/>iConsidering the fluidity of the current US/Mexico situation and the potential for the escalation of destabilizing tariffs, we prepared a short summary of available employment options in Mexico for companies to keep in mind as they consider their operations in that country.
Under Mexican labor law, there are primarily three ways for companies to terminate all employment in a non-unionized facility: (i) collective termination of all employment relationships, (ii) collective suspension of all employment relationships, or (iii) mutual termination of individual employment relationships.
- Collective termination of employment relationships
Mexican labor law provides the possibility for employers to collectively terminate their employment relationships with employees upon court order, if the employer proves to the Labor Court any one of the following:
- Force majeure or acts of God not attributable to the employer, leading, as a necessary, immediate and direct consequence, to the termination of the jobs;
- Evident and declared non-profitability of the business;
- Exhaustion of the material object of the extracting industry;
- Certain cases applicable exclusively to the mining industry; or
- Legally declared bankruptcy.
To submit the request for a collective termination, the employer must give notice to the Labor Court of its intentions to terminate all employment relationships and the basis for such determination. The Labor Court will have to serve notice to each one of the employees and a hearing will take place. Once approved, employees will be entitled to a reduced severance, equivalent to three months of integrated salary plus a payment of an amount equivalent to 12 days per year of rendered services, capped at twice the daily minimum wage of the zone, as seniority premium.
- Collective suspension of employment relationships
Employment relationships can be suspended under other circumstances, including cases of force majeure or unforeseeable events, lack of raw material, excess production, temporary economic hardship, or lack of funds. As with a collective termination, to carry out this suspension the employer must notify the Labor Court, which will initiate a special procedure to approve or disapprove the suspension after providing notice to all employees.
If the Court authorizes the suspension, it will determine the compensation to be paid to the employees, based on the likely duration of the suspension and the availability of alternative employment. This compensation cannot exceed the equivalent of one-month of the employee’s salary.
- Individual termination of employment relationships
More commonly, companies ceasing operation in Mexico seek to terminate each employment relationship individually. Individual terminations on a facility-wide scale do not require prior approval from labor courts, and do not require the employer to demonstrate the cause for termination, but they do require the employer to pay applicable legal severance consisting of:
a. Payment of accrued labor benefits on the date of the termination (i.e. Christmas bonus, vacation, vacation premium);
b. Payment of an amount equivalent to 12 days per year of rendered services, capped at twice the daily minimum wage of the zone, as seniority premium;
c. Payment of an amount equal to 3 months of salary, paid with consolidated salary (consolidated salary is the base salary plus the proportional part of the accrued benefits) as Constitutional Severance; and
d. Payment of an amount equivalent to 20 days of consolidated salary per full year of rendered services.
Mexico has no notice periods, therefore, execution of mutual termination agreements can be made effective as of the moment they are signed.
Each one of these options can be expensive and, in the case of the suspension or termination of the entire workforce, time consuming. It is important to seek experienced counsel and discuss these options in detail, plan ahead, and prepare a strategy that takes into account both the requirements of the law, the specifics of the company and the situation on the ground.
