Labor & Administrative

Employment Termination in Mexico

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octubre 3, 2023

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Table of Contents

Introduction

There’s no doubt that Mexico is flourishing with nearshoring and its historical openness to foreign investment, making it one of the best options to do business with. For these reasons, it’s essential to be aware of its labor regulations because any foreign company must consider them before setting up a branch in Mexico.

Especially if the Mexican federal labor law is considered worldwide for its protectionism in favor of the employees, which even has that protectionism from our own constitution and considers—erroneously—the working class as the least favored.

A critical aspect of those regulations is the legal consequences of termination of employment and the way they can occur in Mexico for a single employee (because in our labor law exist collective procedures to reduce a company’s workforce, but I won’t address them in this post) which I will address in this new blog post.

In summary, there are four ways that termination of employment in Mexico can occur: 1) Wrongful Termination, 2) Rightful Termination, 3) Letter of Resignation, and 4) Labor Separation Agreement. Without further ado, let’s take a look at them.

Content Related

1) Wrongful Termination

This manner of termination of employment is the most delicate in Mexico since it has several severance payments to be made as punishment for employers that, sometimes, can stifle or put them out of business.

In fact, most of the labor claims filed by employees are affirmed by this legal figure, although it wasn’t true. This is due to the fact of all the benefits they would have if they prevailed in court. Therefore, as an employer, you must know its details.

This figure is the last relief for those employers who want to lay off their employees due to a lack of work or simply because they don’t fit in the organization anymore. Thus, as an employer, you don’t have to have a cause of termination to dismiss an employee.

I.- Severance Payments

According to Mexican Labor Law, once an employee is dismissed wrongfully, his employer shall pay the following compensations:

A) Constitutional Indemnity

Which consists of three months of integrated daily wage.

B) Vacation Payment and Vacation Premium

Which consists of paying an equal amount of daily wages that depend on the employee’s seniority.

In this manner, pursuant to Article 76 of the Mexican Labor Law, employers shall pay employees with more than one year of service the equivalent of twelve working days. The same payment shall increase by two working days, until reaching twenty, for each subsequent year of service. Finally, beginning in the sixth year, the vacation period will increase by two days for every five days of service and so on.

On the other hand, the vacation premium for employees regulated by Article 80 of the law consists of a special bonus of twenty-five percent of their wages during the vacation period.

C) An Annual Christmas Bonus (Aguinaldo)

Which consists of the equivalent of fifteen days’ wage for a year of service or a fraction of time that must be paid before December 20.

D) Seniority Premium

This payment is based on the employee’s service length and consists of twelve days’ salary for each year of service or fraction of time.

Special mention must be made about this compensation because the amount of money the employers shall pay is capped by Article 486 of the Mexican Labor Law, which states if the salary received by the worker exceeds twice the minimum wage of the geographical area of application to which the place where the work is rendered corresponds, that amount shall be considered as the maximum salary.

E) Miscellaneous

Other payments could be due to the employee for different reasons depending on the employer’s administration and the employee’s seeking for relief, such as 1) not paid overworking hours, 2) employee profit sharing not paid, 3) wages worked and not paid, 4) bonuses, 5) the special indemnity (twenty days of daily wages for each of the years of services rendered) granted to the employee when his employer doesn’t reinstate him.

II.- Attractive litigation

Wrongful terminations are enticing to employees, not because of the severance packages I mentioned above but because of the accrued wages accumulated throughout all their labor cases according to Article 48 of the law.

In that Article, the legislator determined in paragraphs second and third as follows:

“If in the corresponding lawsuit, the employer does not prove the cause of the termination, the employee will also have the right, regardless of the action attempted, to be paid the accrued wages computed from the date of dismissal up to a maximum period of twelve months, in terms of the provisions of the last part of the preceding paragraph.

If at the end of the term indicated in the preceding paragraph, the proceeding has not been concluded or the judgment has not been complied with, the worker will also be paid the interest generated on the amount of fifteen months’ salary, at the rate of two percent per month, capitalizable at the time of payment. The provisions of this paragraph shall not apply to the payment of other types of indemnities or benefits”.

Just keep in mind that with the new labor system in Mexico, lawsuits, on average, last one year and three months.

