Managing the Global Workforce

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1 Managing the Global Workforce webinar series topic Latin American Markets presenters Mark Zelek Miami, Partner, Morgan Lewis James Vázquez-Azpiri San Francisco, Partner, Morgan Lewis Jorge G. De Presno Mexico City, Basham, Ringe y Correa Denise Bastos Guedes São Paulo, Brandi Advogados

2 Overview of Mexican and Brazilian Labor Laws Highly regulated to protect employees - Fundamental labor rights cannot be waived No employment at will Job stability Generous severance if no cause Difficult to prove cause Employee benefits statutorily required 2

3 Mexican Labor Legislation The Federal Constitution The Federal Labor Law (FLL) The Social Security Law (SSL) The National Housing Institute Law The Mexican Official i Regulations (secondary) 3

4 Primary Government Employment Agencies Local and federal conciliation and arbitration boards Federal courts (appeals) The Ministry of Labor and Social Welfare The Mexican Social Security Institute (IMSS) The National Housing Fund Institute t (INFONAVIT) 4

5 Worker Representation Workers committees The FLL provides for five mandatory employer-employee committees made up of an equal number of employer and employee representatives Safety and hygiene Profit sharing Training Seniority it Unions White unions 5

6 Background Information on Applicants Background checks Employment applications are not highly regulated Employer has great flexibility in questioning i job applicants Employer can verify information provided by candidates in their job applications, including through third parties Medical examinations Although there are virtually no restrictions on requiring medical examinations, it is advisable to obtain the applicant s written consent Exception: Pregnant women nongovernmental organizations (NGOs) are actively promoting the protection of pregnant applicants 6

7 Background Information on Applicants (cont d) Drug and alcohol testing May conduct drug and other tests that measure physical capability to perform the intended d job Can refuse to hire an applicant who does not submit to a test 7

8 Hiring Requirements Workforce must be at least 90% Mexican nationals For technical and professional jobs, employees must be Mexican nationals unless there are no Mexican employees with the required skills to perform the job, in which case the employer is allowed to hire foreign employees on a temporary basis to train Mexican employees Company doctors must be Mexican nationals These restrictions do not apply to general managers, CEOs, or general administrators 8

9 Written Employment Contracts Employment terms must be set forth in writing, which include, at a minimum: - the employer s and employee s names, and employee s nationalities, genders, civil statuses and addresses; - whether the employment agreement is executed for a specific job or term, or for an indefinite term; - a description of the services to be provided; - the place where the work is to be performed; - the length of the work shift; - the salary amount and day and place of payment; 9

10 Written Employment Contracts (cont d) - confirmation that t the employee will undergo training i pursuant to the procedures and programs established by the employer as required by the FLL; and - other terms and conditions of employment, such as days off and holidays, agreed upon by the employer and employee. The employer is responsible for the execution of the agreement The FLL assumes that an employment agreement has been executed for an indefinite term under the principle of job stability An employment agreement for a specific term may be executed only if required by the work to be performed, or if the worker is hired to temporarily replace another employee Probation periods are unlawful 10

11 Disciplinary Actions Internal labor policies Code of conduct Internal labor regulations 11

12 Covenants Not to Compete Post-termination noncompetes void Only enforceable during the employment relationship Average compensation payable in exchange for a noncompete agreement 12

13 Independent Contractors and Outsourcing The existence of an employment relationship is presumed between a person who performs a service and a person who receives the service in exchange for compensation The essential element in an employment relationship is subordination, which is the legal authority of the employer and corresponding duty of obedience of the employee The risk of an independent contractor s being found to be an employee (and thus covered by the labor laws) increases if he or she: performs services personally and on a permanent basis; works exclusively for the company; 13

14 - ( Independent Contractors and Outsourcing - submits consecutively numbered invoices to the company each month for the same or similar amounts; - has no other clients; or - is under the company s control, the company having the authority to establish the work schedule, and place, persons to whom, and time period services are to be performed, and the continuity or regularity of the services provided. Outsourcing in Mexico Labor implications Joint liability Labor claims Social Security issues 14

15 Working Hours and Overtime Working hours Maximum of 48 hours per week for day shifts, 45 hours per week for mixed shifts, and 42 hours per week for night shifts These limitations may not be waived by employees Overtime pay All employees, regardless of position, are entitled to overtime. If any employee works more than the maximum weekly hours allowed by law, or previously agreed upon, the employee must be paid double time for the first nine overtime hours per week and triple time for each hour beyond the first nine hours 15

