In November 2015 a federal court controversy erupted over the monetary limit to lost wages claims that was introduced as part of major reforms to the Federal Labour Law (for further details please see "Federal court controversy over limit to lost wages claims"). As several federal courts issued contradictory interpretations regarding the constitutionality of the lost wages limit in the context of labour proceedings initiated by employees, it was up to the Supreme Court to resolve the matter.
When the Supreme Court analyses a discrepancy in interpretation between multiple federal courts, the resulting decision becomes binding on all conciliation and arbitration boards (ie, labour courts) and federal courts (the appeal courts in labour disputes).
The Supreme Court based its decision on the following legal grounds.
The Supreme Court held that the lost wages limit respects the progressive principle enshrined in the Constitution, according to which the state should provide better and broader human rights protection for employees.
Both the Constitution and international human rights treaties on minimum employment standards to which Mexico is party provide that where an employee has been wrongfully terminated, he or she is entitled to reinstatement or an economic indemnity. Therefore, as long as these minimum standards are protected, the progressive principle cannot be understood as preventing the state from establishing a limit on the general concept of indemnity established in the Constitution as a penalty for employers that wrongfully dismiss employees.
Limit not regressive
The Supreme Court established that the lost wages limit does not eliminate the constitutionally enshrined penalty imposed on employers to pay an indemnity to wrongfully dismissed employees; rather, it regulates the manner in which that penalty should be calculated.
The Supreme Court deemed that the reasons behind the limitation were strong enough to merit its inclusion in the reforms enacted by Congress. It held that the purpose of the limit – which amounts to 12 months' salary, plus interest if the trial is not completed after one year – is to prevent proceedings from being artificially extended, as it is equally important to protect both employees' rights and employment sources.
The Supreme Court also considered that – along with the main limitation included in Article 48 of the Federal Labour Law – several other provisions (mainly regarding economic penalties) constitute part of the reform to prevent the parties and authorities from intentionally extending the litigation process.
Based on the average duration of litigation, the Supreme Court found it proportional to limit lost wages to 12 months' salary, as the corresponding legal provision also provides for added monthly interest of 2% of this amount – corresponding to 15 months' salary – for each month that the trial exceeds one year in duration.
As the lost wages limit was one of the biggest changes included in the reforms to the Federal Labour Law and was introduced both to reduce the length of litigation and to improve Mexico's competitiveness, the Supreme Court's confirmation that it does not violate the Constitution or the international treaties ratified by Mexico is welcome. The decision has helpfully emphasised the original objective of the limit – to avoid overwhelming penalties incurred from several years of lost wages, which would force many employers (especially small and medium-sized enterprises) to shut down and would in turn trigger further terminations.
For further information on this topic, please contact Francisco Udave Treviño at Santamarina y Steta by telephone (+52 55 5279 5435) or email (email@example.com). The Santamarina y Steta website can be accessed at www.s-s.mx.
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