Types of Employment Agreements in Mexico Explained

What Are Employment Agreements in Mexico

Employment agreements in Mexico define the legal relationship between an employer and an employee. They are not optional documents or HR formalities.

Under Mexican law, employment rights exist even without a written contract, but the agreement determines how obligations, benefits, termination rules, and severance are applied in practice.

• Definition of an employment agreement in Mexico
  An employment agreement establishes that an individual provides personal services in exchange for wages under the employer’s direction. It confirms salary, role, work conditions, benefits, and pay frequency.
  
  

• Legal basis under the Federal Labor Law
  Mexican employment agreements are governed by the Federal Labor Law, which sets mandatory minimum rights that cannot be waived or reduced by contract language.
  
  

• Presumption of employment when personal, subordinated services exist
  If personal services are performed under supervision or control, the law presumes an employment relationship, even if the parties label it as consulting or contracting.
  
  

• Why contract type matters for compliance, termination, and severance
  Contract type affects notice rules, termination risk, severance exposure, and benefit calculations. Incorrect contract structures often fail during disputes or audits.
  
  

In Mexico, employment agreements confirm the relationship, but they do not create it. The reality of how work is performed always overrides the contract wording.

Core Principle: Indefinite Employment as the Default Rule

Mexican labor law is built on the principle that employment relationships are indefinite unless a lawful exception applies. Fixed-term or project-based contracts are the exception, not the rule. If an employer cannot clearly justify a non-indefinite contract, the law treats the relationship as permanent.

• Indefinite-term contracts as the legal default
  Under the Federal Labor Law, all employment is presumed to be for an indefinite term unless the nature of the work clearly requires a limited duration.
  
  

• Situations where non-indefinite contracts are allowed
  Fixed-term contracts are permitted only for temporary replacements, specific projects, or seasonal work with a defined end. Ongoing roles do not qualify.
  
  

• Burden of proof on the employer
  The employer must prove that a fixed or temporary contract is legally justified. If evidence is weak or inconsistent, the contract is reclassified as indefinite.
  
  

• Consequences of improper contract use
  Improper use of fixed-term contracts exposes the employer to full severance obligations, reinstatement claims, and penalties during labor disputes.
  
  

In Mexico, contract structure must match the reality of the job. When it does not, the law automatically favors the employee.

1. Indefinite-Term Employment Agreements (Tiempo Indeterminado)

Indefinite-term employment agreements are the standard form of employment in Mexico. They reflect the legal assumption that work relationships are ongoing and stable unless a lawful exception applies. Most employees in Mexico must be hired under this structure.

• Standard permanent employment agreement
  This agreement establishes a continuous employment relationship without a predefined end date. It applies to roles that are permanent or part of the company’s normal operations.
  
  

• Open-ended duration
  There is no expiration date. Employment continues until the employee resigns or the employer lawfully terminates the relationship under the Federal Labor Law.
  
  

• Full labor rights and benefits
  Employees receive all statutory benefits, including IMSS coverage, INFONAVIT eligibility, paid vacation, vacation premium, Aguinaldo, profit sharing, and severance protection.
  
  

• Common use cases
  Indefinite contracts are used for core operational roles, management positions, technical staff, and any function that is not temporary by nature.
  
  

In Mexico, indefinite employment is not a preference. It is the legal baseline that applies unless the employer proves otherwise.

2. Fixed-Term Employment Agreements (Tiempo Determinado)

Fixed-term employment agreements are permitted only in limited and clearly defined situations. Mexican law restricts their use to prevent employers from avoiding severance and job stability obligations.

• When fixed-term contracts are legally allowed
  They are allowed only when the nature of the work is temporary, seasonal, or tied to a specific project with a defined end.
  
  

• Objective justification requirement
  The employer must clearly document why the role cannot be indefinite. Business convenience or budget planning is not a valid justification.
  
  

• Temporary replacement scenarios
  Fixed-term contracts are commonly used to replace employees on maternity leave, disability leave, or other temporary absences.
  
