On November 30, 2012 Mexico adopted material changes to its labor laws. These changes seek to modernize Mexican labor law and will have a profound effect on the way employers operate in Mexico.  While the new law will make it easier for employers to hire and terminate employees without the need to pay mandatory severance, it also creates new obligations relating to mandatory training, harassment, employment of people with disabilities and Mexican employees transferred to work outside of Mexico.

The Reform changes include (i) increased flexibility in employment relationship, (ii) creation of more job opportunities, (iii) opportunities for young people to enter the workforce through training programs, (iv) promotion of competitiveness, and (v) a balance between the rights of employees and employer.

Long known for its mandatory severance, the Reform creates several new employment relationships or contracts, as well as acceptable grounds for termination, which alleviate the employer's obligation to pay severance upon termination. 

The law creates a new "probationary period" of up to 30 days, which can be extended up to 180 days, and a "training contract" of up to 3 months, which can be extended up to an additional 6 month period, if the employee is hired as an executive, manager or director or fills an administrative position.  If an employee is hired pursuant to a probationary contract or a training contract and is determined to be not suitable for the job, the employer may terminate employment after considering the opinion of the Joint Commission on Productivity and Training (a group of employer and employee representatives).  A termination pursuant to these terms will not be deemed to be a wrongful termination, so the employee may not file a claim for severance.

Similarly, the severance obligation is eliminated if the grounds for termination are:

  • the commission of immoral acts, harassment or sexual harassment by the employee against any person in the workplace;
  • inappropriate behavior of the employee with clients or suppliers, unless the employee is acting in self-defense or is provoked; and
  • the lack of licenses or accreditation require under applicable law and regulations for the provision of services.

Back pay has also been limited to 12 months' salary under the new law, regardless of how long the labor proceeding lasts.  This considerably reduces the labor contingencies for employers who have previously been subjected to back pay until the date the employee is actually paid following a judgment in the employee's favor by the labor authority--typically about 4 years.

The new law imposes much higher and material fines for employer breaches to its obligations under the law and materially changes the rules of evidence and procedure relating to new lawsuits filed after December 1, 2012. While the actual application of the law by the authorities and the courts is still to be determined , the new law which became effective December 1, 2012 will change the playing field and will certainly bring much more administrative oversight, audits and the potential for lawsuits.

The Reform has not been translated into English, yet, but is available in Spanish.