16 Employee Benefits Vacation and holiday premiums Employees are entitled to a yearly holiday period, based on seniority as follows: for one year of work, six days holiday; for two years of work, eight days holiday; for three years of work, 10 days holiday; for four years of work, 12 days holiday; and for between five and nine years of work, 14 days holiday. after the ninth year of service, the holiday period increases by two days for every five years of service Employees also must receive a holiday premium of at least 25% of their salary, payable during the holiday period 16

17 Employee Benefits (cont d) Sick leave pay The SSL establishes the right to sick leave and sick pay Employers must register employees with the IMSS, which entitles them to benefits Leaves of absence On the fourth day of sickness absence the IMSS pays the employee s salary according to the SSL (payment is based on 60% of the employee s salary): for temporary incapacity, an employee is entitled to 52 weeks of leave, which may be extended by another 52 weeks for permanent partial incapacity, an employee is entitled to permanent leave and receives payment through the IMSS 17

18 Employee Benefits (cont d) for permanent total incapacity, an employee is entitled to permanent leave and receives payment through the IMSS for maternity leave or work-related accidents, the IMSS pays the salary at 100% of the employee s registered salary. Maternity benefits are paid for 42 days before and 42 days after the birth Year-end bonus equal to at least 15 days wages Public holidays (seven per year) Profit sharing currently set at 10% of the employer s business pretax profit Employer must have salary receipts, duly signed by the employee, in order to have conclusive evidence in case of litigation 18

19 Termination of Employment An employer may dismiss an employee without liability only if the employee engages in any of the following acts: using false documentation to secure employment; dishonest or violent behavior on the job; dishonest or violent behavior against coworkers that disrupts work discipline; threatening, insulting, or abusing the employer or his or her family, unless provoked or acting in self-defense; intentionally damaging the employer s property; causing serious damage to the employer s property p through negligence; g threatening workplace safety through carelessness; immoral behavior in the workplace; disclosing trade secrets or confidential information; 19

20 Termination of Employment (cont d) having more than three unjustified absences in a 30-day period; disobeying the employer without justification; failing to follow safety procedures; reporting to work under the influence of alcohol or nonprescription drugs; serving a prison sentence; or committing any other acts of similar severity. Notice of termination An employer must give the employee written notice that clearly establishes the cause and date of termination. Without this notice the dismissal may be deemed unjustified, regardless of the causes. 20

21 Termination of Employment (cont d) Severance pay The employee may appeal the termination to the conciliation and arbitration board and may request back pay; if the employer fails to prove the dismissal was for cause or fails to give a written termination notice and refuses to reinstate t the employee, the employer must pay a severance consisting of: three months salary; 20 days salary per year of service; a seniority premium of 12 days salary for each year of service (but with a cap of twice the minimum salary); and back pay. Salary integration for severance purposes Stock options Negotiation strategy 21

22 Discrimination Laws No distinctions based on race, gender, age, religion, i political conviction, or social rank. Employers cannot impose a mandatory retirement age unless they have private pension plans that require a mandatory retirement age. 22

23 Employee Privacy The Federal Law on the Protection of Personal Data in the Possession of Private Entities gives employees the right to access, correct, cancel, and object to the processing of their personal data. Personal data must: be processed fairly and lawfully; be obtained only for specified and lawful purposes contained in a privacy notice and not be processed in any manner incompatible with those purposes; be adequate, relevant, and necessary in relation to the purposes for which it is processed; be accurate and kept up to date; not be kept longer than is necessary for the purposes set forth in the privacy notice; 23

24 Employee Privacy (cont d) be processed in accordance with the rights of data subjects and the terms of the privacy notice; be protected against unauthorized or unlawful processing and against accidental loss and damage; and not be transferred, unless the data subject was informed in the privacy notice, or such transfer falls under the exceptions provided by the Federal Law. 24

25 Brazilian Labor Laws Federal Constitution Consolidated Labor Laws 25

26 Primary Government Employment Agencies The regional labor offices, linked to the labor minister and the labor district attorneys The local Labor Prosecuting Council 26

27 Worker Representation The union system in Brazil is a key factor in the local labor environment There are employers unions grouping companies performing the same activities in a territorial area and employees unions grouping g employees of companies with the same activities in a territorial area 27

28 Background Information on Applicants Background checks There are no specific restrictions or prohibitions against background checks on applicants However, background checks may be considered a violation of the individual s privacy, and the use of negative information may be deemed discriminatory It is highly recommended that the employer obtain the express authorization of the applicant to proceed with any background check Medical examinations Medical examinations are mandatory before hiring any individual, to evaluate whether the applicant is able to perform the job functions 28