  

• Automatic conversion risk to indefinite
  If the work continues after the end date or the justification is weak, the contract is automatically treated as indefinite by law.
  
  

Fixed-term contracts are heavily scrutinized in Mexico. Improper use almost always results in full permanent employee rights and severance exposure.

3. Contracts for a Specific Project or Work (Por Obra Determinada)

Contracts for a specific project are used when employment exists only to complete a clearly defined task or deliverable. These agreements are not based on time but on the completion of work.

Mexican labor authorities closely examine these contracts to ensure they are not used to avoid permanent employment obligations.

• Project-based employment agreements
  These contracts apply when the employer requires a worker to complete a specific project, construction, implementation, or defined assignment that will naturally end once finished. The project must be exceptional and not part of the company’s ongoing operations.
  
  

• Employment linked to completion of a defined task
  The employment relationship ends when the agreed work is completed, regardless of how long it takes. The contract must clearly describe the scope, objective, and expected outcome of the work to justify this structure.
  
  

• Legal distinction from fixed-term contracts
  Unlike fixed-term contracts, which end on a calendar date, project-based contracts end only when the task is completed. Using a project contract for continuous or repetitive work is not legally valid.
  
  

• Termination rules upon project completion
  When the project genuinely ends, the employment relationship terminates without severance. If work continues beyond the project, the law treats the contract as indefinite.
  
  

Project-based contracts must reflect real, limited work. If the project is artificial or ongoing, full severance liability applies.

4. Seasonal Employment Agreements in Mexico

Seasonal employment agreements are designed for roles that repeat during specific times of the year due to the nature of the business. These roles are not temporary jobs but recurring employment relationships with periods of inactivity.

• Seasonal or discontinuous employment
  Seasonal contracts apply when work is required only during certain seasons, such as tourism, agriculture, or peak commercial periods. The job itself repeats each cycle.
  
  

• Recurring work periods
  Even though employees work only during active seasons, the employment relationship continues year after year. Each season is not treated as a new hire.
  
  

• Worker rights between seasons
  During inactive periods, employees may not receive wages, but they retain seniority, accumulated benefits, and the right to return to work when the season resumes.
  
  

• Reinstatement obligations
  Employers are legally required to rehire seasonal employees at the start of each new season. Failure to reinstate can be treated as unjustified dismissal.
  
  

Seasonal employment protects continuity and seniority. Employers cannot use seasons to reset contracts or avoid long-term obligations.

5. Probationary (Trial Period) Employment Agreements in Mexico

Probationary employment agreements allow employers to evaluate whether an employee is suitable for a role before confirming permanent employment. These agreements are tightly regulated in Mexico and cannot be used as informal trial arrangements. If not documented and managed correctly, the relationship is treated as indefinite from day one.

• Purpose of probationary contracts
  Probation exists to assess skills, performance, and job fit, not to delay labor rights. The role itself must be permanent in nature, and probation only affects confirmation, not employment status.
  
  

• Maximum probation periods (30 to 180 days)
  The standard probation period is up to 30 days. It may extend up to 180 days only for executive, managerial, or highly specialized technical roles, and this must be clearly justified.
  
  

• Eligible roles
  Probation is allowed only for indefinite-term positions. It cannot be used for fixed-term, project-based, or seasonal roles.
  
  

• Termination requirements during probation
  Termination during probation must be justified with documented performance reasons, and must consider the opinion of the Joint Productivity, Training, and Skills Development Commission, as required by Mexican labor law Arbitrary dismissal still creates legal risk and potential severance exposure.
  
  

Probation in Mexico is not automatic protection for employers. Poor documentation or misuse converts the relationship into full permanent employment.

6. Initial Training and Apprenticeship Agreements in Mexico

Initial training agreements are designed to allow employees to acquire skills or knowledge necessary for a role they do not yet fully perform. These contracts are strictly for learning purposes and must be distinguished from probationary employment.

• Training-based employment contracts
  These agreements apply when the employee lacks required skills at hiring and must be trained before performing the role independently. Training must be real, structured, and documented.
  
