How to Legally End Mexican Work Relationships

 

By Ana Paula Delsol Espada March 25, 2019
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​Unlike in the United States, at-will employment is not recognized in Mexico. Instead, the Mexican Federal Labor Law (FLL) and Mexican Constitution protect employment based on four ways of hiring: determined periods, indefinite periods, trial periods and training periods. With indefinite periods, the most common hiring option, severance may be due at the end of employment. This article focuses on determined and indefinite periods, as well as the consequences of misusage.

Determined Period

Many Mexican companies have misused determined periods of employment—defined by the FLL as work to temporarily replace an incapacitated worker or an employee who has gone on vacation or indefinite leave, or work when there has been a temporary increase in sales. The companies granted several determined agreements to the same employees without offering them benefits or recognizing their seniority and terminated employees without paying the severance that would have been owed had the employment been characterized as indefinite-period agreements.

As a result of such abuse, the practice using multiple determined periods for the same employee was abolished by a Supreme Court ruling that if a company executed several or even two "determined-period" agreements, the employment relationship would be deemed as an indefinite one. Labor authorities now are skeptical and strict when analyzing determined periods.

Here is an example of a correct determined-period relationship: When an employer needs to increase hiring during a busy sales season, a determined period will be justified, given that the season eventually will be over and consequently so will the employment relationship. The term of employment should match the sales season, such as three months.  

The employment relationship is automatically terminated as soon as the determined period lapses. In this circumstance, once the determined period ends, the employer will have to pay accrued benefits (e.g., pending salaries, vacation and bonus) but not severance.  

[SHRM members-only toolkit: Introduction to the Global Human Resources Discipline]

Indefinite Period

Under indefinite-period agreements, which are for "permanent employment" that may be ended only in limited circumstances, employees typically are fired only in the following circumstances:

  • Mutual agreement.
  • Death of the employee.
  • Incapacity.
  • Closure of operations.

Note that low productivity is not a justified cause for firing someone in Mexico.

The most common method of termination is through mutual consent by way of a written agreement. This situation will oblige the employer to pay severance to the employee. A severance payment comprises:

  • Constitutional indemnity: three months of total daily compensation, known as "integrated salary" (calculated with the daily portion of salary, vacation, bonus and any other extraordinary benefit paid on the last year of the relevant termination date).
  • 20 days of integrated salary, per each year of seniority.
  • Seniority premium, equal to 12 days of salary per each year of services rendered, capped to twice the minimum wage (176.72 Mexican pesos—approximately U.S. $9.14—for cities bordering the U.S. and 102.68 Mexican pesos—approximately U.S. $5.31—for all other cities, both for year 2019), in the event the salary of the employee exceeds such limitation.
  • Accrued benefits (e.g., pending salaries, vacation, bonus and saving fund).

But the employment relationship also could end if the employee breaks the law or violates workplace policies.

Under this last scenario, the employer must follow a particular process, as required by the FLL, where the business proves that the discharge was for a justified cause. Under this circumstance, the employer does not have the obligation of severance payment, but only accrued benefits and seniority premium. If one step of the regulated process is missing, the employer will be forced to pay severance or reinstate the employee plus back wages in the amount of 12 months of integrated salary.

When employers do not have solid evidence of a violation of the law or policy, or did not follow the particular process to terminate an employee with cause, but still want to fire the worker, the employer must proceed cautiously. To protect its interests and end the employment relationship without liabilities, the employer should choose the mutual consent termination and pay severance. This may spare the business from between three to five years of costly litigation.

Ana Paula Delsol Espada in an attorney with Ogletree Deakins in Mexico City.

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