GLOBAL GUIDE TO EMPLOYEE TERMINATION MEXICO SANTAMARINA Y STETA, S.C.

Transcription

1 GLOBAL GUIDE TO EMPLOYEE TERMINATION MEXICO SANTAMARINA Y STETA, S.C. 1. What are the major relevant laws, rules and regulations governing the termination of employees in your jurisdiction? Mexican Federal Labor Law [Ley Federal del Trabajo] 2. What is the scope of the legislation (e.g., on the types of industries and the categories of employees to whom the legislation is applicable)? Mexican Federal Labor Law is of general observance in Mexico and regulates employment and labor relationships described in Article 123 A of the Mexican Political Constitution, which refer to all workers and employees except for government employees. 3. What are the circumstances under which the services of an employee can be terminated? Under Mexican Federal Labor Law the following are causes for termination of the employment relationship: a) The mutual consent of the parties; b) The death of the worker; c) Completion of the specific task or project, or expiration of the fixed term for which the employee was hired; d) The worker s physical or mental disability or obvious unfitness that makes it impossible for him/her to perform the work; e) Force majeure or any unforeseen event not attributable to the employer that may bring as a consequence the termination of activities, or else, a physical or mental disability affecting the employer (individual) or the employer s death; f) When the expenses involved in running a business are higher than the income received from the business (for example in the mining industry the cost of running the mine may be more than the value of the product extracted); g) The exhaustion of the materials in an extractive industry; h) Bankruptcy. The principle behind employment relationships in Mexico is employment stability. In general terms therefore, employees can only be dismissed for a justified cause. Termination of employment without a justified cause will amount to wrongful dismissal and compensation will need to be paid to the employee. The Mexican Federal Labor Law enumerates the following specific conducts that constitute grounds for dismissal without liability for the employer: If the worker (or the trade union which proposed or recommended him / her) deceives the employer by means of false certificates or references attributing to the worker abilities, skills or

2 qualities which s/he does not possess. These grounds for termination cease to be operative after the worker has completed 30 days employment; If the worker in the course of his/her employment is guilty of a dishonest or dishonorable action, violence, threats or ill-treatment towards the employer or any member of the employer s family or the top management or managerial personnel of the company or establishment, except in the case of provocation or self-defense; If the worker is guilty of any of the acts mentioned in the preceding paragraph towards any of his/her fellow workers and the discipline of the workplace is disrupted as a consequence of such acts; If the worker is guilty, outside his/her employment, of any of the acts mentioned above, towards the employer, any member of the employer s family or the top management or managerial personnel, and the said acts are of such a serious nature as to render the fulfillment of the employment contract impossible; If the worker, in the performance of his/her work or in connection therewith, willfully causes material damage to the buildings, works, machinery, tools, raw materials or other objects connected with the work; If the worker, in the performance of his/her work or in connection therewith negligently causes serious damage to the buildings, works, machinery, tools, raw materials or other objects connected with the work; If the worker, by his/her inexcusable imprudence or carelessness, endangers the safety of the establishment or the persons therein; If the worker is guilty of immoral conduct in the establishment or workplace; If the worker is absent from work more than three days in a period of 30 days without the employer s permission or without sufficient reason; If the worker refuses to obey the employer or his representative without sufficient reason in matters connected with the work for which s/he was hired; If the worker refuses to adopt preventative measures or follow the procedures established for the prevention of accidents or diseases; If the worker attends work in a state of intoxication or under the influence of a narcotic or harmful drug unless (in the latter case) s/he has a medical prescription. Before commencing the rendering of the services, a worker shall inform his or her employer of any medical condition affecting him or her and submit the respective prescription signed by a medical practitioner. An executory judgment sentencing a worker to a term of imprisonment preventing him or her from fulfilling his or her obligations under the employment relationship. Any other behavior similar to those provided for in the preceding sections, if they are of equal gravity and entail similar consequences regarding the employee s work;

