Mexico: Ruling of the Eighth District Court Regarding Profit-Sharing Cap in Mexico
On 20 May 2022, a mining industry union filed a protection of constitutional relief claim against the Decree of Amendments to the Federal Labor Law, the Social Security Law, the National Worker´s Housing Institute, the Federal Tax Code, the Added Tax Law, and the Income Tax Law, among others.
Particularly, the Amparo claimed the unconstitutionality of the amendment to Article 127, Subsection VIII of the Federal Labour Law, which established a limit upon the profit-sharing payment of either three months of the employee´s salary or the average of the profit sharing received in the last three years. The most favorable amount for the employee should be applied. This violates the human rights enshrined in Articles 14, 16, 123, and 133 of the Mexican Constitution.
The District Court did a thorough analysis of the constitutional background of the employee´s rights to participate in the profits of the companies and concluded that the union´s violation claims were well founded, considering, among many other reasons, that the Constitution stipulates that the company´s profits should be distributed to employees in an integral manner. The amendment became unconstitutional because of the conditions set forth that do not comply with the pursuit of a constitutionally legitimate purpose. Therefore, it does not comply with Section VIII of Article 127 of the Federal Labor Law. This will affect the employee´s human rights. It was observed that the challenged articles do not pursue a constitutionally valid purpose.
Taking into consideration all the above, there is a concern among the employer’s sector about the legal consequences of this decision in relation to the legal enforceability of the three-month limit for the profit-sharing payment. Moreover, it is important to note that, in accordance with Mexican law, one court decision declaring the unconstitutionality of a law doesn’t imply its annulment, nor does it become a mandatory precedent for other courts until there are five uninterrupted decisions rendered under the same opinion. Until then, it will be considered jurisprudence obligatory for all the courts. The only instance in which a law could be annulled by the Mexican Supreme Court is when there are five uninterrupted decisions declaring its unconstitutionality. The Supreme Court could give, under its discretionary powers, a ninety-day term to the Federal or State Congress to amend or annul the law. If they fail to comply, the Supreme Court can declare the annulment of that law with the vote of 8 out of its 11 justices.
Meanwhile, the limit for the profit-sharing payment is still in force.