During the last two years, a record number of Carolinas-based employers have started doing business in Mexico, in many cases to take advantage of the low base wage rates. Some of those employers, however, have concluded that the burdensome restrictions placed on businesses by Mexico's complex and pro-Labor laws make it difficult to meet productivity goals. This is especially true for manufacturers not accustomed to working with unions.
For these reasons, we urge Carolinas-based employers to carefully evaluate Mexican labor law issues before finalizing plans to operate there. To assist with this evaluation, we provide below a summary of the main provisions of Mexican labor laws.
Every employee not covered by a labor union contract is entitled to a written agreement stating specific terms of employment.
Mexican employees are generally entitled to keep their jobs indefinitely, or for as long as the job exists. The employment agreement may provide for a definite period of employment only if the type of work to be performed calls for a specific activity or period of time. For example, if the worker is hired for a construction project or to temporarily replace another employee, the employer can limit the worker's duration of employment.
Unlike the Carolinas, where employment at-will is the general rule, an employer in Mexico can terminate an employee without incurring liability only for "just cause." Mexican law provides specific examples of just cause for dismissal, including use of false documentation to secure employment, intentionally or negligently damaging the employer's property, and disclosure of trade secrets or confidential information. The employer has the burden of proving just cause.
A terminated employee may appeal to the appropriate federal or state conciliation and arbitration board. Conciliation and arbitration boards are administrative/judicial bodies responsible for mediating alleged labor law violations.
As a practical matter, it is very difficult for the employer to win a termination case. If the conciliation and arbitration board rules against the employer, as it usually does, the employee is entitled to reinstatement or an indemnification equivalent to three months' wages, whichever the employees chooses. The employee also is entitled to back pay from the date of termination until the date of the award, without offset for interim earnings.
The employer is not obligated to reinstate employees in certain cases -- for example, if the employee works in direct and constant contact with the employer and a normal relationship is impossible. If the employer does not reinstate such an employee, however, it must pay an indemnification usually equivalent to 20 days' wages for each year of service, in addition to three months' wages and back pay.
Workers who are terminated with or without cause, as well as those who resign with 15 or more years of seniority, also are entitled to a seniority premium equivalent to 12 days' salary for each year of service.
If an employee has to work on a Sunday, he is entitled to a 25 percent premium for that day. If an employee has to work on a mandatory holiday, he is entitled to double pay for that day.
Employees are entitled to paid vacation days depending on years of service. Vacation pay equals regular pay plus 25 percent. Employees are entitled to a Christmas bonus equal to 15 days wages.
Mexican employees are entitled to share in their company's profits. The rate of profit sharing is determined every 10 years by a national commission. The rate is currently 10 percent of the employer's taxable income. In isolated situations, profit sharing is limited to one month's salary. Certain companies are exempt from paying profit sharing. These include newly incorporated companies during the first year of operation and newly incorporated companies engaged in making a new product during the first two years of operations.
Employers must negotiate labor contracts with unions represented at their plants upon request. Because unions need not win an election, the unionization rate in Mexican manufacturing plants with over 25 employees is approximately 80 percent.
Accordingly, we urge clients to consider labor law issues before opening or starting, or acquiring joint or sole control of, a Mexican business.