3 For workers performing positions of trust (those involving activities of direction, inspection, supervision and control under general basis, as well as personal activities for the employer within the company), if there is a reasonable cause to lose confidence in them, even if none of the justified causes established in Article 47 are met. The employer s right to dismiss the employee without liability expires thirty (30) days following the date on which the employer becomes aware of the statutory grounds for the dismissal. When an employee has been employed for more than 20 years, his/her employment can only be terminated if s/he is guilty of a particularly serious cause or for any action which makes the continuation of his/her employment impossible. However, in the latter case, the employee will receive a disciplinary warning. Should the fault be repeated or should s/he commit any other fault recognized as a legal cause of dismissal, the protection obtained as a consequence of his/her seniority at work is left without effect. 4. Are there specific restrictions on terminating the employment of an employee on the grounds of race, caste, religion, creed, gender, age, disability, pregnancy, membership of a trade union etc.? There is no specific or effective anti-discrimination legislation in Mexico preventing employers from discriminating against employees. In fact, discrimination has not raised any important or repeated claims. There is, however, a principle in Mexico that no distinction should be made among workers due to their race, sex, age, religious beliefs, political views or social standing. Further, in 2003, the Federal Law to Prevent and Eliminate Discrimination [Ley Federal para Prevenir y Eliminar la Discriminación] was issued. Said law prohibits, among other things, any kind of discriminatory practices that prevent individuals from applying for a job or hinder the employee s possibilities of promotion and/or permanency in his/her job. It must be emphasized, however, that such Law has been broadly criticized since it does not provide a mechanism to make its provisions effectively enforceable. As a result, there are no specific employment regulations to prevent occurrence of this type of practice. As regards to termination of employment due to age, legal retirement for social security purposes (statutory pension benefits) is 65 years old. Early retirement is considered to be at 60 years of age. However, termination of employment as a result of retirement shall be documented as a termination by mutual consent. Regarding disability matters, Mexican Federal Labor Law contemplates as cause for termination of employment the worker s physical or mental disability that makes it impossible for him/her to perform the work. Yet, the determination of such disability is not discretionary, but rather the Mexican Social Security Institute [Instituto Mexicano del Seguro Social], hereinafter referred to by its acronym IMSS, has to agree on it and issue the respective disability certificate. Concerning pregnancy, Mexican Federal Labor Law establishes that working mothers have the right to return to their jobs after giving birth provided no more than one year has passed since the delivery. 5. Does the law permit the termination of an employee if he/she is found guilty of harassment/ sexual harassment or is convicted of an offence? Mexican Federal Labor Law does not provide specifically on harassment matters during employment and/or at the workplace. However, it does entitle employers to dismiss, with cause, those employees who commit a dishonest or dishonorable action, violence, threats or ill-treatment towards the employer s representatives and/or coworkers, category in which harassment may fall. Similarly, when an employer

4 engages in this type of behavior, an employee has the right to terminate his or her employment relationship and claim severance pay. The Federal Criminal Code [Código Penal Federal] contemplates sexual harassment as a felony. It is defined as the repeated sexual innuendo carried out by one individual to another at a subordinate level, regardless of the gender of the parties involved and of the type of hierarchical relationship at issue, whether employment, academic, domestic or of any other type. As regards to conviction, as commented on Section 3 above, Article 47 of the Mexican Federal Labor Law establishes as justified grounds for dismissal the executory judgment sentencing a worker to a term of imprisonment preventing him or her from fulfilling his or her obligations under the employment relationship. 6. Can employees be dismissed as a result of a business transfer? Employees are protected when the undertaking for which they work is transferred to another employer. Mexican Federal Labor Law establishes that the transfer of undertakings produces an employer substitution, which does not affect employment relationships at any given company or establishment. The former employer is jointly liable with the new employer for complying with the obligations arising from the employment relationship for six months from the date of transfer. Once six months have elapsed, only the new employer s liability will remain. The date of transfer is considered to be the date in which the employer substitution is advised to the union or to the individual workers. The employee does not have to agree to the transfer and it is therefore only necessary to provide the employees with proper notice. There is no established notice period in Mexican Federal Labor Law for advising employees on the transfer, and the notice can actually be delivered on the same day as the transfer. The new employer must respect all the terms and conditions of employment, including without limitation recognition of seniority, wages and benefits. All employees rights are considered transferred including pension rights. Failure to do so would give the employee grounds for claiming either the respect of his former conditions or to terminate the relationship and demand payment of legal severance. If the employee is terminated for a reason connected with the transfer, dismissal will be regarded as unjustified. Any employees who are dismissed are usually paid full severance under the law. 7. What procedure must an employer follow when terminating the services of an employee? Under Mexican Federal Labor Law, neither the employer nor the employees are obliged to give advance notices of termination. When the employee has incurred a justified cause of dismissal, s/he can be terminated at any time without prior notice, provided that it is done within one month (thirty days) following the date on which the employer becomes aware of the cause. The employer must provide the employee with a written termination notice stating the reasons and circumstances for which the employee is dismissed. Should the employer fail to comply with the above, dismissal will be regarded as unjustified. Should the employee refuse to receive the notice, it must be filed with the competent Conciliation and Arbitration Board requesting that Board to serve the notice on the employee.

