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  • Writer's pictureSámano Abogados

Labor Reform

Legal nature and scope of the Labor Reform published in the Official Federal Gazette on November 30, 2012. Allow us to hereby share the most relevant matters of the recent Labor Reform that modifies various provisions of the Federal Labor Law (“the Law”).

Why is the content of the recently passed Labor Reform relevant for companies?

This Reform is the first reform to substantially amend the Federal Labor Law in more than 40 years, significantly changing several aspects of worker-employer relations. Primarily:

  • Regarding the individual employment relations it creates new temporary forms of hiring and makes the dismissal process more flexible.

  • It establishes for the first time a hiring regime through the subcontracting of personnel through third parties (outsourcing)

  • It strengthens the rights of minors (work and child support), of women, of domestic workers, and of men in relation to the birth of their children.

  • It limits the exposure of employers in labor liability in individual claims to a maximum of 12 months of accrued salaries.

  • It leaves almost untouched the regulation relative to the processes of strikes and union autonomy, since it only timidly introduces accountability and transparency mechanisms in the use and destination of the union dues, as well as the use of the free and secret vote in the election of union leaders.

What are the most relevant aspects of the Labor Reform?

The following are the most relevant aspects of the Reform: Regime for Individual Employment Hiring It introduces new concepts that make the Mexican labor market more flexible in order to promote the incorporation of millions of workers that are currently informal workers. In addition to the existing regimes, which are contracts: i) for an indefinite time period, ii) for a specific time period, and iii) for a specific work, three new concepts are created:

  • Hiring for a Trial Period,

  • Initial Training Contract, and

  • Hiring for Seasonal Work.

This is a very relevant contribution because in the current law it is considered as a general rule that all individual employment agreements are for an indefinite time period, and only by exception and subject to proof by the employer are the regimes of a specific time and work accepted. These rigid and inflexible concepts function currently as a disincentive to formal hiring of new workers, since the companies have not way to evaluate their skills or abilities for performing the functions for which their work is needed. And if the performance is not adequate it is not possible to end the employment without paying the legal indemnity (three months of salary plus benefits). This situation inhibits the hiring of personnel, as well as their training and education.

Through the introduction of these new concepts it will be possible for companies to hire new workers under temporary regimes so that once the initial period expires they can be permanently incorporated under the regime of an indefinite period.

The new temporary contracts are subject to the following rules:

  • They cannot exceed 30 days, except in the case of workers for executive or management positions and others who exercise executive or administrative functions in the company or establishment generally or to perform technical or professional specialized work, in which case the period may be extended to up to 180 days.

  • They cannot be extended.

  • They cannot be applied successively or simultaneously.

  • During the hiring period, the worker enjoys all the benefits that the Law grants to the permanent workers.

  • It is possible to terminate the employment at the end of the temporary hiring period without liability for the employer.

  • If the relationship is not terminated at the end of the period it is considered that the worker has been incorporated into the regular regime of an indefinite period.

In all cases the new temporary contracts must be in writing indicating the form in which they are executed, since otherwise it will be understood that it is a contract for an indefinite time period. If when the temporary contract ends the worker is hired for an indefinite time period, the time he was under temporary contract will be accrued for purposes of the legal benefits. Personnel Subcontracting Regimes (Outsourcing)

The Reform for the first time defines and regulates the concept of subcontracting personnel through third parties (“Outsourcing”). Outsourcing is considered the means by which an employer called contractor executes works or provides services with its own workers, for another who is the beneficiary of the services contracted. Furthermore, the joint liability of the companies benefiting from the Outsourcing services in terms of article 13 of the Law is maintained. It is important to mention that for the subcontracting regime to be recognized the following conditions must be met:

  • It cannot cover all of the activities, completely equal or similar, that are developed in the work place.

  • They should be justified by their specialized nature.

  • It cannot cover tasks equal or similar to those done by the rest of the workers at the service of the contractor.

