptible to being claimed by the employees.

Notwithstanding the above, it is important to bear in mind that we are at an early stage regarding the implementation of the reform in question. Therefore the competent authorities have not yet issued criteria on the correct interpretation regarding the payment of profit sharing on the basis of this new regulation, but there is guidance published on the official website of the Ministry of Employment which is not considered as a binding regulation for employers.