  

• Duration limits (generally up to 3 or 6 months)
  Training periods typically last up to three months and may extend to six months for technical or professional roles, depending on the complexity of training required.
  
  

• Difference between training and probation
  Training focuses on skill acquisition, while probation evaluates performance. Using training contracts for fully qualified employees is not permitted.
  
  

• Conversion rules if training period ends
  If the employee completes training and continues working, the contract automatically converts to an indefinite-term agreement with full labor rights.
  
  

Training contracts are closely scrutinized. When training is superficial or nonexistent, the law treats the employment as permanent from the start.

7. Individual vs Collective Employment Agreements in Mexico

Mexican labor law recognizes both individual and collective employment agreements. These instruments coexist and interact, but they do not carry equal weight. When both apply, collective agreements take legal priority over individual contracts, even if the employee signed different terms.

• Individual employment contracts
  Individual agreements define the personal terms of employment such as role, salary, work schedule, and benefits. They apply to all employees and must always meet or exceed minimum legal standards.
  
  

• Collective bargaining agreements
  Collective agreements are negotiated between an employer and a registered union. They establish binding terms for all covered employees, including wages, benefits, working hours, and disciplinary rules.
  
  

• Unionized environments
  In unionized workplaces, collective agreements override individual contracts. Employers cannot offer individual terms that reduce or bypass union-negotiated rights.
  
  

• Interaction between collective and individual terms
  Individual contracts may improve conditions beyond the collective agreement but can never reduce them. Any conflicting clause is automatically replaced by the collective standard.
  
  

In Mexico, collective agreements sit above individual contracts. Employers must review both to understand the true legal employment terms.

8. Remote and Teleworking Employment Agreements in Mexico

Remote and teleworking arrangements in Mexico are regulated and must be formally documented. Telework is not an informal benefit or flexible arrangement. When an employee works primarily from home, specific contractual and compliance obligations apply.

• Telework clauses and requirements
  Employment agreements must explicitly state that the role is telework-based, define working hours, supervision methods, and communication expectations.
  
  

• Employer obligations under telework rules
  Employers must respect working time limits, privacy, the right to disconnect, and ensure that telework does not reduce labor rights or benefits.
  
  

• Equipment, cost reimbursement, and safety
  Employers are required to provide tools, equipment, and cover reasonable work-related costs such as internet and electricity. Occupational safety obligations still apply, even in the home.
  
  

• Mandatory contract inclusions
  Telework contracts must include equipment lists, expense coverage terms, health and safety provisions, and data protection responsibilities.
  
  

Telework in Mexico is regulated employment, not an informal arrangement. Missing contract clauses or obligations exposes employers to labor claims and fines.

Mandatory Contract Elements Under Mexican Law

Mexican law requires employment agreements to include specific legal elements that protect employee rights and enable enforcement. A missing or incomplete contract does not eliminate employer obligations. Instead, the law fills gaps in favor of the employee.

• Written contract requirement
  Employers must provide a written employment agreement. If no written contract exists, the employee’s claims regarding terms and conditions are presumed true.
  
  

• Required legal clauses
  Contracts must include job description, work location, salary, pay frequency, working hours, benefits, rest days, and applicable contract type. Missing clauses are replaced by statutory minimums.
  
  

• Spanish language requirement
  Contracts must be written in Spanish to be legally valid. Bilingual versions are allowed, but the Spanish text prevails in any dispute.
  
  

• Recordkeeping obligations
  Employers must retain signed contracts and make them available during labor inspections or disputes. Failure to produce records shifts the burden of proof to the employer.
  
  

In Mexico, contracts are evidence instruments. When they are unclear or missing, the law automatically favors the employee.

Contract Duration, Renewal, and Automatic Conversion Rules

Mexico strictly limits how long non-indefinite contracts can be used. Repeated renewals or improper extensions often result in automatic conversion to indefinite employment by operation of law.

• Renewal limitations
  Fixed-term and project contracts may only be renewed if the original legal justification continues to exist. Repetition alone does not validate renewal.
  
