international employment law firm alliance L&E Global
Mexico

6. Cost-Reduction Strategies

To what extent can employers implement the following cost-reduction strategies as a result of COVID-19, and what are the primary limitations on each? 

  • Furloughs.

The Federal Labour Law does not expressly state the grants of Furloughs (leaves). However, the employer is entitled to grant such leaves, according to its Internal Regulations (with or without payment), unless the employee is infected, in which case he/she will enjoy all the established benefits.

  • Salary reductions.

The Federal Labour Law includes extensive provisions to protect employees’ rights, by expressly providing that (a) employees’ rights are not subject to waiver or demotion; and (b) when in doubt, the interpretation most favorable to the employee shall prevail.

The Federal Labour Law determines certain minimum rights that must be granted to every employee in Mexico. Notwithstanding the above, there is the possibility of executing an agreement between the employee and the employer, regarding a salary reduction, as long as it does not imply the employee will be receiving any benefit below what is established by law.

  • Redundancy.

Employee termination is only possible if the employer has a justifiable cause. Termination payment is calculated depending upon the cause of termination:

  • Voluntary resignation: The employer must pay all due benefits, including sales incentives, on a prorated basis up to the termination date. If the employee has at least fifteen years of seniority, he/she is also entitled to a seniority premium of twelve days of salary for each year of service, capped at twice the minimum daily salary in force.
  • Termination with cause: The employer has to pay all due benefits, including commissions, on a prorated basis until the date of termination, and the seniority premium of twelve days of salary for each year of service (but with a cap at twice the minimum daily salary, under the same terms explained above).
  • Termination without cause: Employees who are terminated without cause are entitled to the following lump sum severance: (i) three months of the employee’s daily aggregate salary, plus: (ii) twenty days of the employee’s daily aggregate salary for each year of service; (iii) a seniority premium of twelve days of salary for each year of service (but with a cap at twice the minimum daily salary, under the same terms explained above), and (iv) due benefits.
  • Facility closure.

1. Section 434, subsection II, of the Federal Labour Law, states that in case of notorious and obvious inability to pay, the employer must request approval from the Labour Board to collectively terminate the labour relationships with the employees, and will have to initiate a procedure to obtain a resolution from the labour authority determining whether there is a collective termination corresponding to such a cause.

In the first scenario, the Labour Board will agree with the collective termination and will condemn the employer to pay the following:

  • Due benefits;
  • 90 days of integrated salary;
  • Seniority Premium.

In the second scenario, the Labour Board will not authorise the collective termination and will condemn the employer to pay the following:

  • Due benefits;
  • 90 days of integrated salary;
  • 20 days of integrated salary per year of service;
  • Seniority Premium.

2. The closure of the workplace will entail the termination of employment relationships without constituting a justified cause for it, so the employer shall pay the compensation as provided in the Federal Labour Law, which includes: (i) constitutional compensation consisting of three months of integrated salary; (ii) 20 days of salary for each year of services provided; and (iii) the seniority premium equivalent to 12 days of salary for each year of services rendered, calculated at a maximum ceiling of twice the minimum wage, when the employee’s salary exceeds that amount.

Additionally, the employer will have to pay the severance payment, which includes the due benefits to the date of termination, such as wages, Christmas bonus, vacations, vacation premiums and any another benefit to which the employee is entitled to receive. Sometimes, to facilitate the process and obtain the consent of the employees,  companies provide an additional amount that would be paid to the employees, but takes the form of a liberality, rather than an obligation to do so.

Any questions

Ask our member firm De la Vega & Martínez Rojas in Mexico