5 Resignation letters, releases and/or separation agreements are used intensively in situations involving termination by mutual consent and/or retirement. Separation agreements, though, need to be ratified and approved by a Conciliation and Arbitration Board to be valid. The Labor Board generally will approve the agreement, provided that it does contain a waiver of the employee s rights. 8. Does the employer need to justify or give reasons for the dismissal of an employee? The employer must provide the employee with a written termination notice stating the reasons and circumstances for which the employee is dismissed. Should the employer fail to comply with such requirement, dismissal will be regarded as unjustified. Should the employee refuse to receive the notice, it must be filed with the competent Conciliation and Arbitration Board requesting that Board to serve the notice on the employee. 9. Does the employee have the right to be represented by a trade union/employees representative during a termination proceeding? There is no provision under Mexican Federal Labor Law in connection with mandatory representation by a trade union or employees representative during termination processes. Yet, it is likely that internal work rules include provisions regarding union s representation during the application of disciplinary measures (suspension without pay, i.e.) to unionized personnel. In order for such provisions to be enforceable, it is indispensable that the internal work rules are filed before the competent Conciliation and Arbitration Board. 10. Is an employee who is a member of a trade union entitled to any special privileges? Union workers are entitled to the benefits obtained through bargaining processes and established in the respective collective bargaining agreement executed between the employer and the trade union. No special privileges exist in favor of union workers, aside from the right of preference in hiring and promotions. According to Article 154 of the Mexican Federal Labor Law, the employer is obliged to give preference, in equal circumstances, to: (i) Mexican employees over foreign nationals; (ii) employees who have served the employer satisfactorily for a longer period of time over those with less seniority; (iii) employees who have no other source of income and are responsible for a family, and (iv) union workers over those who are not unionized. 11. Is any administrative authorization/approval required to terminate the employment of an employee? Employers are not compelled to request any type of administrative authorization when terminating individual employment relationships. However, it should be noted that Mexican Federal Labor Law establishes specific procedures for layoffs and/or downsizing processes, referred to as a collective procedures of economic nature. Such procedures imply requesting the Labor Board s authorization, attending hearings and exhibiting evidence tending to prove the financial situation of the employer and the need to implement the layoff, downsizing or closing down of the business.

