Changes to Mexico's Labor Law Lead Employers to Reconsider CBAs

The 2019 overhaul of Mexico's Federal Labor Law—bolstering employee rights and greatly strengthening collective bargaining rights—will radically reshape labor relations for employers doing business in Mexico.

Many employers are apprehensive, concerned that the legislative changes are likely to boost unionization to an unprecedented level in Mexico. When Colombia adopted similar reforms, unionization by labor organizations independent from companies tripled.

To counter expected unionization attempts, "employers will have to be very sensitive to their employees' needs and work actively with them to address important issues, including salary negotiations, working conditions and benefits," cautioned Salvador Pasquel, an attorney with Baker McKenzie in Mexico City.

James P. Verdi, an attorney with Jackson Lewis in Cleveland, suggested that the approach to unionization could be industry-dependent. "Under Mexico's prior labor law, unions were not independent and relied on employer payments. As a result, unionization levels under the prior laws were quite high, but very few employers had independent unions that are now mandatory under the new law. Some industries, such as the financial sector, may decide that unions aren't needed, but the industrial and manufacturing sectors could be ripe for independent unionization efforts," he said. Companies with large workforces that can't move easily, such as hotels and resorts, might also be susceptible to independent unionization efforts.

Reform Needed to Address Power Imbalance

Legislative reform, championed by President Andrés Manuel López Obrador and his progressive Morena party, seeks to address an imbalance in bargaining power between companies and workers that has existed for the past 50 years.

Prior to the recent amendments, a company could recognize a union and enter into a contract without any worker participation. These contracts, known as "protection agreements," generally offered employer-friendly terms and were signed before workers were even hired for a worksite. Most unions did not hold democratic elections and enjoyed limited accountability to their members. As a result, wages remained depressed while foreign investment in Mexico soared.

The United States has also been pressing Mexico to more closely align its labor laws with U.S. laws to level the economic playing field. The United States-Mexico-Canada Agreement will require Mexico to pass and implement certain labor reforms—including the election of unions by secret ballot, democratic election of union officers, transparent negotiation and contract approval, and institution of an independent labor adjustment board—before the U.S. Senate will ratify the agreement.

Under Mexico's amended law, which went into effect May 2, a union must prove that it represents the majority of workers and that they consent to any proposed union contracts. A certificate of representation must be obtained by a union from the newly created federal conciliation centers before the union can enter into a collective bargaining agreement (CBA) or call a strike. Disputes over CBAs will go through mandatory mediation and conciliation by the conciliation centers, which must be in operation by 2021.

Existing Conciliation and Arbitration Boards (CAB) will be phased out, and union representational challenges will be reviewed by independent labor courts in the judicial branch. "Various effective dates are in play" regarding when the new courts must be in operation, Pasquel said; 2022 for state labor courts and conciliation centers, and 2023 for federal labor courts. Until these bodies begin operating, labor issues will continue to be resolved by the CAB.

New voting procedures will eliminate protection agreements. Ratification of a CBA or a new union requires approval of at least 30 percent of the workers participating in an election. The vote must be free and secret. All existing CBAs must be ratified or "legitimized" by May 1, 2023. "To legitimize a CBA, the union must prove that a majority of employees covered by the CBA know about, and approve of the terms of, the CBA," Pasquel said. If most employees do not support the CBA, "it will be terminated, except that labor benefits and conditions in the CBA exceeding the minimums granted by law will remain in force." Any CBA that hasn't been legitimized by that date will be terminated automatically.

Legitimizing Collective Bargaining Agreements

A protocol for legitimizing CBAs was issued July 31. Once a union issues a notice that it is beginning a consultation process to legitimize a CBA and informs the employer, Pasquel noted the employer must fulfill several obligations:

• Facilitate the consultation process.
• Publish the union's notice of the consultation process in the workplace.
• Provide hard copies of the CBA to employees at least three business days before the voting date.

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Steps Employers Can Take Now

Pasquel encouraged employers to view the changing conditions as "a good opportunity to review your existing CBAs," especially regarding salaries and benefits. "An employee may have shifted category of employment from the time an individual employment contract was signed," he said, noting that each employee in Mexico must have an individual contract regardless of whether he or she is covered by a CBA. "A CBA is the best document to prove employment conditions" as it should detail specific workplace policies and the expected code of conduct.

Pasquel counseled companies with CBAs to:

• Anticipate receiving a notice from the union relating to the consultation process.
• Determine an action and communication plan to ensure that employees are made aware of the CBA and its terms.
• Proactively communicate with the union to agree on the time and place of the vote to minimize business disruption.
• Review and revise the CBA as needed, in consultation with the union, to reflect the positions and job categories actually covered by the CBA and the labor benefits granted to the covered employees.

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.