2. Re-Characterisation of Independent Contractors as Employees

a. Laws and Guiding Principles

It was a very common practice for employers to characterize certain labour relationships as services provided by an independent contractor. The most common were the cases of business promoters, salespersons, traveling salesmen and other individuals engaged in similar activities. In fact, in most of these cases the person rendering the service was really under the authority and subordination of the person receiving the services, since the latter determined the tasks and conditions of the services rendered. Additionally, the 'employer-in-fact' tried to characterize the wages as commissions.

Due to the above, the FLL was amended to address the fact that individuals rendering the services described in the preceding paragraph were in fact workers and not independent contractors when they provided their services personally and on permanent basis.

b. The Legal Consequences of a Re-Characterisation

If the hypothesis described in the previous Section takes place, the person receiving the services will be considered to be the employer and will be liable for the previously withheld legal benefits to the now re-characterized employee.

c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status

If a ‘supposedly’ independent contractor believes that he/she is in fact an employee in accordance with the FLL, he/she will bring a claim to the Conciliation and Arbitration Labour Boards, to be considered as an employee (mostly in cases of contract termination). The judicial practice is that the Conciliation and Arbitration Labour Board will label the relationship to be one of a ‘labour’ or employment nature, and the person receiving the services will have the burden of proving the civil or commercial nature of the relationship, which is a rather difficult task.

We quote, below, the criterion of the Supreme Court regarding this subject:

“To determine the legal nature of an agreement we must not only consider its name, but its contents, because, in some cases, contracts named as commission agency agreements are truly employment agreements. Therefore, it is essential to take into account the terms and conditions agreed, in order to conclude if the so-called agent is or is not subordinated to orders given by the principal. We must not forget that according to the Federal Labour Law, subordination is the characteristic element of an employment relationship. Therefore, if analysing the corresponding agreement; i) it is evident that the agent undertakes to sell and promote the products, merchandise and articles handed to him by the principal, as consignment, through the company or third parties, declaring that he has the resources and personnel appropriate to make the sale and promotion (that is, the sale is not necessarily done by the former); ii) it is evident that the agent may be present or absent any time he wishes, because he is not obliged to personally carry out the assignment, iii) that the contract does not confer exclusivity for any of the parties and therefore has full freedom to hire other agents, iv) that he may perform his activity independently (which excludes subordination), and v) it is evident that it is a commission agency agreement, even if it includes clauses regarding deposit of the sales, storing merchandise, shortages, cash cut-offs, inventories and audits, as well as those regarding limitations to hire other agents, then these are not orders, as understood in an employment relationship, but contractual rules that enable an adequate performance of the commission.”

d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation

In the event that a re-characterized employee's legal claim before the Labour Boards is successful, the company deemed to be the employer will be responsible for the payment of outstanding and accrued benefits, outstanding salaries; as well as for any outstanding social security and housing contributions due to the INFONAVIT, including tax liabilities for any of these omissions.