6 Collective procedures of economic nature are long and complicated, therefore rarely used by employers. Most frequently companies avoid the procedure and decide to handle the layoff not as a collective matter, but rather as individual terminations. 12. What compensation is payable to an employee in case of termination? Employees who voluntarily resign to their jobs, as well as those who are dismissed with cause, are only entitled to accrued benefits up to the date of termination. Under the Mexican Federal Labor Law, an employee who is terminated without justification, regardless of his or her position or title, would be entitled to the following benefits, provided s/he was hired for an indefinite term: Three months consolidated salary, meaning that basis for calculation should comprise not only what the employee receives as base salary (daily wage) but also any gratification, earnings, housing, premiums, commissions, benefits whether in kind or in cash- and any other amount or benefit delivered to the employee in compensation for his/her work. 20 days consolidated salary for each full year worked; A seniority premium, equal to 12 days salary per year of service rendered, including periods of less than one year. For purposes of calculation, the salary is capped to twice the general minimum wage in force in the geographic area where the employee rendered services; Accrued benefits (e.g., vacation, vacation bonus, Christmas bonus, etc.). Certainly, any individual agreement with an employee providing for a higher severance (golden parachutes, i.e.) would need to be respected. In the event of layoffs (collective termination), employees are entitled to the severance package described below: Three months consolidated salary, meaning that basis for calculation should comprise not only what the employee receives as base salary (daily wage) but also any gratification, earnings, housing, premiums, commissions, benefits whether in kind or in cash- and any other amount or benefit delivered to the employee in compensation for his/her work. Seniority Premium equal to 12 days salary per year of service rendered, including periods of less than one year. For purposes of calculation, the salary is capped to twice the general minimum wage in force in the geographic area where the employee rendered services; Accrued benefits (e.g., vacation, vacation bonus, Christmas bonus, etc.). However, if termination of employment is a result of the implementation of new machinery or new work processes, employees are entitled to an indemnification equal to four months salary, plus 20 days salary for each year of service. They also are entitled to a seniority bonus of 12 days salary for each year of work, or proportional part thereof, with a cap for calculating purposes equal to two times the general minimum wage in force in the geographic area where the services were rendered.

7 13. What compensation is payable to an employee for unfair/unjustified termination? Under the Mexican Federal Labor Law, an employee who is terminated without justification, regardless of his or her position or title, would be entitled to the following benefits, provided s/he was hired for an indefinite term: Three months consolidated salary, meaning that basis for calculation should comprise not only what the employee receives as base salary (daily wage) but also any gratification, earnings, housing, premiums, commissions, benefits whether in kind or in cash- and any other amount or benefit delivered to the employee in compensation for his/her work. 20 days consolidated salary for each full year worked; A seniority premium, equal to 12 days salary per year of service rendered, including periods of less than one year. For purposes of calculation, the salary is capped to twice the general minimum wage in force in the geographic area where the employee rendered services; Accrued benefits (e.g., vacation, vacation bonus, Christmas bonus, etc.). Certainly, any individual agreement with an employee providing for a higher severance (golden parachutes, i.e.) would need to be respected. 14. What other legal remedies are available to an employee in a case of unfair/unjustified termination? If an employee believes that s/he has been unjustifiably dismissed, employee is entitled to demand at the competent Conciliation and Arbitration Board either to be reinstated in his/her position or to be indemnified with the amount of three months wages. If the employer cannot prove a justifiable reason for the dismissal, the employee will be entitled, in addition, to back wages from the date of dismissal to the date of payment. Due to the fact that employment relationships in Mexico are based on the principle of employment stability, should the employee demand reinstatement and obtain a favorable resolution, the employer must comply and proceed to reinstate the employee. Only in certain cases, can the employer be excused from mandatory reinstatement: If the employee has been employed for less than one year; If, due to the characteristics of the work performed, the employee is in direct and permanent contact with the employer, thereby making the normal development of the relationship impossible; For employees in positions of trust; Domestic service; For temporary employees (fixed term and/or specific task employment relationships).