III.- Calculating its Payment

Numbers are more important than concepts. Hence, through a hypothetical case, I will provide a quick example of how much you would pay for wrongful termination in Mexico and the next ones.

Let’s imagine the case of Roberto, who joined a Mexican company in Ciudad Juárez on January 1, 2017, and was wrongfully dismissed on September 30, 2023.

His net salary was 5,000 per week, plus a biweekly punctuality bonus of 1000 pesos and food vouchers for 550 payable per week.

Roberto’s seniority with the company: six years and 272 days.

Days worked in the year by Roberto: 273.

The ordinary daily wage (which results from dividing the net salary by the frequency in which it is paid 5, 000 ÷ 7) is 714.28 pesos.

The integrated daily wage ( which results from adding to the ordinary salary all the bonuses, compensations, and commissions that the worker receives. In this case, 71.42 pesos for the punctuality bonus [1000÷ 14] and 78.57 pesos for the food vouchers [550÷7] ) is 864.27 pesos.

Concept	Amount
Constitutional Indemnity^[1]	77, 784.3 pesos
Proportional Vacation^[2]	10, 682.49 pesos
Vacations Premium^[3]	2670.62 pesos
Proportional “Aguinaldo”^[4]	8, 013.63 pesos
Seniority Premium^[5]	50, 574.47 pesos
Total	149, 725.51 pesos (8, 491.68 dollars)

Don’t forget that this example is not calculated with other legal benefits that depend on each case, like overworking hours and no paid, etc.

Finally, let’s imagine Roberto filed a lawsuit against your company, and his case prevailed after one year and three months in court. Therefore, besides the aforementioned amount, you should add the accrued wages calculated according to Article 48 of the Mexican Labor Law.

Accrued wages are calculated according to integrated daily wages. Then, the first year of entire accrued wages [864.27*365= 315, 458.55 pesos] plus legal interest of three months calculated over 2% of fifteen months of daily wages[864.27*465=401,885.55*.02=8,037.71 pesos*3=24,113.13] results in the combined amount of the accrued wages:

339 571.58 pesos (19, 258.80 dollars)

Grand total: 489, 297.09 pesos (27, 750.48 dollars)

Now do you see why it is so attractive to file lawsuits against employers? Prevention is key to avoiding being plundered by workers, but I will address that issue in a different blog post.

IV.- Statute of Limitations

The term that workers have to file a labor lawsuit for wrongful termination to be reinstated or seek the payment of the constitutional indemnity is 60 natural days, but as a general rule, workers have one year to file labor claims, and seek legal relief and payment in their cases before they become stale. Hence, although if they don’t file a claim pursuing the constitutional indemnity within 60 days, they could still litigate the rest of the payments I mentioned above if it hasn’t been a year.

2) Rightful Termination

This way of termination of employment is rare in Mexico since most human resources representatives and managers are not well-trained to use it, although the law is clear on how to apply it. As its name says, it’s a form of dismissing an employee when the employer has a cause. Thence, he would avoid paying the legal indemnities.

I.- Legal hypotheses

Article 47 of the law states all the legal hypotheses in which the employer is not liable for dismissing an employee, which are the following:

“Article 47.- The following are causes for termination of the employment relationship, without liability for the employer:

I. Misleading the employee or, as the case may be, the union that proposed or recommended them with false certificates or references in which the employee’s capacity, aptitudes, or faculties are attributed to him/her that he/she lacks. This cause for termination shall cease to have effect after thirty days of rendering services to the employee;

II. The employee, during his work, incurs breaches of integrity or honesty in acts of violence, threats, insults, or lousy treatment against the employer, his family members or the management or administrative personnel of the company or establishment, or against clients and suppliers of the employer, except when provoked or when acting in self-defense;

III. The employee commits any of the acts listed in the preceding section against any of his co-workers if as a consequence of such acts the discipline of the place where the work is performed is disturbed;

IV. The employee commits, outside the service, against the employer, his family members, or administrative management personnel, any of the acts referred to in section II if they are so severe that they make it impossible to comply with the employment relationship;

V. Intentionally causing material damages to buildings, works, machinery, instruments, raw materials, and other objects related to the work during the performance of the work or in connection in addition to that;

