Government reforms seek to mitigate unfair labour practices in Mexico's economy

The current government has made a number of changes to Mexico’s federal labour law. One of its first initiatives in December 2012 was to regulate outsourcing through third-party hiring or subcontracting by sharply increasing fines chargeable to employers for violating outsourcing regulations, making individual employment contracts more flexible, and capping employer liability to laid-off workers at no more than 12 months with an additional three months of compensation plus a 2% levy.

New Reforms

Subsequent to these changes, in 2016 the government submitted a series of further federal labour law reforms to Congress for approval. This set of amendments was designed to eliminate tripartite labour conciliation and arbitration boards – which were traditionally set up with union, employer and government representation – and replace them instead with the local and federal courts, which will now preside over any labour litigation. The reforms also created conciliation centres, which established that there must be a conciliation phase before any formal labour dispute is submitted for litigation.

Further rules establish that to achieve and register collective bargaining agreements (CBAs) employers must demonstrate that their companies are in operation, submit payroll documents for all their employees, and demonstrate that unionised workers are aware of the existence of the agreement. These provisions are intended to prevent CBAs being exploited by employers without the knowledge of their employees.

Both chambers of Congress approved the reforms in 2016 – the Senate in October and the Chamber of Deputies in November. Approval by Mexican state legislators was achieved by February 2017, with a 17-to-31 vote in favour of the changes.

Strategic Aims

One of the main goals of the new reforms is to streamline a highly congested system. The average time for the Federal Arbitration and Conciliation Board to resolve a dispute hovers around three years due to a backlog of about 59,000 cases involving 459,000 separate files, with as many as 90% of the claims in reference to an unfair dismissal. The government also aims to eliminate the role of coyotes - lawyers who purposely delay the litigation processes by promising their clients that better compensation can be achieved by initiating further legal challenges.

Challenges

César Maillard Canudas, a Mexico City-based labour lawyer, argues that the reforms have not done enough to attract national and foreign investment, expand formal employment, or promote a competitive labour market. He believes the federal labour law, first approved in 1931, will eventually require a more intense overhaul and that the current legislation actually inhibits outsourcing. Articles 117 to 127 give outsourced workers rights to a 10% profit share but no responsibility in taking on losses. Maillard believes that in practice this is a disincentive to foreign investors, and suggests that instead of automatic profit sharing it would be better for companies to pay performance-related bonuses linked to gains in productivity.

Above all, Maillard stresses the need to tackle informal employment. According to the National Institute of Statistics and Geography, 58% of the workforce is completely outside the tax and benefits system. This leaves the tax burden unfairly concentrated on formal employers and employees that make up the remaining 42% of the economically active population. The structure of the informal sector also aids unhealthy business practices, including evasion of health and safety requirements, piracy and copyright violations, and a lack of transparency over activities such as making cash contributions to local politicians.

Prospects

Maillard believes that the current employee dismissal system set by the 2012 reform, is still open to exploitation by coyote lawyers. As an alternative, he believes Mexico should contemplate a proper national insurance system funded by a payroll levy involving a 3% tax penalty paid to support the programme when an employee’s contract is terminated.

 

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