8 Should the employer refuse to reinstate, it must pay three months salary plus 20 days salary for each year of service rendered. If a temporary relationship was for a period of less than one year, indemnification is equal to half of the period of services already rendered. Should the temporary contract exceed one year, the amount payable will be the equivalent to six months salary for the first year, plus 20 days salary for each of the following years. Note that in any employment court proceeding, there is always a conciliatory phase during which the labor authorities request the parties to settle. If they are able to negotiate the claims of the employee, and if an agreement is reached, it can be approved by the court, thereby making it enforceable for both parties. 15. Do courts or tribunals in your country have jurisdiction in relation to the dismissal of a national employee working outside the country? Mexican Federal Labor Law governs all employment relationships in Mexico (except for government employees), regardless the nationality of the employee, the employer, or the place where the employment agreement was executed. Conciliation and Arbitration Boards, either at a Federal or State level, are in charge of solving employment and labor related claims. Employment disputes cannot be taken to any other court. If a Mexican national was hired in Mexico and assigned abroad, the Labor Board will have jurisdiction to hear any claims in connection with the dismissal. However, if Mexican national was hire outside the country by a foreign employer, to render services abroad, Labor Board will not have jurisdiction over such case. Our labor legislation provides however certain rules to be applied in cases of Mexican workers rendering services abroad: I. The employment conditions will be documented in writing and will contain, for their validity, the following stipulations: a) General working conditions as follows: (1) the employee s and the employer's name, nationality, sex, civil status and address; (2) whether the employment agreement is executed for a specific job or term, or for an indefinite term; (3) a description of the services to be provided; (4) the place where the work is to be performed; (5) the length of the work shift; (6) the salary and day and place of payment; (7) that the employee will undergo training, and (8) other terms and conditions of employment, such as days off and vacations agreed upon by the employee and the employer. b) Transportation and repatriation expenses, meals for the worker and his/her family, as well as any other expenses originating from the crossing of borders and immigration permits will be assumed exclusively by the employer, without discounting any amount thereof from the employee s salary. c) The worker will have the right to the benefits granted by the social security institutions and social welfare that apply to the workers in the country where s/he renders service. In any case, s/he will have the right to be compensated for work related accidents with a quantity equal to that stipulated by the Mexican Federal Labor Law at least;

9 d) Employee will have the right to enjoy, in the work place or a place nearby, rented or otherwise, a comfortable and clean home; II. The employer will stipulate an address in Mexico for all legal effects; III. The written document describing working conditions will be submitted for the approval of the competent Conciliation and Arbitration Board, which, after verifying the requirements referred to in Section I, will determine the amount of the bond or deposit that it deems sufficient to guarantee compliance of the contractual obligations. The deposit must be held in a banking institution. The employer must provide evidence in connection with the issuance of such bond. IV. The document describing working conditions must be approved by the Consulate of the country where the services are to be performed; and V. Once the employer proves to the Board that it has complied with all its contractual obligations, the bond will be cancelled and the deposit returned. Notwithstanding the above, in practice, these requirements are rarely fulfilled. 16. Are there special rules/requirements for mass redundancies or downsizings? Mexican Federal Labor Law establishes specific procedures for layoffs and/or downsizing processes, referred to as a collective procedures of economic nature. Such procedures imply requesting the Labor Board s authorization, attending hearings and exhibiting evidence tending to prove the financial situation of the employer and the need to implement the layoff, downsizing or closing down of the business. Collective procedures of economic nature are long and complicated, therefore rarely used by employers. Most frequently companies avoid the procedure and decide to handle the layoff not as a collective matter, but rather as individual terminations. 17. What future developments are anticipated in local employment laws? President Felipe Calderón Hinojosa, who took office on 1 December 2006, has expressed the necessity for amending the labor legislation to respond to the country s need of creating new jobs and as a way to make Mexico more competitive in the global market and attract foreign businesses to invest in Mexico. Federal government has recently announced that it will present a bill to Congress to modernize the labor legislation. Even when expectations that the labor reform could pass during President Calderon s term have now increased, for the time being, all efforts are being focused on the Energy reform. However, the major changes that are anticipated for the amendment of the Mexican Federal Labor Law are: Incorporating anti-discriminatory provisions with respect to vulnerable groups The introduction of penalties for sexual harassment. New forms of hiring and/or employment agreements, including probationary, training and apprenticeship contracts. Strengthening union freedom and union democracy, including compulsory registration, elections and secret votes for the selection of union leadership and transparency in union asset management.

10 Incorporation of additional requirements for representation claims and strikes. Juan Carlos de la Vega Gómez (+52 81) Nadia González Elizondo (+52 81)