The Basics of Severance Laws in Mexico
07.17.19
As a company manufacturing in Mexico, you have responsibility for the hiring, training, and the potential “letting go” of employees. Like the U.S., Mexico protects its workers who lose their job at no fault of their own. There are employment and severance regulations to be knowledgeable of when starting operations in Mexico to ensure your business understands what is required and enforced by law.
As an overview, employees are entitled to severance as soon as they receive permanent worker status. This severance entitlement applies to any employee termination except for voluntary resignation by the employee or termination for cause. In either of these two scenarios, it’s important for the employer to maintain detailed documentation to prove its case in court in case they are sued, which an employee has a right to do.
It can be argued that the termination wasn’t valid and the employer must then prove its case. If the court finds in favor of the employee, the law defines how much severance is given. Severance entitlements are broken down in different increments of days and in general, favorably leans toward the employee regardless of the reason for termination.
How Severance Entitlements Work
The first entitlement is 90 days of wages equal to the employee’s most recent pay rate (the daily rate paid throughout the year). This 90-day severance entitlement applies to employees with permanent status only. Bonuses are often excluded, but benefits and taxes still apply.
For each year of service, the employee also receives 12 days of pay at their most recent wage pay or double the federal minimum wage, whichever is less. Any partial work years are prorated. If there is no cause found for firing an employee, both the 90-day and 12-day severance entitlements are due. This is paid regardless of if the employee finds another job.
There is also the 20-day entitlement, which is different. The entitlement is 20 days of pay per year of service at their most recent wage with no limit on the amount or number of years of service. When an employer pays all entitlements, including the 20 days, the employee no longer has the right to sue. However, the employee can sue for the difference even if the full 90- and 12-day severances are paid but not the full 20-day entitlement.
Since employees are typically favored in these cases, employers usually pay. With that being said, an employer can legally negotiate with the employee. For example, if a senior-level employee has been terminated due to poor performance, the employee may be willing to admit some liability and accept a lesser severance since this reason could have an impact on future career opportunity. This isn’t as common for junior or entry-level employees who don’t feel as impacted by the consequences.
Differences Between Temporary and Permanent Employees
Not all hired employees automatically receive permanent status. Foreign employers can hire workers under temporary contracts for up to six months without the employee being permanent. For permanent workers, there’s no probationary period regarding benefits; they are eligible immediately. Regulations for temporary contractors are:
- Contract employees do not receive termination benefits but are entitled to compensation for the full term of their contract regardless of if the contract ends early.
- A temporary contract is renewable as long as the position doesn’t last longer than six months.
- When a six-month contract ends, the employer either makes a permanent status offer or the employee seeks other work opportunities to receive this.
If you hire an employee in Mexico on a series of temporary contracts and after a few months decide to bring the employee on permanently, they become eligible for the severance entitlements. It’s crucial to keep a detailed account of communication at either stage of employment outlining the employee’s voluntary resignation to prevent being sued for termination without cause.
Keep in mind what commonly constitutes “cause” for termination in Mexico. Justifiable reasons include breaking a rule, poor performance, being late on multiple occasions, missing work, theft, workplace violence, intoxication at work, and offenses similar to these. Every other form of termination is considered to be without cause and the new employee will be eligible for severance benefits.
The ins and outs of HR and legal compliance can be challenging, which makes working with an experienced shelter provider more ideal when manufacturing in Mexico. They will be able to guide you through what you need to know to minimize risk and liability on all fronts.