Companies that are looking to move some or all of their manufacturing to Mexico can reap significant savings, but there are areas of managing a business in Mexico that a manufacturer needs to fully understand. One of the more prominent ones is the ways in which the labor and employment laws when manufacturing in Mexico differ from those in other countries, especially the United States. Legal issues that companies need to understand is the importance of employment contractual relationships, termination of employment, severance obligations and other unique aspects of Mexico’s labor law.
Almost all employment relationships in Mexico are based on contracts, ranging from high level executives to direct operators, and union organizations often govern the terms of contracts for rank and file workers. As a result, it is essential that companies create contracts that are as detailed as possible, including specifics regarding working conditions, where and when employees report to work and work breaks. These contracts must also include the salary, a detailed work-schedule, vacation and “rest periods”, holidays and the conditions for overtime. In addition, Mexican law requires companies to provide a 13-month paycheck or some sort of Christmas bonus to their employees. In addition, some employees in Mexico are eligible for profit-sharing, in which companies must pay 10% of their annual profits to employees. These are just a few examples of standard labor law practices in Mexico that may not be observed in other countries.
Thorough and detailed contracts are of paramount importance for companies in the event of any sort of labor dispute. In general, the labor tribunals in Mexico lean in favor of the employees, so it is nearly impossible for a company to defend itself from any labor or employment action brought against them without a written contract. In addition, in any sort of labor dispute the burden of proof is on the employer, not the employee, for the burden of the case. Without a detailed written agreement, the tribunals may side with the employee in any areas of ambiguity.
Terminating an employee can also be a complex process in Mexican manufacturer. Employers can only discharge an employee without further liability for “good cause,” such as fraud, dishonesty, damages to the employer, immoral acts, extended periods of absence or for disclosing confidential information/compromising security. For employees that are not discharged with “good cause,” the employer may be responsible for significant indemnities, including salary and benefits throughout the entire judicial procedure, which can take years. Consequently, it is often advantageous for companies to negotiate with an employee to get the employee to resign; in general, the “severance” then granted to the employee is around 3 to 4 months of salary as well as additional amounts based on seniority.
Because of these unique labor issues, it is imperative that companies looking to expand their operations in Mexico speak with experienced manufacturing service providers “Shelter Services”, which know the “ins and outs” of doing business in Mexico. Many of these issues can be avoided with proper guidance and can ultimately save companies significant time and money from conflicts with unfamiliar labor laws and employment practices.