VI. Causing the employee the damages referred to in the preceding section, provided that they are serious, without malice, but with such negligence that it is the sole cause of the injury;

VII. Compromising the worker, by his imprudence or inexcusable carelessness, the safety of the establishment or of the persons who are in it;

VIII. Committing immoral acts or acts of harassment and/or sexual harassment against any person in the establishment or workplace;

IX. Revealing trade secrets or disclosing matters of a reserved nature to the detriment of the company;

X. The employee has more than three absences in thirty days without permission from the employer or without a justified cause;

XI. Disobeying the employer or his representatives without just cause, as long as the work is contracted;

XII. Refusal of the worker to adopt the preventive measures or to follow the procedures indicated to avoid accidents or illnesses;

XIII. Attending work in a state of drunkenness or under the influence of any narcotic or enervating drug unless, in the latter case, there is a doctor’s prescription. Before starting work, the employee must inform the employer of the fact and present the prescription signed by the physician;

XIV. The enforceable sentence that imposes a prison sentence on the employee, which prevents him/her from complying with the work relationship;

XIV Bis. The lack of documents required by the laws and regulations necessary for the rendering of the service when it is attributable to the employee and that exceeds the period referred to in section IV of Article 43; XV. Those analogous to those established in the previous fractions, equally serious and with similar consequences as far as work is concerned”.

Finally, Article 185 of the law also regulates another legal hypothesis, which allows employers to dismiss reliable workers (employees who work in positions of trust) when they have lost their trust. Article that states the following:

Article 185.- The employer may terminate the employment relationship if there is a reasonable cause for loss of confidence, even if it does not coincide with the justified causes for termination referred to in Article 47. […].

II.- Procedure to Dismiss Rightfully Employees

A) Statute of Limitations

Pursuant to Article 517 of the law, once the employer is aware that one of his employees incurred in the hypotheses mentioned above, he shall dismiss him within the following month, under the risk that if he doesn’t do so, his cause shall stale.

B) Written Notice

The employer who terminates an employee must give him written notice clearly stating the conduct or conducts that motivated the termination and the date or dates on which they were committed.

This written notice is when most human resources managers fail due to poor writing skills and sometimes little knowledge of the law they should know. Thus, it’s pretty common that instead of using the rightful way of terminating the employment, they prefer to intimidate the worker and force him to sign his resignation. A big mistake would make the company lose a lot of money in court.

Whatever it is, you should be aware this written notice is the most important aspect of the procedure since it would serve as a bedrock in case the employee files a lawsuit against the company.

C) Delivery Notice

After the written notice is drafted, the employer must deliver it personally to the employee to be informed of the dismissal, and he shall propose to be signed by the employee. If the employee refuses, you as an employer must communicate to the competent court within the following five working days, in which case the last registered address of the employee must be provided so that the authority may notify the employee personally.

Failure to notify the employee or the court on time shall presume the dismissal is a wrongful termination. Therefore, as an employer, you shall pay all the severance payments I mentioned above.

III.- Cause of Termination’s Challenge

Even if the employee signs the written notice explaining the motives of the rightful termination, that doesn’t imply he cannot do something about it. On the contrary, he still can file a labor lawsuit and let the court weigh whether it was a rightful or wrongful termination. Then, it’s important as an employer to gather all the evidence you can to make your case in court.

Still, some legal hypotheses require more attorney’s knowledge than a human resource manager can know. For example, I will provide you with two cases recently resolved by the Supreme Court of Mexico.

In the first case, an employer dismissed one of his employees because in a drug test carried out following the internal labor regulations, revealed he was a marijuana consumer.

Dissatisfied with the termination, the employee filed a labor lawsuit, and the labor court ruled against him, reasoning his performance could be flawed by the consumption of psychotropic substances.

Eventually, the case reached the Mexican Supreme Court of Justice, whose justices vacated the labor court’s judgment and ruled the consumption of drugs by itself doesn’t impair employee’s skills in the workplace. Also, the law only allows to dismiss rightfully employees when the effects of drugs, alcohol, etc., are presented in the workplace.

In another case, one worker who used to utter racial slurs against Jews (he was a neonazi) got fired because in the company were Jewish co-workers.