29 Background Information on Applicants (cont d) However, exams that may reveal protected characteristics (e.g., pregnancy tests) are prohibited The employer may refuse to hire an applicant who does not submit to a preemployment medical examination Drug and alcohol testing Cannot compel the applicant to submit to drug and alcohol tests Cannot refuse to hire the applicant based on a refusal to take a test 29

30 Hiring Requirements Companies are not allowed to have more than one-third of their total t employee population composed of foreign workers or more than one-third of their total payroll paid to foreign workers Companies with more than 100 employees must hire disabled d workers at the following minimum percentages: 101 to 200 employees 2% 201 to 500 employees 3% 501 to 1,000 employees 4% More than 1,000 employees 5% Companies must hire from 5% to 15% of their labor force from professional young trainees (ages 14 to 24) and enroll them in special professional instruction courses 30

31 Written Employment Contracts Employment relationships may be established and governed by oral or written contracts, although written contracts are a highly recommended practice No specific terms are required in written labor contracts Probation agreements are authorized up to a maximum of 90 days, with one extension allowed If the relationship is continued at the end of the 90-day term, the agreement is automatically converted into an indefinite-term term agreement Fixed-term contracts are permitted, provided the nature of the work justifies the temporary length The maximum term is two years and, if at the end of the term the relationship is continued, the agreement is automatically converted into an indefinite-term agreement For foreign employees, written fixed-term agreements are mandatory 31

32 Covenants Not to Compete In principle, covenants not to compete are valid and enforceable as long as they do not prohibit the former employee from exercising regular activity. However, labor courts may void such provisions, depending on the specific circumstances The use of confidential or proprietary information belonging to a former employer for the benefit of competitors is a crime against lawful competition 32

33 Independent Contractors Independent contractors are not subject to the labor laws An independent contractor performs specific services for a company, with no subordination or economic dependency, at his or her own entrepreneurial risk 33

34 Working Hours and Overtime Working Hours The maximum working hours are 8 hours per day and 44 hours per week. Some worker categories have lower limits of working hours per day (e.g., bank workers, workers in hazardous activities) These limits may not be waived Overtime Pay All employees are entitled to overtime pay except employees in key management positions and those performing external activities with no working time control (such as external sales workers) Overtime pay is time and one-half unless otherwise provided by a union agreement 34

35 Employee Benefits Vacation and Holidays For each 12 months of continuous employment, the employee is entitled to a 30-day vacation term within the following 12 months Employees on vacation must receive their regular monthly compensation plus one-third of such compensation If employees work on national, state, or local holidays, they shall be given a compensatory day off or be paid double time Sick Leave and Sick Pay Employees are entitled to sick leave if they obtain medical authorization During the first 15 days of sick leave, the employer shall compensate the employee 35

36 Employee Benefits (cont d) After 15 days, the employee is entitled to sick pay from the Social Security Service. The labor contract is considered suspended during the sick leave, meaning that the employee cannot be terminated There is no annual limit to sick leave and sick payments Leaves of Absence The following paid leaves of absence are required: Maternity leave 120 days (during which period the employee s compensation will be paid by the Social Security Service), which can be extended to 180 days at the employer s option; in this case the employer is provided a corporate income tax incentive; Paternity leave five days following the birth; Death of a relative two days; and Marriage three days. 36

37 Employee Benefits (cont d) The employee may also be absent to fulfill legal obligations (such as court testimony), to donate blood, or to take university admissions tests Payments in addition to monthly compensation 13th month salary (Christmas bonus), in the amount of (or proportionate to) a regular month s compensation Family bonus of or reais per child under 14 years old, paid by the company but reimbursed by the Social Security Service Public transportation allowance Unhealthy or hazardous environment bonus, based on the regular monthly compensation Profit sharing, as negotiated with the labor union Other benefits as provided in individual union agreements 37

38 Polling Question Would you like us to follow up with you directly after the webinar today? 38

39 NY CLE Code In order to receive NY MCLE credits for this webcast, please write down the following alphanumeric code: C You will be asked to provide this code to our MCLE credit administrator after the webcast. 39

40 Termination of Employment A labor agreement may be terminated with or without just cause by an employer. Just cause is defined d as follows: acts of dishonesty; misconduct; habitual trading during labor hours without permission of the employer or when such trading activity competes with the employer; final criminal conviction if the related penalty is not suspended; negligent performance of the employee s duties; habitual drunkenness in the workplace; acts of insubordination or lack of discipline; job abandonment; acts against the honor of the employer or working colleagues; physical assault on employer or working colleagues; and habitual gambling in the workplace. 40

