Bill to Reform Mexico's Federal Labor Law Is One Step Closer to Passage

On Friday, September 28, 2012, Mexico's House of Representatives submitted a Proposed Decree for the Senate's approval. The Proposed Decree seeks to reform the Federal Labor Law (FLL) in important areas, including hiring practices, new termination grounds, outsourcing, and limitation on back wages as compensatory damages. While accepting much of the content of a bill initially introduced by President Calderon, the Proposed Decree rejected some key measures which would have reformed union-related laws within the context of strikes and union accountability.

Some of the most important changes contained in the Proposed Decree seek to accomplish the following:

  • Increase regulation over outsourcing practices. Under the new law, outsourcing would be allowed only if it met the following conditions. Outsourcing: (a) cannot cover the totality of the activities, whether equal or similar in totality, undertaken at the center of the workplace; (b) must be justified due to its specialized character; and (c) cannot include tasks equal or similar to the ones carried out by the customer's workers.
  • Add bullying and sexual harassment in the workplace as new grounds for termination with cause. Additionally, employers will be able to serve a notice of dismissal directly on the worker or through a corresponding Labor Board.
  • Limit the accumulation of back wages to 12 months. One of the issues of greatest concern to businesses, including small and medium-sized businesses, is back wages as potential damages given the prolonged duration of labor trials. Under the new law, once the 12-month period has concluded, a monthly interest rate of 2% will be generated on 15 months of the employee's monthly wage, which is to be paid once the labor trial has concluded. Also, the accrual of back wages will be suspended if the worker has died.
  • Allow for new wage payment methods. Currently, the FLL is silent on whether wage payments can be made by any means other than check or cash. The new law will allow for the payment of wages to be made by direct deposit and other electronic means. It will also allow for work to be paid at an hourly rate, as long as his or her income is never lower than the minimum wage required under Mexico law.
  • Create a new agency to promote productivity. The National Productivity Committee would be created to establish agreements between employers, workers, unions, government and academia; measure productivity; and optimize the use of human, material and financial capital in businesses. Just how much power this new agency would have is unclear. Accordingly, if this Proposed Decree is enacted into law, employers--with the help of counsel--should monitor how its implementation may impact the company's plans to invest in technology and production systems.
  • Modernize the labor procedures. The Proposed Decree seeks to establish "Conciliation Officials" who will be in charge of conducting conciliatory proceedings to encourage settlement of labor lawsuits. Notably, the Proposed Decree also recommends the admission of electronic evidence.
  • Repeal of the "closed-shop clause." If enacted into law, the Proposed Decree will follow the pronouncement of the Federal Supreme Court, which held as unconstitutional "closed-shop" provisions which restrict an employer's ability to hire or terminate a worker on the basis of that individual's union affiliation.

Notably, the House of Representatives rejected various measures that were included in the original bill proposed by President Calderon and are essential not only to promote union transparency and accountability, but also to eliminate extortionist and corrupt practices. Specifically, the Proposed Decree rejected the following measures:

  • For freedom of association. The president's bill sought to require that unions establish a voluntary, direct and secret voting process. By rejecting this measure, the law would remain intact, allowing union elections by freehand in controlled assemblies.
  • For union transparency and accountability. Amongst other measures, the original bill sought to ensure the legality, transparency, accuracy, impartiality, and autonomy in union registration by: (1) requiring unions to disclose, upon any person's request, information regarding the collective bargaining agreements filed with the Board or concerning the union's management of its assets; (2) subjecting unions consisting of more than 150 members to external audits; and (3) establishing legal sanctions for the union's failures to comply with these obligations.
  • To limit unions' ability to call for strikes. The president's bill sought to require a union to submit the following information before making a call to strike: (1) a list signed by workers who render services for the company and are affiliated with the union; and (2) information relative to the union's management and by-laws to verify whether the industry or activity of the company with which it wishes to execute the agreement is included in the union's corporate objective.
  • To suspend collective disputes during a strike. The original initiative sought to allow employers to suspend bargaining negotiations when a union calls for a strike. The Proposed Decree rejected this measure. Unless the Senate re-introduces the original measure, unions will continue to be allowed to strike for several years without the need to come to a resolution.
  • To end a strike by submitting the dispute to arbitration. The president's bill sought to enable employers to utilize arbitration to resolve disputes in order to end a strike.

The House of Representatives submitted the Proposed Decree to the Senate for review and approval or modification. Upon receipt, the Senate will have 30 calendar days (i.e., until October 27) to approve or amend the Proposed Decree. If the Proposed Decree is approved, it will be sent to the federal executive branch for publication as a law. If amended, the Proposed Decree would be resubmitted to the original House of Representatives for further discussion.

For a more detailed commentary on how the Proposed Decree, if enacted, would impact employers conducting business in Mexico, please continue reading
here (or,
in Spanish).

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.