The employee filed a labor lawsuit, arguing his comments were protected by his human right of freedom of speech. Notwithstanding, the labor court ruled against him and averred a rightful dismissal.

Eventually, the case reached the Supreme Court of Mexico, and its justices affirmed the labor court’s judgment, stating that the human right of freedom of speech has its limits. Some of them find support in the human rights of third parties who have suffered historically as a group.

As you can see, in some cases, there won’t be a straight answer about whether it was a rightful or wrongful termination of employment. Therefore, it would be wise to get legal advice from an attorney familiar with litigation because only those who are familiar with litigation know what is happening in higher courts regarding their precedents and criteria.

Finally, I want to share with you an experience with a company whose human resources managers almost made two company employees win their cases.

One day, the manager called the firm, informing us she had a problem with two employees. Apparently, both had a little hassle that led to a physical fight, where beyond getting injured each other, also wrecked tools and equipment of the company.

Her doubt consisted of whether it was okay to put all the havoc they caused for the company with their fight as reasons for their resignations. Which ones? I don’t understand, I answered immediately. Yes, their letters of resignation. The ones I will make them sign, she replied confidently.

Then I proceeded to remind her that a letter of resignation is a willing act of the employee, and it doesn’t have to be marred with other reasons beyond the employee’s will. Also, she was giving them arguments to win the case in court because although the company had a legal venue to dismiss them properly, it seems its management pressured the workers to resign.

I also told her that proof of that was their letter of resignation, which she would almost make them sign, not having followed the procedure established by law within the legal term to dismiss them rightfully.

Moral of the story is if you don’t have trained human resources managers, you better call your attorneys. They could more money in quick consultation than what you would pay in court.

IV.- Payments

Unlike wrongful termination, as an employer, when you rightfully dismiss an employee according to the law, you shall only pay: 1) Vacation Payment and Vacation Premium; 2) Proportional Annual Christmas Bonus (Aguinaldo); 3) Seniority Premium and 4) depending on the case, not paid overworking hours, employee profit sharing not paid, or wages worked and not paid. Compensations that I broke down above.

Finally, for the sake of illustrating the differences in the amount you would pay, I will use the same example of Roberto’s hypothetical case:

Roberto’s wage is 5,000 pesos per week, plus a biweekly punctuality bonus of 1000 pesos and 550 pesos worth of food vouchers payable per week.

Roberto’s seniority with the company: six years and 272 days.

Days worked in the year by Roberto: 273.

The ordinary daily wage (which results from dividing the net salary by the frequency in which it is paid 5, 000 ÷ 7) is 714.28 pesos.

Concept	Amount
Proportional Vacations	10, 682.49 pesos
Vacations Premium	2670.62 pesos
Seniority Premium	50, 574.47 pesos
Total	63, 927.58 pesos

Lastly, although it is quite obvious, I want to clarify that if the employee’s challenge against the cause of termination that you used prevails in court, the amount of money you shall pay is equivalent to a wrongful termination. Therefore, the worker would be entitled to Constitutional Indemnity and accrued wages.

3) Letter of Resignation

This method of employment termination does not necessarily require your intervention as an employer since it is a unilateral and willing act of the employee whose purpose is to express his desire to end the existing employment relationship between him and you.

Nevertheless, In Mexico, higher courts have ruled different precedents that you must take into account in certain cases, not only due to the protectionism of employees but also bad practices of employers. Precedents that clarify whether it is a genuine resignation or a forced one.

Finally, technically as an employer, you cannot only enforce in labor court for an employee to continue working for you when he decides to resign his job, although you paid them courses or gave them contractual benefits, and his contract is still valid. The only legal relief you have to recover, let’s say, your investment in such cases is by filing a civil lawsuit and obtaining compensation, as long as the worker has worked for you for less than a year according to Articles 32 and 40 of the law^[6].

I.- Lack of Regulation

Surprisingly and unlike the rest of employment of termination, the resignation letter is not expressly regulated in the law, so there is no statute that sets out the requirements of how to draft it, rather the resignation letter is construed implicitly in the prohibition of slavery in Mexico and that only the authorities, under certain circumstances, can force people to provide work or a service pursuant to Articles 1, paragraphs fourth and 5, paragraphs third and fourth^[7].