  

• When contracts become indefinite by law
  Contracts convert automatically when work continues beyond the agreed term, the justification disappears, or the role is inherently permanent.
  
  

• Legal presumptions favoring employees
  Any ambiguity about duration or purpose is resolved in favor of indefinite employment. The employer must prove otherwise.
  
  

• Common employer mistakes
  Repeated fixed-term renewals, vague project definitions, and using temporary contracts for ongoing roles are common errors that trigger conversion.
  
  

In Mexico, time does not legitimize temporary contracts. When work is permanent, the contract becomes permanent regardless of its label.

Independent Contractors vs Employment Agreements

Mexican law draws a strict legal line between independent contractors and employees. Labels, contracts, or invoices do not control this distinction. What matters is how the work is performed in practice. When the legal test is met, the relationship is treated as employment regardless of the contract title.

• Legal distinction between contractors and employees
  Employees provide personal services under the supervision of an employer and are integrated into the business. Independent contractors operate autonomously, control how work is performed, and assume their own business risk.
  
  

• Subordination test
  Subordination exists when the company controls schedules, instructions, reporting, tools, or supervision. If subordination is present, the law presumes an employment relationship.
  
  

• Why contractor agreements are often misused
  Foreign companies frequently use contractor agreements to avoid payroll taxes, benefits, and severance. In Mexico, this approach is rarely valid for ongoing or exclusive roles.
  
  

• Labor reclassification risks
  If reclassified, the company becomes liable for back wages, social security, taxes, benefits, profit sharing, and severance, often retroactively for multiple years.
  
  

In Mexico, contractor status is an exception. When work looks like employment, the law treats it as employment.

Outsourcing and REPSE Restrictions

Mexico severely restricts labor outsourcing following major labor reforms. Most outsourcing structures are prohibited, and only limited specialized services are allowed under strict registration and compliance rules.

• Prohibition of labor outsourcing
  Outsourcing personnel that perform core business activities or are subordinated to the client is illegal. Employees must be hired directly by the legal employer.
  
  

• REPSE registration requirements
  Only companies providing specialized services unrelated to the client’s core activity may operate, and they must be registered with the REPSE registry administered by Secretaría del Trabajo y Previsión Social.
  
  

• Difference between outsourcing and employment agreements
  Outsourcing involves third-party service provision under strict limits. Employment agreements establish a direct employer-employee relationship with full legal responsibility.
  
  

• Consequences of non-compliance
  Non-compliant outsourcing can result in fines, loss of tax deductibility, retroactive employment claims, and joint liability for wages, taxes, and social security.
  
  

In Mexico, outsourcing is the exception and employment is the rule. Misusing outsourcing structures creates serious legal and financial exposure.

Termination and Severance Impact by Contract Type

In Mexico, termination outcomes depend heavily on the type of employment agreement in place. Contract labels matter, but only when they accurately reflect the reality of the work performed. When there is a mismatch, severance exposure almost always increases for the employer.

• Termination rules per agreement type
  Indefinite contracts require full justification for termination or full severance payment. Fixed-term and project contracts may end without severance only if their legal justification was valid and documented from the start.
  
  

• Severance exposure differences
  Indefinite employment carries the highest severance exposure, including constitutional severance, seniority premium, and accrued benefits. Improperly structured temporary contracts trigger the same severance obligations.
  
  

• Fixed-term vs indefinite termination risk
  If a fixed-term contract ends early or lacks objective justification, termination is treated as unjustified dismissal. Indefinite contracts always carry severance risk unless termination for cause is proven.
  
  

• Employer obligations upon termination
  Employers must calculate and pay all accrued salary, benefits, severance where applicable, issue termination CFDIs, and document the termination properly to avoid disputes.
  
  

In Mexico, termination risk is driven by contract validity. When contracts fail legal scrutiny, severance obligations default to the highest standard.

Common Compliance Errors Foreign Companies Make

Foreign companies often rely on contract structures that work in other jurisdictions but fail under Mexican labor law. Most compliance issues arise not from bad intent, but from misunderstanding how employee-protective the system is.

