The amendment to Mexico’s labor laws is a reality! Last week, outgoing president Felipe Calderon signed the decree (the “Amendment”) amending Mexico’s Federal Labor Law (“LFT”). The decree was published on Mexico’s official gazette on November 30, 2012 and became effective the day after its publication. While the Amendment does not address all the issues that employers and other sectors consider problematic, the Amendment does include very significant changes.

A.  “Temporary” Employment Agreements

The LFT recognized three types of employment agreements: employment for a fixed term, employment for a specific task, and employment for an indefinite term. By default the vast majority of employment agreements were for an indefinite term, unless the employer was able to justify using one of the other two.

The Amendment opens the possibility to have seasonal employees. The nature of the work must be truly seasonal for employers to use this modality. The employment relationship may be suspended during the periods between seasons.

The Amendment allows probation periods in employment relationships for an indefinite term or for more than 180 days. The probation period may be for up to 30 days or up to 180 days if the employee (i) is an upper level manager, (ii) will perform high level general administrative functions, or (iii) will perform special technical or professional functions. The only purpose of the probation period shall be to verify that the employee has the necessary requirements and knowledge to perform the work she was hired for.

The Amendment lets employers hire employees for an initial training period of up to three months (or up to six months if the employee will be an upper level manager or will perform high level general administrative functions or functions requiring special professional knowledge). The purpose of the training period is to allow the employer to provide initial training that would allow the employee to acquire the knowledge and abilities the employee will need to perform the activities she is being hired for.

After the probation period or the initial training period, if the employer determines that the employee does not meet the necessary requirements or did not acquire the necessary competencies required for the job, respectively, the employer may terminate the employment relationship without liability. However, the employer must observe a number of requirements to be able to do this, including the following. The probation period or the initial training period must be duly documented in the employee’s employment agreement. The probation period and the initial training period may only be used when the employee is first hired, may be used only once, and may not be extended or combined. The employer must consult with the Commission for Productivity, Capacitation and Training before firing the employee.

While these changes will allow much needed flexibility to many employers, employers must observe all the requirements to avail themselves of these new modalities of the employment relationship. Failure to observe any of the requirements, even if the failure may seem superficial, would likely cause the employer to lose the ability to terminate an employee that does not meet the necessary requirements or failed to acquire the necessary competencies required for the job.

B.  Outsourcing

The Amendment expressly permits hiring part of the labor force from outsourcing companies. However, the new rules are very restrictive. The outsourced employees may only perform part of the activities required by the employer. The outsourcing must be justified by the special nature of the duties being outsourced. The outsourced work may not be similar to the work performed by the employers’ own employees. Also, the employer has the obligation to verify that the outsourcing company (i) has the ability to comply with its obligations vis-à-vis its employees and (ii) does in fact comply with its obligations to its employees regarding safety, health and work environment.

Employers who currently use outsourcing companies should be particularly careful. The amendment includes new significant penalties for employers who use outsourcing companies maliciously or with the intent to diminish labor rights.

C.  Antidiscrimination; Social Welfare

One of the main purposes of amending Mexico’s labor laws was to promote the principles of decent and dignified work. The Amendment includes multiple provisions prohibiting discrimination on the basis of ethnicity, national origin, gender, age, disabilities, social status, health issues, religion, immigration status, personal opinions, sexual preference, marital status, or any other condition that may affect human dignity. It includes sections stating that women must have access to the same opportunities as men. The Amendment expands on the prohibitions against physical or verbal abuse and sexual harassment.

The Amendment revises the protections for the employment of minors. It modifies and expands the rights for maternity leave, including a leave right for employees adopting a minor, and creates a limited right for paternity leave. It also includes provisions regarding accommodations for workers with disabilities. The Amendment expressly forbids the practice of requesting pregnancy tests for hiring or retention purposes.

The Amendment expands the provisions protecting and promoting social welfare. It modifies and expands the obligations to provide and receive training and to promote safety in the workplace. Employers need to review their training programs to ensure those programs comply with the new expanded requirements. The decree modifies multiple provisions of the LFT dealing with employers’ obligations to register employees with the Mexican Institute of Social Security, the Housing Fund, the Retirement Fund and the (Lending) Fund for Consumables.

D.  Changes on Termination

The Amendment introduces a few changes to the process to terminate employees with cause. Employers still need to have good cause to terminate an employee without liability and the causes for termination are still limited to those listed in the amended LFT. The Amendment creates the following new causes for termination: (a) acts of dishonesty, violence, treats, injury, or ill-treatment by the employee, during work, against the employers’ customers and suppliers; (b) harassment or sexual harassment by the employee against any person at the workplace; (c) lack of the paperwork required by law to perform the services if the employee cannot produce such documents within two months from the date it is requested. The termination notice may now be provided to the employee or to the labor board.

E.  Cap on Back Pay; Overtime

Prior to the Amendment, under the LFT, if an employee was fired, sued the employer and the employer was unable to prove it had good cause to fire the employee, the employee was entitled to receive, among other damages, an amount equal to the salary the employee would have earned from the date of termination until the date all damages ordered by the court were paid. Because labor disputes may last years, the amount of this liability could be very significant.

The Amendment limits the damages for back pay to twelve months’ salary. However, if within the twelve month period the trial is not finalized or the judgment remains unpaid, if the employee prevails in the litigation the employer will also need to pay interests on the equivalent of fifteen months of salary (twelve months of back pay plus three months constitutional severance) at a two percent per month rate.

Also, if an employee claims overtime that exceeds nine hours per week, the Amendment seems to shift the burden of proof to the employee to prove that he worked more than nine hours per week of overtime. The employer still has the burden of proof in regards to the first nine hours of overtime per week.

F.  New Technologies

The amendment tries to address some of the realities related to the use of new technologies. For example, the revised provisions expressly state that salaries may be paid by deposits in a bank account, credit cards, transfers or other electronic means (employer must cover the costs of using any of these methods of payment). The parties will now be allowed to offer emails, faxes, electronic documents, electronic registrations, etc. to prove their actions or defenses in court. While these changes should make it easier for the employers to prove compliance with their obligations, employers must be careful with how they use and document the use of these technologies as their validity in court proceedings is still subject to certain conditions.

G.  Mexican Employees Working Outside of Mexico

The Amendment includes several provisions that affect Mexican employees working outside of Mexico. These provisions impose new obligations on the employers. The Amendment also creates obligations on employment agencies that recruit Mexican employees to work outside of Mexico. Companies that bring employees from Mexico must be aware of these new provisions.

H.  Mining Companies

The Amendment creates a new chapter for mining companies. Mining companies have to establish a system to advance the safety and health in the workplace. Mining companies may not hire workers under 18 years of age. The new chapter imposes some new minimum standards that mining companies need to meet, most of them dealing with training, hygiene, safety and health.

I.  Dispute Resolution

The Amendment modifies several provisions regarding the process to resolve disputes. The Amendment includes an emphasis on dispute settlement through various stages of trial.

J.  Increased Penalties

The Amendment increased different penalties to employers that do not comply with the LFT. The Amendment also creates new penalties, including criminal prosecution for employing children under the age of 14. It provides a new penalty for employers who use outsourcing of employees in violation of the revised provisions discussed above. Fines for a number of violations may be over $20,000 per violation.

While this article tries covering the more relevant issues, the Amendment covers more items than those discussed above. The changes are numerous and significant. Employers must become familiar with all of the changes and must put a renewed emphasis in compliance, including providing refresher training to their management and human resources team to enable them to fully observe the revised and new provisions of the Mexico’s labor laws.