II.- Letter of Resignation’s Challenge

Due to this lack of regulation, it is important to consult an attorney even when you, as an employer, face a resignation. Mostly since the judicial activism in this matter is motivated, in part, by the bad practices that employers incur on this topic, such as: 1) Hire workers as long as they sign a resignation form at the beginning; 2) forging letters of resignation to dismiss employees; 3) coerce under duress to employees to sign letters of resignation; 4) forgoing rights, etc.

Some examples of this judicial activism can be found in cases of pregnant workers^[8] and very senior workers whose letters of resignation are not enough to prove in court their supposedly will to express their desire to end the existing employment relationship between them and you. Therefore, in case of litigation, the court shall expect that you provide more evidence and context of what really happened with those workers under the admonition that if you don’t comply with it, it shall result in a wrongful termination and its despicable consequences.

Also, when employers make to believe to their employees that what supposedly were signing was an agreement instead of a letter of resignation. If that happens, employees can still prove in court that there was a forgoing of their rights which is prohibited in Article 33^[9] of the law.

III.- Payment

When a worker decides to resign from his job, as an employer, you should only pay the following compensations: 1) Proportional Vacation Payment and Vacation Premium; 2) Proportional Annual Christmas Bonus (Aguinaldo); 3) Seniority Premium (only if the worker has seniority equal or more than fifteen years^{^[10]}) and 4) depending on the case, not paid overworking hours, employee profit sharing not paid, or wages worked and not paid. Compensations that I broke down above.

Finally, for the sake of illustrating the differences in the amount you would pay, I will use the same example of Roberto’s hypothetical case:

Roberto’s wage is 5,000 pesos per week, plus a biweekly punctuality bonus of 1000 pesos and 550 pesos worth of food vouchers payable per week.

Roberto’s seniority with the company is six years and 272 days. Since he has not worked at the company for at least fifteen years, he is not entitled to receive a seniority premium.

Days worked in the year by Roberto: 273.

The ordinary daily wage (which results from dividing the net salary by the frequency in which it is paid 5, 000 ÷ 7) is 714.28 pesos.

Concept	Amount
Proportional Vacations	10, 682.49 pesos
Vacations Premium	2670.62 pesos
Seniority Premium	No entitled
Total	13, 353.11 pesos

IV.- Statutes of Limitations

Although your employee resigns, you must save the letter of resignation for at least one year because you don’t know if he dares to file a lawsuit against you.

The year is calculated taking into account that, as a general rule, workers have one year to file labor claims and seek legal relief and payment in their cases before they become stale. Hence, although if they don’t file a claim pursuing the constitutional indemnity within 60 days, they could still litigate the rest of the payments I mentioned above if it hasn’t been a year, such as vacation payments, aguinaldo, overworking and unpaid hours, etc.

4) Labor Separation Agreement

This way of employment termination doesn’t need much explanation, but I want to provide some caveats about this legal institution to avoid pitfalls in court or fines from The Ministry of Labor and Social Welfare.

First off, this way of employment termination is regulated expressly in Mexico’s Federal Labor Law in its Article 53, fraction I, which states:

Article 53.- The following are causes for termination of employment relationships:

I.- For mutual agreement of the parties; […]

Although this figure has its foundation in the law, we must construe it in accordance with Articles 33 and 162, which I already quoted before, to realize the only compensation you, as an employer, should negotiate with your workers is the constitutional indemnity. You cannot touch their vacation payment, vacation premium, and their seniority premium. Thence, instead of paying, let’s say, the full 90 days that state the law, you could arrange only paying 20, 30, 45, and so on.

However, sometimes we can negotiate with overworking hours, contract benefits, or other compensations that are not ordinary. Finally, in some cases, I have seen agreements where workers’ representatives waive ordinary compensations (like seniority, vacation payments, etc.) although those agreements exist, they are illegal and can be nullified after, so don’t take risks.

I.- Agreement

There are two ways of submitting the agreement: with or without the intervention of the authorities. Of course, I always will recommend the first one.

In the first one, the parties shall draft the agreement and submit it to the Local Center for Labor Conciliation and Registration or, if you are already in litigation, under the labor court. Both public entities shall weigh the validity of the agreement, and if they approve it, the agreement cannot be challenged in court, even if the worker alleges forgoing of his rights^[11].

