Mexican Labour Law grew out of an armed revolution that concluded with the adoption of the current Federal Constitution in 1917. Article 123 of the Federal Constitution, entitled "Labour and Social Welfare", expressly recognises and protects the basic inalienable rights of employees. This was the first constitutional recognition of labour rights in world history. Thereafter, in 1931, the first Federal Labour Law was enacted to regulate employer-employee relations nationwide, later replaced by the 1970 Federal Labour Law, which improved working conditions for employees. The 1970 Law was, for all practical purposes, the federal government's "political reward" to workers' organisations for not supporting the 1968 student movement.

In 2012, President Felipe Calderon introduced a Bill to amend the Mexican Federal Labour Law, which came into force later that year. The reform (the New Law) amends and includes important provisions to the Mexican Federal Labour Law which has extensive implications for employers with operations in Mexico.

Issues arising on hiring individuals

Immigration

To work in Mexico, foreign citizens must obtain a work permit from the National Immigration Institute (INM). With a work permit it is possible to also apply for a residence visa. Since a change in the Mexican immigration law in 2012, the company offering the job has to apply to the INM for a work permit. Once the permit is granted, the foreign citizen must collect it from the Mexican Consulate in their country of residence.

Employment structuring and documentation

The New Law defines an employment relationship as the provision of a subordinated personal service by one person to another, in exchange for the payment of a wage and the execution of an individual employment agreement. The main element of any employment relationship is subordination, which the then Fourth (currently Second) Chamber of Mexico's Supreme Court of Justice has defined as the employer's legal right to control and direct the employee and the employee's corresponding duty to obey the employer. Once an employment relationship exists, all the rights and obligations under the Federal Labour Law automatically apply, regardless of how the agreement is characterised by the parties.

The employment agreement should set out the conditions under which the work is to be performed. According to Article 25 of the New Law, an employment agreement must include: (1) the names of the employer and employee , and nationality, sex, civil status, Unique Population Registry Code ("CURP") and address; (2) whether the employment agreement is for an indefinite term, for a specific project or term, for initial training and/or for season, and/or subject to a probationary period; (3) a description of the services to be provided; (4) the place(s) where the work is to be performed; (5) the length of the work shift; (6) the salary and day and place of payment; (7) training the employee will have in accordance with the procedures and programmes established by the employer as required by the New Law, and (8) other terms and conditions of employment, such as days off and vacation agreed by the employee and the employer.

The employer is responsible for the execution of the agreement. The fact that there is no signed employment agreement does not deprive the employee of their rights under the New Law.

Any individual employment relationship is subject to the principle of "job security", that is, subject to the employee's right to keep their job as long as the employment relationship so requires. If the employment relationship is for an indefinite term, the employee cannot be dismissed without cause. If the relationship is for a specific project, the employee may keep their job until the specific task is completed.

In the case of employment agreements for an initial training, or subject to a probationary period, the employee cannot be dismissed until the corresponding effective term has elapsed and/or the employee fails to prove that they have the requisite knowledge and skills to perform the duties for which they were hired. In addition, the employer must hear the opinion of the Joint Committee for Productivity and Training before terminating these employment agreements.

The Federal Labour Law assumes, as a general rule, that an employment agreement is for an indefinite term, unless the nature or the particular type of services to be provided calls for an employment agreement for a specific project or term, or if the parties agree to an employment agreement for initial training or subject to a probationary period. Specific rules under the New Law apply to these arrangements.

Issues arising during the employment relationship

Wages, annual leave and working time

The current daily minimum wage in Mexico City is MXN 80.04 (approx USD 4.0). The parties may agree an hourly rate, which cannot be lower than the applicable minimum wage.

The New Law entitles employees to the following fringe benefits: (1) a year-end bonus equivalent to at least 15 days' wages, payable before 20 December each year; (2) annual leave, the length of which varies according to the employee's seniority; the New Law stipulates 6 days' leave for the first year of service; however, most labour contracts provide for more annual leave; (3) a vacation premium of 25% of the salary payable during the vacation period; and (4) mandatory paid holidays.

The New Law recognises three work shifts:

day shifts: eight hours between 6:00 a.m. and 8:00 p.m.

night shifts: seven hours between 8:00 p.m. and 6:00 a.m. and

swing or "mixed" shifts: 7.5 hours, divided between the day and night shifts, provided that less than 3.5 hours is during the night shift.