• Misuse of fixed-term contracts
  Employers frequently use fixed-term contracts for ongoing roles. When challenged, these contracts are reclassified as indefinite, triggering full severance liability.
  
  

• Improper probation periods
  Using probation for ineligible roles or exceeding legal time limits invalidates the probation clause and converts the employment to indefinite from day one.
  
  

• Contractor misclassification
  Labeling employees as contractors while exercising control and supervision leads to reclassification, back payments, social security liabilities, and severance exposure.
  
  

• Missing written agreements
  Failing to issue written contracts shifts the burden of proof entirely to the employer and allows employee claims to prevail by default.
  
  

In Mexico, compliance failures compound quickly. Correct contract structure at hiring is the most effective way to control long-term labor risk.

How Employment Agreements Are Managed Through an EOR

Mexico requires every employee to have one clearly defined legal employer. Employment agreements, payroll, withholding, and termination obligations cannot be split between entities.

An Employer of Record structure exists to meet this requirement when a foreign company does not have a Mexican legal entity.

• Single legal employer requirement in Mexico
  Mexican labor law does not allow co-employment or shared employer models. One entity must assume full responsibility for contracts, benefits, payroll, compliance, and employee rights.
  
  

• Role of HRM as Employer of Record
  Human Resources Mexico acts as the sole legal employer, signing employment agreements, registering employees with authorities, and assuming full labor and tax responsibility.
  
  

• Contract issuance and compliance management
  HRM drafts and issues compliant employment agreements in Spanish, aligned with the Federal Labor Law. Contract type, duration, benefits, and clauses are structured to match the reality of the role and reduce reclassification risk.
  
  

• Risk mitigation for foreign companies
  By using an EOR, foreign companies avoid misclassification, improper contract structures, severance disputes, and permanent establishment exposure while retaining operational control over daily work.
  
  

In Mexico, employment agreements are only valid when supported by a legitimate legal employer. An EOR structure combines operational flexibility with full legal compliance. If you want to hire in Mexico and remain compliant, reach out today to get a custom hiring proposal for your needs.

FAQs

Do employment agreements need to be written in Mexico to be valid?

Yes. Mexican labor law requires employment agreements to be in writing. However, the existence of an employment relationship does not depend on a written contract. Employment rights arise from the performance of personal, subordinated services, even if no contract is signed.

If an employer fails to provide a written agreement, the law presumes that the employee’s claims regarding salary, duties, benefits, and working conditions are true, and the burden of proof shifts entirely to the employer. Missing written contracts significantly increase compliance, termination, and severance risk.

Can a foreign company sign employment agreements directly in Mexico?

No, unless it has a registered Mexican legal entity. Only a local legal employer can issue valid employment agreements, run payroll, and assume labor liability. Foreign companies that sign contracts directly risk misclassification, unenforceable agreements, and permanent establishment exposure.

When does a fixed-term contract automatically become indefinite?

A fixed-term contract converts to indefinite when the work continues beyond the end date, the justification no longer exists, or the role is permanent by nature. Repeated renewals or vague project definitions almost always trigger automatic conversion under Mexican law.

Are probationary periods allowed for all roles in Mexico?

No. Probation is allowed only for indefinite-term positions and must stay within legal limits. Using probation for temporary roles, extending it improperly, or failing to document performance reasons invalidates the clause and converts the employment to full indefinite status.

What happens if a contractor is reclassified as an employee?

Reclassification exposes the employer to retroactive payroll taxes, social security contributions, benefits, profit sharing, and severance. Authorities such as Instituto Mexicano del Seguro Social and Servicio de Administración Tributaria may reassess multiple years of liabilities.

How does an Employer of Record reduce contract and termination risk?

An Employer of Record like Human Resources Mexico acts as the single legal employer, issues compliant contracts, manages terminations, and ensures severance rules are followed. This structure protects foreign companies from contract errors, labor disputes, and enforcement actions.