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Labor and employment law challenges in business transformations

Mexico

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Workforce restructuring, also referred to as collective redundancies, are governed by Art. 433 of the Mexican Labor law (MLL).

Collective bargaining agreements can increase legal requirements. MLL does not establish any threshold regarding collective redundancies.

The same process applies irrespective of whether an employer makes redundant one employee or a significant number of employees.

Required legal justification

Collective redundancies, as any individual redundancy, are the result of the elimination of one or more positions due to a reduction of the work that must be justified by the following grounds:

  • Force majeure or acts of God that prevent the company to continue operating, at least, at the same level; the employer’s physical or mental incapacity or death (if the employer is a person), which produce as a necessary immediate and direct consequence, the termination of the work
  • Significant and obvious unprofitability of the exploitation
  • Depletion of the substance of an extractive industry
  • Insolvency or bankruptcy that is legally declared
  • Reduction of staff due to the introduction of machinery or new work procedures

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

In Mexico, there is no equivalent to the legal concept of works council.

Further, unless required by a collective bargaining agreement (CBA) applicable to the employer, the employer is under no obligation to consult the unions in order to move forward with the redundancy proceeding set forth in the Mexican Labor law.

An employer could negotiate a CBA with the unions on the measures aimed at limiting the negative impact of the redundancies on the potential impacted employees. This negotiation is not mandatory and must be approved by the Labor Board (labor authority in charge of labor matters and conflicts in Mexico); otherwise, the CBA will not be enforceable.

Consultation requirements with other employee representatives

The employer is not required to disclose any information to other employee representatives as a precondition to file the petition of collective termination with the Labor Board.

Consultation requirements with employees

Pursuant to the Mexican Labor law (MLL), the employer must seek approval or authorization of the Labor Board on the redundancies. If the Labor Board rules that the redundancies are justified and proved, then it will inform the impacted employees (directly or through the relevant union) of their redundancy. Therefore, the employer is not legally required to prepare any specific documentation to notify the employees of the redundancies.

In the specific case of introduction of machinery or new work procedures resulting in a downsizing and redundancies, the employer can choose to negotiate with all its employees or only the impacted employees on the impact of the collective redundancy and the measures to limit its negative consequences. This negotiation is not mandatory; however, if an agreement is concluded as a result of the negotiation, no approval of the Labor Court is required to execute the collective redundancies. For all other cases of collective redundancies established by MLL, approval of the Labor Board is required. For more information, see “Approval/ notification of the labor authorities or other government authorities.”

Approval/notification of the labor authorities or other government authorities

Pursuant to the Mexican Labor law, the employer must seek approval or authorization of the Labor Board (labor authority in charge of labor matters and conflicts in Mexico) on the redundancies.

Prior approval of the Labor Board is required (under different specific procedures) in case of:

  • Force majeure or unforeseeable circumstances not attributable to the employer; the employer’s physical or mental incapacity or death (if the employer is a person), which produces as a necessary immediate and direct consequence, the termination of the work
  • Depletion of the substance of an extractive industry
  • Significant and obvious unprofitability

Prior authorization of the Labor Board is required in case of reduction of staff due to introduction of machinery or new work procedures, only in the absence of an agreement with union or employees.

In the absence of approval or authorization by the Labor Board, the employer cannot execute the redundancies.

The approval process usually takes between 6 to 12 months.

Employee selection criteria

In order to determine which employees will be terminated as a consequence of an approved downsizing, the Mexican Labor law sets forth that the employees’ years of service will be the driver. Employees with less years of service will be the first ones to be impacted.

As a secondary criterion, the age and the affiliation to the union shall also be considered.

Actions required to limit the negative impact and social plan

The employer is not legally required to undertake actions to limit the negative impact of the collective redundancy.

Internal alternative employment/redeployment
There is no specific obligation to search for alternative employment in order to avoid the redundancies or to agree on a social plan in Mexico.

Other measures
Employers are not required to take any other measures to limit the negative impact of redundancies.

Estimated timeline

The estimated legal timeline for a collective redundancy will depend on the workload of the Labor Board (labor authority in charge of labor matters and conflicts in Mexico); but in average it may take from 6 to 12 months.

The time to prepare the collective redundancy process depends on the total number of employees and is, in average, two months.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Accrued benefits, for example, pending vacation days, vacation premium, Christmas bonus and any other fringe benefit granted to the employees, such as savings fund and commissions
  • Severance payment which varies depending on the ground for the redundancy:
    • In case of the introduction of machinery or new work procedures resulting in a downsizing and redundancies, the severance amounts to 120 days of salary (approximately 4 months’ salary), plus 20 days of salary for each year of service rendered (i.e., seniority premium) or the amount stipulated in employment agreements if it is higher than the seniority premium.
    • In the other cases, the severance amounts to 90 days of salary (approximately 3 months’ salary) and seniority premium equal to 24 times the minimum daily wage for each year of service.

Customary additional costs

There are no customary additional costs in relation to a collective redundancy in Mexico.

Hiring restrictions post-redundancy

There are no legal barriers restricting hiring after the implementation of a collective redundancy. Hence, the employer can re-hire someone to do the same job performed by a former redundant employee.

There is no hiring freeze period following a reduction in force. Collective redundancy is not limited to certain positions or types of contracts.

Litigation risk

Interested parties

Any employee, group of employees or the company’s union can bring a claim during the process.

In general, an employee can bring a legal action for rescission of the employment relationship or unjustified dismissal. The limitation period for bringing a claim, depending on the legal action, is one or two months.

If the union exercises its right to strike, the redundancy procedure will be suspended by the Labor Board.

Failure to obtain approval from the Labor Board (labor authority in charge of labor matters and conflicts in Mexico), if required, may result in a claim for unfair dismissal, reinstatement and payment of full severance in certain cases.

Damages and other remedies

Damages for unfair dismissal
There is no right to compensation for loss. In case of an unfair dismissal, the employees are entitled to receive full severance from the employer if such severance were not paid upon termination. For more information on severance, see “Mandatory costs” under “Estimated costs.”

Reinstatement
An employee can file a claim for reinstatement in case of an unjustified dismissal (without the Labor Board’s approval).

In principle, reinstatement is mandatory with the exception of high-level personnel, temporary employees and specific roles, provided that a full severance is paid. The employer may refuse to reinstate the employee and pay full severance instead.

Criminal sanctions
There is no criminal sanction related specifically to collective redundancy process in Mexico.

Country-specific issues

There are no key issues particular to Mexico.

Contact

Primary Contact for Mexico Labor and Employment Law

Diego Gonzalez Aguirre
Mancera, S.C
+52 33 3848 6157

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Mexico
MX

Contacts