Upcoming Changes in Mexican Labor Law with an Impact on Businesses

Mexico’s current administration has been making important efforts to enact legislation that responds to requirements of a more competitive global economy. Labor law saw an amendment in 2012 introducing important new rules to make more flexible hiring and terminating employees, and limiting back pay accrual during the litigation process.
 
Although the reform to Mexico’s Federal Labour Law (hereinafter the Labour Law) provided employers a better business environment to generate new jobs, and for national and international investors to consider establishing new activities or expanding existing ones in our country, there were still several matters pending modernization.
 
It is well known that adjudicating cases in Mexico is unreasonably lengthy – an average of 4 to 5 years – and that both the Federal and the State Conciliation and Arbitration  Labour Boards need better internal processes and more knowledgeable personnel.
 
Another important feature causing undesirable practices is that the Labour Law allows to claim from an employer the execution of a collective bargaining agreement, without being required to prove that (i) the union in fact represents the workers, (ii) the workers know the proposed content of the collective bargaining agreement, or (iii) the workers want to be represented by a trade union. The Labour Law currently allows unions to call for a strike if the employer refuses to collectively bargain with the union, in the absence of evidence of real representation. A sector of the union movement in Mexico has abused the right to call for a strike, without representing the workers of the company, or the majority of the workers. As a result, companies were left with no other recourse but to bargain with a union that does not represent the workers. In other words, companies elected the union, rather than waiting for a union electing the company. According to the Labour Law, having such agreement in place prevents a union from calling a strike, and the contending union would rather have to seek the affiliation of the majority of the workers to become the administrator of the collective bargaining agreement, to be decided  through a secret ballot.
 
This clear gap in the law has been criticized by the private sector, the union movement in Mexico and even the International Labor Organization (“ILO”). Mexico has traditionally been supportive of most conventions and recommendations issued by the ILO, except for Convention 98, Right to Organise and Collective Bargaining Agreement Convention, considered one of the ‘fundamental’ conventions. This convention, among other obligations, may give rise to an unknown practice in the country, an employer bargaining with different unions representing workers on the same worksite.
 
Following national and international political pressure, the Mexican government proposed a major amendment to Mexico’s Federal Constitution, which was ultimately approved by both the Senate and the House of Representatives by an overwhelming majority.
 
The changes at the constitutional level became effective February 25, 2017, and set the groundwork for the federal legislation that must be enacted within the following 12 months, according to the decree published in the Mexican Official Gazette. These changes will have a significant impact on national and foreign businesses in Mexico, depending on the specific circumstances of each employer and its ability to properly tackle the new elements that will re-shape individual and collective labor relationships in the country.
 
1.      New Labor Courts
 
Based on historic reasons, Mexico decided that labor conflicts would not be solved by courts from the judicial branch, but rather from the executive branch. Accordingly, after 90 years of existence, the Conciliation and Arbitration Board as a tri-partite administrative agency in charge of adjudicating labor conflicts in Mexico, will cease operations throughout the country and will be replaced with labor courts of the judicial branch.
 
For the first time in almost a century, instead of a collegiate body with representation of employers and workers, now specialized judges will resolve cases. Additionally, access to court will be preceded by a mandatory conciliation stage where special purpose agencies will be created in order to try to settle the parties’ grievances. According to the constitutional mandate, the Conciliation Centres will be incorporated in every state of the Mexican Republic, and their sole purpose shall be reaching amicable solutions and avoiding litigation.
 
The future Mexican labor courts with sufficient independence from political interests, knowledgeable court staff, and an institutional filter to avoid meritless or frivolous cases, will most likely alleviate the current burden of companies in Mexico facing a flood of labor litigation. It is expected that as part of the judicial system, labor courts will allow alternative dispute resolution methods, which are currently not available.
 
2.      Decentralized Institution       
 
At the federal level, a decentralized institution will be created with the same responsibility of settling grievances that the state Conciliation Centres will have. This government body will also have a critical purpose as the new regulator for registering collective bargaining agreements and trade unions nationwide.
 
The existing Federa Conciliation and Arbitration Board, registers the collective bargaining agreements of those companies falling within its jurisdiction, according the activities identified in theLabour Law. The Ministry of Labor, on the other hand, is responsible for registering trade unions and granting the authorization to act as collective representatives of workers. At the state level, the Conciliation and Arbitration Board is in charge of both registration of collective bargaining agreements and unions of local jurisdiction.
 
This structure has had sad examples of serving political interests when registering collective agreements and when authorizing unions to develop their activities. The proposed changes are promising an  agency headed by an independent officer that will be elected by the Mexican Senate, in an effort to make transparent collective labor matters and their administrative regulation. This is another example of the anti-corruption measures undertaken by the Mexican government that should provide a better business environment to investors.
 
3.      Freedom of Association / Authentic Union Representation
 
As mentioned before, a widespread practice among companies in Mexico is entering into a collective bargaining agreement where the union does not represent the workers, but such agreement prevents another union from calling a strike. Both the practice of certain employers and the threats of certain unions are simulated acts that hamper the employees’ right to freedom of association.
 
Accordingly, the constitutional amendment provides that unions will no longer have the ability to call a strike upon an employer without demonstrating their representation of the workers. Similarly, the Federal Constitution now establishes the government obligation to provide “certainty in the execution, registry and deposit of collective bargaining agreements,” which will require a more strict process. The parties (employer and union) will have to demonstrate that the workers (i) know the existence of the collective bargaining agreement and its content, (ii) they have freely decided to become or not to become members of the union, and (iii) they agree with the terms and conditions of the collective covenant.
 
The impact on businesses in Mexico will depend on the union activity that the federal legislation may trigger, once approved by the Congress. It is expected that a more transparent process to guarantee the worker’s decision on whether to affiliate to a trade union may be fertile soil for unions to campaign more aggressively to increase their membership. Simultaneously, companies in Mexico having in place the so-called “protective” collective bargaining agreements (no union representation) will have to rethink their labor relations’ strategy towards a more transparent, though more active union environment.

Alfredo Kupfer-Domíngue is the managing partner in the firm’s Mexico City office and is co-head of the firm’s Labor, Social Security and Immigration practice group. He advises local and foreign clients in complex labor and employment matters, including union negotiations, planning for new and existing investments in efficient labor structures, executive transfers and terminations, social security and data privacy matters, formation and implementation of pension plans, equity compensation programs, and flexible benefit plans. Alfredo also advises clients on labor matters in mergers, acquisitions, restructurings and privatizations. He has assisted clients in the preparation of all kinds of contracts and documents in labor matters. Alfredo has more than seventeen years of experience practicing law. Before joining Sánchez Devanny, he was partner at an international law firm. He is fluent in English and Spanish.

Alfredo can be contacted on (+52 55) 5029 8522 or by email at akupfer@sanchezdevanny.com

David Puente-Tostado co-heads the Labor, Social Security, and Immigration practice group. He has more than sixteen years of experience advising domestic and foreign clients on labor, immigration and social security matters deriving from investments, establishment, day-to-day operations and activities, and from mergers or other corporate restructurings. He also has extensive experience in collective negotiations, individual and collective litigation, and litigation involving credits issued by social security institutions. Before joining Sánchez Devanny, David practiced law at an international law firm in Monterrey. He is fluent in English and Spanish.

David can be contacted on (+52 81) 8153- 3913 or by email at dpt@sanchezdevanny.com