Workers are given a rest period of at least half an hour during a work shift. However, for the work shift to be deemed discontinuous, the rest period should be at least one hour, and the employee must be able to leave the company's premises.

In principle there is a 48-hour week, provided employees have one complete day of rest with full pay. However, in some employment relationships, such as in government service, the banking sector, and much of the private sector, a 40 hour week has been established. The 40 hour working week may be over 5.5 days, or any other equivalent arrangement.

The New Law limits overtime to 3 hours per day, for a maximum of three consecutive days, and overtime must be calculated and paid on a weekly basis.

Overtime must be paid at twice the hourly rate of pay. Article 68 of the New Law establishes that if more than 9 hours' overtime is worked in a week, the additional hours must be paid at triple the hourly rate.

Trade unions

The New Law protects freedom of association and the incorporation of trade unions. Employees may also obtain improvements in working conditions through a collective bargaining agreement. Collective agreements are executed by one or more employees' unions with

one or more employers, or employers' associations, and may be of definite or indefinite duration or for a specific project. Collective bargaining agreements may not reduce employees' rights under the New Law. The employer of unionised workers is required, at the union's request, to negotiate a collective agreement. If an employer fails to enter into a collective agreement, the workers may exercise the right to strike. Either party may request an annual review of the wage scale and every two years for a review of all other provisions of the collective bargaining agreement. The provisions of the collective bargaining agreement cover all employees regardless of union membership, although management employees may be expressly excluded. The New Law requires the Labour Board to disclose information regarding collective bargaining agreements filed with the Board. Employers must post, the complete text of the applicable collective bargaining agreement in visible places in the workplace.

Social insurance

All workers regardless of their nationality must be registered at the Social Security Institute (IMSS), the entity responsible for providing medical services, as well as pensions and health and safety compensation. All social security contributions are calculated on the employee's earnings. For this purpose, the salary used as the base for the calculations must not be less than the general minimum wage (for the Federal District), or more than the maximum limit (currently 25 times the minimum wage).

This regime is mandatory for all employees, even if the employer is exempt from paying taxes.

The New Law defines the employment relationship as the provision of a personal subordinated service to another, in exchange for the payment of compensation (salary or wage), irrespective of how the relationship originates. So, whenever a subordinate relationship exists in exchange for the payment of compensation, this will be an employment relationship, and the employer must register the employees with the IMSS.

Notwithstanding this, in Mexico, social security contributions are considered as taxes, according to the Federal Tax Code, and the IMSS is the authority which has jurisdiction to demand payment of the unpaid contributions. Failure to make contributions could be considered as tax fraud.

Employers are responsible for withholding income tax in respect of their employees.

Issues arising on termination of the employment relationship

Business transfers

Under the New Law, an employer is substituted when the essential assets used in the operation of a business are transferred so that the transferee continues operating the business.

The New Law expressly provides that a business transfer does not affect existing employment relationships. As a result, the new employer cannot modify existing employment agreements in any way.

The New Law additionally states that the transferor is jointly liable with the transferee for six months after the transfer for (1) any obligations derived from the employment relationship, or that existed in law before the effective date of the transfer and (2) social security related obligations. After such terms expire only the transferee remains liable.

Joint liability runs from the date the employees are notified of the change of employer. They must be notified of this in writing, either directly or through the union (if applicable).

Terminating employment

Employers in Mexico can only dismiss an employee without liability for misconduct on one of the 16 grounds set out in the New Law.

For such dismissals, employers must deliver a termination notice to the employee, either directly at the time of the dismissal or through the competent Conciliation and Arbitration Labour Board (federal or local) within 5 days of termination.

An employee may appeal their dismissal within two months to a Conciliation and Arbitration Board (an administrative agency responsible for resolving labour disputes). If the employer fails to show the employee was guilty of the conduct in question, the employee can request (1) reinstatement, or (2) payment equivalent to three months' full salary (this includes premiums, bonuses, commission, etc., and all benefits) plus 20 days' salary for each year of service. The employee also has the right to be paid back salaries from the termination date for a maximum of 12 months.

In certain circumstances, an employer is not obliged to reinstate an employee with less than one year's service where a normal working relationship is impossible.

All employees who are dismissed, as well as those who resign with fifteen or more years' service, are also entitled to a seniority premium equivalent to twelve days' salary for each year of service, subject to a maximum equivalent to twice the minimum wage (plus pro-rated annual leave, leave premium, and year-end bonus).

Published in collaboration with L&E Global: an alliance of employers’ counsel worldwide

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