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07. Termination of Employment Contracts

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07. Termination of Employment Contracts

Grounds for Termination

An employer may dismiss an employee only where the latter gives cause for dismissal. Under Mexican labour law, “integrity at work” is mandatory behaviour for the employee. An employee is deemed to act with integrity when the work is carried out with intense effort, care, and attention, in the agreed-upon time, place, and manner. “Lack of integrity” is a generic cause for dismissal. Additionally, Article 47 of the FLL specifies particular kinds of conduct that are causes for dismissal:

  • use of false documentation to gain employment;
  • dishonest or violent behaviour against the employer or the employer’s family;
  • dishonest or violent behaviour against co-workers that disrupts work discipline;
  • acts of harassment or sexual harassment directed toward any person in the workplace;
  • sabotage of the workplace;
  • negligence;
  • carelessness that threatens the safety of the workplace and of other workers;
  • immoral acts in the workplace;
  • disclosure of trade secrets;
  • more than three unexcused absences in a 30-day period;
  • insubordination;
  • failure to adopt preventive measures or to follow procedures to avoid accidents or illnesses;
  • reporting to work under the influence of alcohol or narcotic drugs; and

Collective Dismissals

According to the FLL, there must be a legally permitted cause of termination that substantiates the collective dismissal. The severance payment and the subsequent procedure will be determined depending on the cause.

The first step is to determine whether the company has unionised workers and confidential employees. If it does, the working conditions of the union workers are governed by the CBA. Therefore, both the termination of the union workers and the CBA must be negotiated with the Union.

The aggregate salary of union workers must include: (1) the base salary; (2) any other benefit in cash or in kind (such as life insurance, savings fund, food coupons, vacation premium, year-end bonus, etc.); and (3) any other benefit provided to the employee for services rendered.

In practice, some labour unions claim the payment of a four-month indemnity plus twenty days of aggregate daily salary for each year of services rendered, arguing that the termination of the employment relationship is a consequence of the implementation of new working procedures by the parent company. In other cases, the union claims an additional premium for the closing of industrial operations that may represent an additional percentage to the indemnity contemplated by law.

Upon conclusion of the negotiations, an agreement will be filed before the Local Conciliation and Arbitration Board for the liquidation of all union workers. The above will enable the employer to freely dispose of its real estate and goods (machinery, raw materials, buildings, etc.). Additionally, it is a common practice to liquidate confidential employees using the same basis as for the union workers. In some cases, those who actively participate in the closing operations will receive a ‘stay-on’ bonus.

Individual Dismissals

An employer may dismiss an employee only where the latter gives cause for dismissal. Concerning the termination of individual employment relations with union workers, the FLL sets forth a formula to calculate the amount of severance to be paid to each employee. The employer also has the obligation to pay a seniority premium to each employee being terminated. This premium is equal to twelve days of salary for each year of service rendered, with a cap at the equivalent of two times the minimum daily salary. Mandatory fringe benefits must be paid in arrears at the time of termination.

Is Severance Pay Required?

The termination payment is calculated depending upon the cause of termination:

Voluntary resignation: The employer must pay all benefits due, including sales incentives, on a prorated basis up to the termination date. If the employee has at least fifteen years of seniority, he is also entitled to a seniority premium of twelve days’ salary for each year of service, capped at twice the minimum daily salary in force.

Termination with cause: The employer must pay all benefits due, 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 of twice the minimum daily salary per the terms above).

Termination without cause: Employees who are terminated without cause are entitled to the following lump sum severance: (1) three months of the employee’s daily aggregate salary, plus; (2) twenty days of the employee’s daily aggregate salary for each year of service; (3) a seniority premium of twelve days’ salary for each year of service (but with a cap of twice the minimum daily salary in the same terms as explained before); and (4) benefits due.

Separation Agreements

According to Article 53, Section I of the FLL, the mutual consent of the parties is a cause for termination of the employment relationship with no responsibility for either the employer or the employee, and therefore is subject to the will of the parties.

a. Is a Separation Agreement required or considered best practice?

As mentioned above, the execution of a separation agreement comes down to the parties’ consent provided it does not contain a waiver to the employee’s minimum rights, earned salaries, indemnities and any other benefits derived from the services rendered, regardless how it is characterised or the name given to it.

Furthermore, in terms of Article 33 of the FLL for any agreement or settlement to be valid, it must be entered into in writing and contain a detailed description of the facts that motivated it and the rights therein contained. It must be ratified before the competent Conciliation and Arbitration Labour Board, which will approve it as far as it does not contain a waiver of the employee’s rights.

By virtue of the above, a separation agreement may be considered best practice. However, it must be ratified before and approved by the Conciliation and Arbitration Labour Board in order to be valid.

b. What are the standard provisions of a Separation Agreement?

The standard provisions of a separation agreement are:

  • reciprocal acknowledgement of the parties’ status and representation, and legal capacity.
  • employee’s statement containing the employer’s name, hiring date, position, work shift and salary.
  • express consent by the parties to terminate the employment relationship and the termination date.
  • total settlement of obligations and acknowledgement of receipt on behalf of the employee of the net and gross amounts due by the employer, including a breakdown of the concepts that are being paid, applicable taxes and deductions.
  • full release by the employee of all labour and social security obligations in favour of the employer, its parents, subsidiaries or affiliates, predecessors, successors or assigns, as well as their respective current and / or former partners, directors, shareholders / stockholders, officers, employees, attorneys and / or agents, all both individually and in their official capacities.
  • employee’s statement under oath of the working conditions and benefits enjoyed while in service with the employer.
  • confirmation by the employee of the last day worked for the employer.
  • ratification of the agreement and request for the Labour Board’s approval.

c. Does the age of the employee make a difference?

The employee’s age makes no difference.

d. Are there additional provisions to consider?

Other provisions to consider in the separation agreement are those related to:

  • company’s files, documents and property.
  • no disparagement.
  • confidentiality clause.
  • non-compete and/or non-solicitation.

Remedies for Employee Seeking to Challenge Wrongful Termination

According to the FLL, employees who have been wrongfully terminated can file a complaint with the Conciliation and Arbitration Board for: (a) constitutional severance consisting of three months of aggregate salary; or (b) reinstatement to the same position he held, plus back wages (which is the salary the employee is not earning during the labour proceedings capped to one year, if the litigation is not concluded after twelve months, the plaintiff will be entitled to request 2% monthly interest over a fifteen- month salary base).

Whistleblower Laws

In Mexico, there is no specific statutory protection for employees who alert or provide information about possible breaches of the law or good corporate governance policies.

Any questions

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