Introduction
Analysis
Comment


Introduction

On December 1 2012 major reforms to the Federal Labour Law entered into force. Among other revisions, Article 48 was amended to establish a limit on the lost wages that employees may claim from employers in case of wrongful dismissal.

Before the reform, Article 48 provided that in case of wrongful dismissal, lost wages claims covered the date on which the employment was terminated until the date of compliance with the final judgment, without limit.

However, labour proceedings initiated since the reform must follow new rules, including the limit on lost wages claims to 12 months' salary. Where the proceedings are not completed after 12 months, the interest generated by 15 months' salary (calculated at a 2% monthly rate) is added to the claim.

This limit was highly controversial before the reform was approved and has since been appealed before federal courts in several labour cases across the country.

Until recently, federal courts had held that the limit on lost wages claims did not conflict with the Federal Constitution or international treaties on human rights. In their decisions in amparo proceedings (constitutional challenges), federal courts of the Sixteenth, Nineteenth and First Circuits affirmed as much in August 2014, February 2015 and August 2015, respectively.

However, in October 2015 the Sixteenth Federal Court on Labour Matters of the First Circuit ruled that Article 48's limit on lost wages is unconstitutional and against the principles established in several international treaties on human rights.

Analysis

The court based its decision on the following legal considerations.

Progressive principle
Decision
The court held that the lost wages limit does not respect the progressive principle in the Federal Constitution, according to which the state should provide better and wider human rights protection in favour of employees.

Comment
Even though the progressive principle envisions a desirable standard for human rights, it cannot be understood as preventing the state from imposing a limit on the general indemnity concept enshrined in the Federal Constitution as a penalty for employers that wrongfully dismiss employees.

Further, the limit is intended to prevent workplaces (especially small to medium-sized enterprises (SMEs)) from being shut down by overwhelmingly large lost wages payments – which would trigger additional terminations.

Rewarding employers
Decision
The court stated that the limit rewards employers, since employees who are wrongfully dismissed are deprived of their lost wages for the duration of the proceedings.

Comment
The ruling overlooks the fact that Article 48 establishes an important economic penalty against employers which terminate their employees without cause (ie, the obligation to pay 12 months' lost wages plus the corresponding interest, if applicable).

Incomplete damages
Decision
The court stated that the amended article does not fully compensate for the damage caused by the employer, which encourages the recurrence of wrongful dismissals.

Comment
This statement seems to have no objective evidence to support it. From a business perspective, it seems odd that an employer would be willing to carry out a wrongful dismissal with the consequence of paying one year's lost wages, plus interest and legal fees, in exchange for no work performed by the plaintiff during the consequent litigation.

State responsibility
Decision
The court argued that the state should ensure that labour proceedings are resolved promptly and that employees are not affected by excessively long proceedings.

Comment
This is true. However, it can be argued with the same level of soundness that employers should not be affected by long proceedings either.

Reality principle
Decision
The court stated that, when the context and effects of the amendment are examined through the lens of the 'reality principle', the lost wages limit does not protect employers from bankruptcy.

Comment
In order to reach this conclusion, the court considered only formal bankruptcy proceedings brought before district courts. However, SMEs are far less likely to institute this process than large corporations. Factual bankruptcy without a legal declaration of any kind is common among SMEs.

Further, application of the reality principle should also encompass the fact that after filing a labour claim, employees do not wait until the final resolution is issued to resume their productive activities. For obvious reasons, they engage in other endeavours to generate income, as the law cannot prevent them from doing so during the litigation – even though they are claiming wages lost during that period.

Unnecessary and disproportionate
Decision
The court stated that the lost wages limit is not necessary for reducing the duration of labour proceedings and is disproportionate, as no analysis was carried out to prove the connection between the limit and the alleged benefits of the reform.

Comment
A limit on the level of indemnity to be covered as a result of wrongful dismissal was arguably necessary in order to discourage excessively lengthy litigation. This was one of the key aims of the reform; as time passes, this aim appears to be closer to realisation.

Regarding proportionality, proper ad hoc studies should have been conducted before establishing the 12-month limit. However, there is no evidence that such analysis was conducted before establishing the limit.

Comment

Since this judgment evidently conflicts with those of other federal courts ruling on the same subject, the controversy will likely be resolved by the Supreme Court within the next few months.

The Supreme Court will face a significant challenge in assessing whether the revised Article 48 restricts employees' human rights – particularly considering that the limit on lost wages claims was one of the biggest changes included in the reform to the Federal Labour Law, intended to reduce length of litigation proceedings and improve Mexico's competitiveness.

For further information on this topic, please contact Francisco Udave Treviño at Santamarina y Steta by telephone (+52 55 5279 5435) or email (fudave@s-s.mx). The Santamarina y Steta website can be accessed at www.s-s.mx.

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