We are not a law firm. Do not consider our information as legal advice. This information has been summarized based on our legal inquiries. Information can become obsolete from one day to another due to changes in laws, regulations, or government procedures. Consult labor and tax attorneys for legal advice. (Note from HR Mexico staff)
90 day Severance in Mexico
Terminate / Fire / Release an Employee in Mexico.
An employee is legally entitled to all compensation, including benefits, that they can demonstrate they have received from the employer, regardless of whether the term is in writing.
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Terminating an employment relationship without complying with the Mexican Constitution (Paying the 90 day severance and more) will be extremely costly. To dismiss an employee without just cause, you must pay the employee three months salary, their prorated Christmas / Vacation bonus, and vacation pay (plus 20 days pay per year of service for 15 years or more seniority).
Employees with 15 or more years seniority who leave voluntarily are entitled to a minimum compensation of 12 days pay per year of service since May 1970, when this law went into effect.
It is important to keep in mind that there is no unemployment insurance (government / employer sponsored) in Mexico. Therefore, the only cushion an employee has is the 90 day severance payment in the event of termination of the employment contract. The amount may seem expensive. However, in all reality, when you look at total liability (providing you don't act negligently or illegally as the employer) is much less than in other countries. (When you take into consideration the potential legal costs for defending wrongful termination, hostile work environment, or even harassment lawsuits in other countries.)
Under certain conditions, employers may terminate employees without having to pay severance. An employer may terminate an employee’s employment without liability only upon completion of the project, upon expiration of the specified term of employment, or for cause as defined in the Federal Labor Law which lists 15 causes for termination:
Dismissed employees with two or more years of service have the right to sue for reinstatement. If the employee wins the suit he will regain their job, receive full back pay, and may even receive punitive damages. In the event of termination for cause, the employer must give written notice to the employee of the date of the termination of their contract and the reasons for termination. Failure to provide written notice of the reasons for termination shall be sufficient grounds to consider that the termination was not justified.
Mexico has a Conciliation and Arbitration Board, which is an administrative agency charged with resolving labor disputes. An employee may file a complaint with the Conciliation and Arbitration Board demanding reinstatement or damages within two months of their discharge. The employer has the burden of proving that the employee was terminated for cause pursuant to Federal labor law. If the employer fails to meets its burden of proof, the Conciliation and Arbitration Board may determine the termination was without justification and
award appropriate relief.
The Mexican Federal Labor Law was amended for the first time in 40 years in 2012. Here are some key points from the amended Federal Labor Law related to firing / termination of an employee in Mexico: (This is based on our legal consultation.)
Fire / Termination: In addition to the existing causes for firing an employee without severance pay, Art. 47 now adds three new causes, namely (a) physical and verbal violence and dishonesty against clients or providers of the employer, (b) sexual harassment by the employee against any individual at the work facility or place and (c) the lack of documents required by applicable statutes or regulations that are necessary for the work performance if it is the employee’s duty to provide such documents and he/she has been unable to do so for two months (eg a truck driver without the proper driver’s license).
Firing Procedure: The employer may now choose to either give notice to the employee directly or to the competent (!) Works Council (Junta de Conciliación y Arbitraje) of the termination of the employment relationship. If the employer chooses to give notice to the employee, the employer may do so by personal notification or by certified mail.
DANGER: Be very careful with giving notice of termination by mail or to the Works Council instead of directly to the employee: it seems that notice is not duly given if it turns out that the Works Council was incompetent; and even if termination notice has been given to the competent Works Council, the two months statute of limitations for employee claims may not start to run until the employee has been personally served with the termination notice.
Litigation: Under the existing law, the employee’s salaries continued to accrue until the employer had fully complied with the labor court judgment or settlement. Because labor trials can last several years, this accumulation of salaries was a major risk for the employer. Under the new law (Art. 48 fracc. II FLS), the accumulation of salaries has been limited to 12 months. If at the end of these 12 months the labor trial has not been concluded, then the employee is entitled to a monthly interest payment of 2% computed on an amount equivalent to 15 months of salary , to be capitalized at the time of payment.
Attorneys or litigators that frivolously delay labor trials can be sanctioned with a fine of up to 1,000 daily salaries (approx. USD 6,000).
The new law admits new forms of evidence in labor trials, such as videos, tapes, e-mails and electronic devices.