II.- Payment

As I averred before, the only negotiable compensation that you should do through an agreement is regarding constitutional indemnity, overworking hours, and other contractual benefits. Therefore, the payment will depend on how much you want to yield in order to avoid being suited in court. Lastly, as custom, attorneys who represent workers accept deals with half of the indemnity days, namely, 45 days.

By Omar Gómez

Partner

beLegal abogados S,.C

Abogados en Ciudad Juárez, Chihuahua, México

Visit my personal website www.ogomezabogado.com

Contact the firm at: [email protected] or call (656) 774-75-73 for English assistance or (656) 271-41-43 for Spanish assistance.

^[1] Resulted by multiplying 864.27 pesos*90 days.

^[2] calculated with ordinary wage and according to seniority in the company and days worked in the year by Roberto [20 days* 714.28= 14, 285.6÷ 365= 39.13*273= 10682.49

^[3] As result of 25% calculated on the amount to be paid for vacations.

^[4] Calculated with ordinary wage and days worked in the year by Roberto [15 days*714.28=10, 714.2÷ 365=29.35*273=8, 013.63

^[5] Calculated with six years and 272 days, and with a salary capped at 624.82 pesos since Roberto’s wage exceeds the legal limit of double minimum wage [624.82*12=7,497.84*6=44,987.04 Six years. 7, 497.84÷365=20.54*272=5, 87.43 Proportional] 50, 574.47 pesos

^[6] Article 32.- The non-compliance of the work rules with respect to the worker only gives rise to his civil liability, and in no case may his person be coerced.

Article 40.- In no case shall workers be obligated to render their services for more than one year.

^[7] Article 1.- […] Slavery shall be forbidden in Mexico. Every individual who is considered as a slave in a foreign country shall be freed and protected under the law by just entering national territory. […]

Article 5.- […] No one can be compelled to do personal works related without a fair wage and without full consent, except when compelled by a judicial authority under Article 123, sections A) and B)

According to the law, the mandatory works related to public services shall be those performed at the armed forces, juries, municipal offices, and those performed at public elected offices either directly or indirectly. Electoral works as well as those performed in building up censual databases shall be not only mandatory but also free of charge except those which, according to this constitution and the law, are performed by professionals. Professional services of a social nature shall be mandatory and paid under the law.

^[8] PREGNANT WORKER. IF THE EMPLOYER ANSWERS THE CLAIM ALLEGING THAT THE PLAINTIFF RESIGNED AND THEN SHE PROVES THAT AT THE TIME OF THE TERMINATION OF THE EMPLOYMENT SHE WAS PREGNANT, THE LETTER OF RESIGNATION IS INSUFFICIENT TO SHOW THAT IT WAS FREE AND SPONTANEOUS. Second Chamber of the Supreme Court of Mexico. Binding-precedent (jurisprudencia)

^[9] Article 33.- The waiver made by the workers of the accrued salaries, indemnities, and other benefits derived from the services rendered, whatever the form or denomination given to it, is null and void.

Any agreement or settlement, in order to be valid, must be made in writing and contain a detailed account of the facts that motivate it and of the rights included therein. It shall be ratified before the Conciliation Centers or the Court, as the case may be, which shall approve it provided that it does not contain a waiver of the workers’ rights.

When the agreement is entered into without the intervention of the authorities, the nullity may be claimed before the Court only of that which contains a waiver of the rights of the workers, while the rest of the clauses agreed upon shall remain valid.

^[10] Article 162.- Regular employees are entitled to a seniority bonus in accordance with the following rules: […]

III.- The seniority premium shall be paid to workers who voluntarily separate from their employment, provided they have completed at least fifteen years of service. Likewise, it will be paid to those who separate for justified cause and to those who are separated from their employment, regardless of the justification of the dismissal;

^[11] The above is according to a Mexican Supreme Court’s precedent: LABOR AGREEMENT SANCTIONED BY THE CONCILIATION AND ARBITRATION BOARD. THE NULLITY APPROACH FORMULATED AGAINST THEM IS INAPPROPRIATE WHEN THE WORKER ALLEGES WAIVER OF RIGHTS.

Employment Termination in Mexico

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