Introduction

On December 1 2012 substantial amendments to the Federal Labour Law became binding. The foregoing reform included several important modifications to the regulation of employment relationships in Mexico.

Specifically, the amendments to the Federal Labour Law introduced Articles 15-A, 15-B, 15-C and 15-D. These provisions:

  • introduced and defined the outsourcing regime;
  • set out certain requirements that this regime must meet, as well as legal consequences for non-compliance with these requirements;
  • established the obligation that agreements between the parties under the regime be formalised in writing;
  • set out the contracting party's obligation to ensure that the contractor is solvent and fulfils safety, health and environment requirements; and
  • prohibited "fraudulent outsourcing schemes" (ie, those in which workers are deliberately transferred from the contracting party to the contractor to reduce their labour and employment rights), which are penalised by a substantial fine under Article 1004-C of the law.

These amendments (especially Article 15-A) immediately generated controversy with regard to their scope and reach, mainly due to deficiencies in the language of the provisions.

On June 24 2015 – nearly three years following enactment of the amendments – the Second Chamber of the Supreme Court of Justice issued a resolution in Amparo Trial (ie, constitutional appeal) 244/2015, in which the court determined that the new provisions regulating outsourcing schemes are not unconstitutional and further defined their scope and legal purpose. On August 5 2015 it issued another resolution (Amparo Trial 206/2015) confirming the previous decision.

Antecedents

Apart from specific exceptions set out in the Federal Labour Law, all employees in Mexico have the constitutional right to participate in the profits of the businesses for which they work (ie, profit sharing). The percentage of share participation is currently 10% of the employing company's pre-tax profit.

For many years before the reform of the Federal Labour Law, it was common for businesses to structure their operations as two distinct companies – one carrying out the operations with no employees and the other hiring the workforce only. A services agreement was signed between the two whereby the staffing company provided the workforce to the operating company for a fee, usually determined on a cost-plus basis. Employees under this structure were entitled only to the profits of the service/staffing entity. The purpose of this structure was mainly to administer (not eliminate) the profit sharing payable to employees; however, it was widely abused in order to diminish or evade fulfilment of labour, employment and social security obligations in general.

According to the initial message from former President Felipe Calderón when sending the bill to Congress, the purpose of the reform in matters pertaining to outsourcing and profit sharing was to "avoid the evasion and elusion of the fulfilment of employment related obligations". This purpose has been confirmed by the Supreme Court in the aforementioned resolutions, as well as unofficially by a Supreme Court justice in a press release.

Article 15-A of the Federal Labour Law introduces the outsourcing regime, defining it as work performed by a contractor with its own workers for the benefit of a contracting party, which sets the tasks for and supervises the contractor. It also provides that the outsourcing regime must meet the following conditions:

  • It must not cover all activities performed in the workplace;
  • It must be justified by its specialised nature; and
  • It must not comprise equal or similar tasks to those performed by the workers of the contracting party.

If all of these conditions are not met, the contracting party will in effect be considered the employer of the contractor's workers for all legal purposes, including with regard to the participation of these workers in the contracting party's profits and social security obligations.

Articles 15-B and 15-C respectively state that the agreement between the contracting party and contractor must be formalised in writing, and that the former must verify – on executing the agreement and throughout its duration – that the contractor:

  • has the necessary documentation and its own sufficient means to fulfil its labour and employment obligations; and
  • complies with the applicable provisions regarding safety, health and environment.

Article 15-D expressly prohibits fraudulent outsourcing schemes, setting a substantial fine for violators (from 250 to 5,000 times the general minimum wage in force in Mexico City, which can be imposed for each affected worker).

Irrespective of the deficiencies in the language of Article 15-A, it has been clear since its enactment that these provisions no longer allow the corporate structure used by many companies as detailed above. However, considerable controversy has remained regarding the scope and legal reach of the abovementioned articles, especially Article 15-A.

Supreme Court decisions

On June 24 2015 and August 5 2015 the Second Chamber of the Supreme Court issued final resolutions in Amparo Trials 244/2015 and 206/2015, respectively. Among other things, these decisions resolved or confirmed the following:

  • Articles 15-A, 15-B, 15-C and 15-D of the Federal Labour Law are constitutional, mainly based on the following considerations:
    • The provisions do not violate the principle of legal security;
    • The provisions are completely justified, since they derive from a necessity to adapt the law to current practice while protecting workers' rights;
    • The provisions do not violate acquired rights;
    • The purpose of Articles 15-A, 15-B and 15-C is constitutionally legitimate, mainly because they protect workers should the contractor fail to fulfil its obligations and guarantee the workers' labour and employment rights; and
    • The intent of the legislation was to dignify individuals and ensure the effectiveness of labour and employment rights in dignified and just conditions by providing adequate protection for such rights.
  • In further defining the outsourcing regime, the court stated that its purpose is to allow the contracting party to "exclusively devote itself to the basic activity of its business", since the contractor will provide it with the specialised resources to carry out such activity. Although the court did not categorically state it, under a conservative interpretation this could mean that it is not legally possible for a contracting party to use the outsourcing regime to subcontract or receive services which are part of its main business. In other words, the services rendered by a contractor under an outsourcing regime must be different from the contracting party's main activity/corporate purpose. This interpretation would be consistent with a recent press release in which Justice Margarita Luna Ramos sustained that it will be impossible to subcontract (outsource) activities that are part of the corporate purpose of the contracting party, providing as examples of activities that would be allowed under an outsourcing regime those that are not strategic or essential to the fulfilment of the contracting party's corporate purpose (eg, cleaning, private security, IT, legal and accounting services).
  • The court confirmed that the main purpose of the amendments to the Federal Labour Law regarding outsourcing is to "avoid the evasion of fulfilment of obligations in charge of the employer".

Comment

As the Supreme Court's resolutions confirm that the new provisions of the Federal Labour Law regarding outsourcing regimes are constitutional and that their main purpose is to prevent acts that are detrimental to workers' rights, companies using outsourcing regimes and those considering establishing a formal business presence in Mexico should conduct a careful review of their corporate structures and – in particular – the documents by which they have formalised such structures and commercial relationships with third parties/service providers, in order to ensure that they comply with the new provisions following the recent criterion issued by the Supreme Court.

For further information on this topic please contact Fernando A Gonzalez Arriaga at Santamarina y Steta by telephone (+52 664 633 7070) or email (fgonzalez@s-s.mx). The Santamarina y Steta website can be accessed at www.s-s.mx.

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