Labor Reform Bill Passed in Mexico—What it Means for Employers Doing Business in Mexico

On November 13, 2012, for the first time in 40 years, after extensive consideration by both Mexico’s House of Representatives and its Senate, the Senate approved a significant labor reform bill, with far-reaching and substantive implications for foreign companies doing business in Mexico and local Mexican employers alike. The key changes include joint employer liability for companies using outsourcing or subcontracting arrangements, increased anti-discrimination, anti-harassment and family leave protections, as well as changes to notice of termination procedures. Mexico’s government stated that the purpose of this bill is to increase productivity and better paying jobs, while also allowing greater employment access for women and younger workers. Most of these changes will be familiar to U.S. employers, as in many ways they bring Mexican labor standards more in line with those that we are accustomed to here in the United States.

However, employers that have been doing business in Mexico will find other changes more significant, particularly with regard to joint employer liability for outsourcing and subcontracting arrangements, as these structures historically have been used to manage labor obligations—particularly employee profit sharing requirements—through outsourcing or subcontracting to a service company, which provides the workforce for a fee and is contractually obligated to the employees. Under a typical subcontracting relationship, 10 percent of the profits of the service company—as opposed to the commercial entity that benefits from the services—are shared with the employees, thus limiting the commercial entity’s obligations to the service company employees. Because both companies are now jointly on the hook, the reform casts doubt on the continued efficacy of these outsourcing arrangements as mechanisms for avoiding this, and other types of labor liability in Mexico.

For more details on these recent developments in Mexican labor and employment law, read the full article here.