41 Termination of Employment (cont d) Termination of an indefinite labor agreement by an employer without just cause must be preceded by a 30-day termination notice plus 3 days per complete year of work, up to the maximum limit of 90 days (or will trigger the payment of the related period in lieu of notice), and will entitle the employee to: withdraw the accrued balance of the Employees Severance Guarantee Fund (FGTS) (8%of the regular monthly salary paid during the labor agreement); and receive a fine equal to 40% of the accrued balance of the severance fund (the employeer being liable to pay an additional fine equal to 10% of the accrued balance to the fund itself). Fixed-term employees who are terminated before the end of the term without just cause must receive an indemnification of 50% of the compensation due for the remaining term of the agreement, and such termination may be executed without previous notice. 41

42 Termination of Employment (cont d) Termination of the labor agreement for just cause can be executed immediately without notice, does not allow an employee to withdraw the accrued balance from the severance fund, and does not trigger the payment by the employer of the 50% fine levied on the accrued balance of the severance fund

43 Termination of Employment (cont d) In terminations both with and without just cause, the employee shall be paid for accrued vacation (full or proportionate), plus one-third of such vacation pay and a 13th month salary (full or proportionate). The following employees cannot be terminated (except with cause): pregnant women, before120 days following the birth of the child (or for any extended term provided for by applicable union agreements); union leaders; and CIPA employee representatives. No previous governmental approval for termination is required. However, the employment termination form must be submitted for formal ratification by the regional labor office or by the labor union whenever the labor agreement has lasted for 12 months or more. Such ratification does not prevent an employee from claiming additional rights or amounts. 43

44 Discrimination Laws Discrimination of any nature (arising from origin, race, age, religion, or any other criterion) is prohibited There is no mandatory retirement for private sector employees who are entitled to retire at the age of 65 years (men) and 60 years (women) or later, at their own discretion 44

45 Dispute Resolution Employees cannot be compelled to accept arbitration procedures Labor unions can create their own union mediation committees to resolve any employment disputes An employee may waive statutory and contractual rights through a private agreement. But waivers granted through private agreements may be challenged by the employee before the labor courts, and therefore such private agreements are not considered as final and enforceable unless a union mediation committee has executed the waiver Such agreements should be signed by an employee s appointed independent lawyer The statute of limitations for employment claims is two years following the date of actual termination of the labor agreement, provided that any claims that accrue beyond five years are barred 45

46 Employee Privacy No specific protection of employee privacy and personnel data However, employees do enjoy general rights to privacy and protection against unauthorized disclosure of personal data granted to all citizens under the Constitution Employers are not authorized to disclose personnel data or records of their employees to any third parties without written authorization of the employee 46

47 Brazil Business Travel U.S. citizens require a business visa ( VITEM-II Visa ) to visit Brazil for business related travel Business visitors may not undertake any kind of technical activity while on business visitor status and may only engage in meetings or fact finding trips Business visas can be issued with up to 10 years validity and allow for multiple entries for periods no longer than 90 days per stay Business visitors cannot stay in Brazil longer than 180 days in a given 365 day period 47

48 Brazil Work Authorization There are generally four (4) types of work visas granted to foreign workers in Brazil, but only two (2) apply to foreign executives: VITEM V Local Employment Agreement visa, or a Permanent Visa For the VITEM V Local Employment Agreement, the employee must localize in Brazil but cannot act as a legal representative or sign documents on behalf of the Brazilian company For the Permanent Visa, the employee can legally represent and sign documents on behalf of the Brazilian company but must not resign for at least 5 years. Certain monetary investments must also be made in order to be eligible for the Permanent Visa Both options take about 45 days to approve which is followed by a visa application 48

49 Mexico Business Travel U.S. citizens do not require a business visa to visit Mexico for business related travel Like most countries, Mexico does not allow business visitors to undertake any kind of activity where they are paid from a source in Mexico or generate profit for a Mexican company Business visitors it are allowed to engage inmeetings, fact finding ti trips, and other similar non-productive activities U.S. citizens can enter Mexico for up to 180 days per entry but the actual duration is determined at the border during each visit 49

50 Mexico Work Authorization There is generally one (1) type of work authorization granted to foreign workers in Mexico which is the FM3 Work Visa This visa is designed to bring in a foreign worker who will carry out any type of work such as rendering services for a company, carrying out a professional service, providing consulting or advisory services, exercising i apowerof attorney, or taking on a managerial or executive position Some foreign nationals can enter as a tourist or business visitor and convert their status into an FM3 Work Visa holder The work visa is valid for 1 year and can be renewed in further 1 year increments. Processing time is about 4 weeks 50

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