If these conditions are not met it is established that the beneficiary of the Outsourcing services “will be considered employer for all legal effects and consequences, including social security obligations.” In this way, the many court precedents that have been issued in relation to this matter are overcome and the unit of the source of work is established as the guiding principle for the case that the conditions of the law necessary to consider the subcontracting of personnel as legitimate are not met. For these cases, having in mind article 13 of the Federal Labor Law, as well as the new articles 15-A, 15-B, 15-C and 15-D of the Reform, it is established that the beneficiaries of the Outsourcing will be considered employers of the workers that provide them services as a result of the subcontracting of personnel. The contract must be in writing and the parties must designate a Verification Unit (accredited before the Ministry of Labor) to verify compliance with the labor and social security obligations by the Outsourcing company.

The beneficiary company of the services will have the obligation to verify at the time of signing the contract that the subcontractor has sufficient resources of its own to comply with the obligations of its relations with its workers, and that it complies with the applicable obligations in relation to work safety, health and environment.

Finally, it is established that it will be presumed, unless proven otherwise, that the subcontracting regime is used fraudulently when for the purpose of simulating lesser salaries and benefits, the contractors or beneficiaries of the services have simultaneous employment relations or commercial or civil with respect to the same workers, establishing sanctions of anyone engaging in such acts through fines from 250 to 5000 times the general minimum wage in force (approximately $15,600.00 to $311,650.00 pesos).

Rights of Women and Minors

In Mexico more than half the population is women and according to data of the Ministry of Work and Social Welfare they only represent 38% of the economically active population, and therefore the Reform seeks to improve labor conditions for women in order to incorporate more of them in the formal labor market. Some of the innovative provisions refer to the establishment of standards to avoid discrimination for gender, to sanction acts of sexual harassment, prohibit the hiring practice of demanding medical certificates showing whether a woman is pregnant , remaining and promotion on the job, among others. Employers are also prohibited from dismissing a worker or directly or indirectly forcing her to resign due to pregnancy, for change of marital status or for having to care for minor children (article 133 section XV).

With respect to minors, the Reform considers as a special crime cases of child labor of minors of 14 years outside of the family circle, prohibits minors from working in sanitary contingencies, and establishes the obligation of not hiring or permitting the hiring of minors under 18 for doing high risk work, among other matters.

Is the regime of termination of employment changed?

Yes, the Reform significantly modifies the form of terminating the employment of workers individually. Article 47 of the law is amended to make the formality of the termination more flexible. Under the prior regime the termination of employment could only be formalized if: i) one of the causes of article 47 of the Law occurred, and ii) by notice given by the competent Conciliation and Arbitration Board to the worker. The Reform provides that the employer can now give the termination notice, either to the worker directly or to the Board, personally or by certified mail. In this way the process of termination of employment is more flexible.

Does it change the form in which the labor proceeding are processed?

Yes, the reform changes two relevant aspects of the labor proceedings:

  • The payment of accrued salaries in awards unfavorable to the employer are limited to a maximum term of 12 months, and

  • The so-called tripartite hearing of answer to the claim, and admission and presentation of evidence is eliminated, and is replaced by two hearings: i) the answer and offering of evidence, and ii) the presentation of evidence.

In particular, the limitation on the payment of accrued salaries to one year is relevant, since the main economic element in the awards in favor of the worker is the accrued salaries. In this way there was a perverse incentive to eternalize the labor proceedings and for the employer to submit to forced negotiations in order to extra-judicially resolve the individual labor claims. This limitation and the establishment of two hearings in the proceedings will have the effect of facilitating them and make the negotiations during more fair.

There are many other topics regarding the Reform that have not been presented in this brief informational memorandum. This Firm invites you to approach us for more information on the effect the Reform will have on your individual and collective labor relations, especially in those companies that maintain the majority of their personnel in Outsourcing schemes.

We hope this information has been useful and would be glad to answer any questions you may have.

Sincerely, Sámano Abogados, S.C.

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