Mexico: Employment Termination in Mexico, a Trap For The Unwary?

Last Updated: 5 August 2004

By David Puente-Tostado and Alfonso Gonzalez-Uribe1

Just a regular day at a Mexican subsidiary of a foreign company, Mr. X, the recently appointed General Director receives the visit of the Operations Manager: "Good morning Mr. X, here it is the report you requested yesterday." Mr. X, is a non-Mexican executive and just took one of the most difficult decisions of his life, moving to the company’s Mexican facility in order to increase his opportunities of advancing some steps in the company’s corporate ladder.. Mr. X, annoyed, looks through the document and says: "Jose, this is not the way we would expect to receive this type of reports in our country, please do it again". Jose, astonished, heads for the door, but just as he was about to cross it, turns around and asks: "Is this not the information you requested? It might not be prepared the way you wanted it, but it contains all the information and data." Mr. X immediately replies: "Are you questioning my orders? Because I know a couple of guys that work for you that will love to have your position, don’t forget that, I’m the head of this plant, and I run it, how I want to run it". Surprised by his boss’ rebuttal, the Operations Manager answers: "Off course not Mr. X, I was only mentioning that my report does include the information you requested. It might not be organized the way you wanted it, because you did not provide me any special requirements about its presentation, , but you can still make your final decision by reading it. Nevertheless, I will prepare it the way you want it". "OK, Jose, that’s it, I have had it with your attitude. You think you are very smart, don’t you? Well how about this, take your report and your things and get out of the plant, you are FIRED!". Astonished, Jose pauses for a minute and says: "But Mr. X, you cannot fire me for this, I said I will prepare the report again. Please Mr. X, I have a family to look after". –"Well Jose, you should have thought about it before opening you mouth. And, by the way, don’t even bother asking for a recommendation letter".

Two months go by and the plant is running as usual, until the Human Resources Manager gives Mr. X a call: "Mr. X, sorry to bother you, ¿remember Jose, the Operations Manager you fired some two months ago? Well, we have just been served with a labor claim brought by him." – "What!" "Is he entitled to do that after all this time?" asks Mr. X, continuing: "Let me call our lawyer, they’ll teach him a lesson".

After Mr. X explained what had happened, the company’s Mexican attorney calmly explains to Mr. X: "Dear Mr. X, perhaps you are not aware that under Mexican labor legislation, the concept of employment at will does not exist" "In order to terminate an employee, you need a justified cause for dismissal that could be evidenced in a possible litigation before the competent labor authorities." "Mr. X, in view of what you have done, we have only two options: either to reach a settlement for a percentage, if not all, of the severance payment he is entitled to, or reinstate Mr. Jose to his former position."

Certainly such answer was not what Mr. X was looking for, moreover, the whole issue will not be a good sign to the eyes of those he tried to impress by taking the position in the Mexican facility. Ironically we could ask to Mr. X now: who should have thought before opening his mouth?

The Mexican Federal Labor Law (hereinafter the "FLL") establishes the justified causes for dismissal and the procedure on how to legally execute such terminations without liability for the employer. In this article, we will explore such causes and suggest the appropriate documentation in order for foreign companies with Mexican subsidiaries to correctly comply with the law and reduce exposure and liability.

A. Justified causes for dismissal

From the outset, it is worth mentioning that employers have a term of one month after the acknowledgement of a cause to execute a rescission; hence it is recommendable not to rush things and get legal advice in order to gather all the respective documentation to properly evidence the dismissal of any employee.

The justified causes for dismissal set forth in article 47 of the FLL are:

I. Employee deceives the employer as to his capacity, aptitudes or abilities, provided the cause is acted within the first thirty (30) days of employment.

Many employers have considered this to be a "trial period", which is not the case. In fact such "trial periods" are illegal in Mexico, since it contradicts the general principles of labor continuity and indefinite employment provided by the FLL. The only circumstances for rescinding the labor relationship are clearly indicated in such section: lacking capacity, aptitudes or abilities which the employee affirmed having in his/her job application or interview. The period mentioned refers to the actual hiring date, and not as when the employer is aware of such cause, ceasing its effects thirty days after the employee commences to render services for the employer. If after such period the employee is not dismissed, it is presumed that the capacity, aptitude and knowledge described by the employee is accurate.

For employers to be well protected when exercising this justified dismissal cause, it should be evidenced that the employee had recognized as his/her abilities, those contained in his job application or résumé. Then after a test or exam can be applied to such employee in which he/she could evidence his lack of knowledge regarding the matters for which the employee said was trained and capable to perform.

II.During working hours or outside the premises or working site, the employee lacks probity or has dishonest acts, violent acts, threats, offends or mistreats the employer, his family, employer officers or administrative personnel, unless the employee acted in self-defense.

Lack of probity would be considered as not acting in a righteous manner, according to the ruling by the Mexican Supreme Court of Justice. . Offenses could be verbal or written, and they should be of such damage, that the continuance of the employment relationship is affected or if the discipline in the workplace is altered. Common examples include: the incorporation by the employees of a company which is in direct competition to the employer; taking advantage of the technical and confidential information or know-how of business gathered throughout their employment relationship; performing purchases for personal benefit (as opposed to the company’s); falling asleep during working hours; making racial, religious or sexual remarks, among others.

As any Mexican labor attorney knows, witnesses are a key element to evidence these types of activities, since usually , these are not materialized through any documentation. Another way to evidence such causes is to request to the employee that committed them, to fill out an administrative report in which he clearly explains the reasons such action was performed. Such report would amount to an express confession by the employee on such cause for dismissal, hence, entitling the employer to prepare and notify the employee its decision to rescind the labor relationship.

III. Employee commits any of the offenses listed in the previous item against his co-workers or due to those actions, the discipline in the workplace is adversely affected.

Even if it may come as a surprise for foreign employers, sexual harassment is not provided by the FLL. Therefore, it is not uncommon that co-workers or those with a higher hierarchy may sexually harass another employee. In this scenario, the offended employee could request the employer to rescind the employment relationship without liability for the latter. Once again, witnesses are very important in these cases, given that their testimony would be required in case of a litigation.

IV. During the performance of his work or by reason of his work the employee intentionally or negligently causes material damage to the work place or to the employer’s assets, including machinery, instruments and raw materials.

In order for this cause to be exercised, a material damage should exist. Companies should evidence that they employees are trained to perform a specific task, or to operate a particular machine or equipment. Furthermore, companies must evidence that , should the employee follow the instructions set forth in such training, no damage would have been caused. Keep in mind that the element of intentionality to cause the damage should exist. This means, if there is no intent to cause such damage, the justified cause for dismissal may not be exercised (unless as provided below). An administrative report and witnesses are the appropriate way to evidence this cause, as well as an affidavit by an expert in such machinery or equipment, clearly evidencing the seriousness of the material damage. A criminal action could also be brought against the employee who fragrantly and intentionally causes an economical damage to the employer. This latter scenario includes damages caused to final products, especially due to the fact that consumers could also claim the malfunctioning or poor standard of such products, consequently injuring the goodwill of the company & its brand name.

V. The employee negligently or through inexcusable carelessness jeopardizes the safety of the establishment or the individuals within.

Among the recommendable documents a company should execute is the Internal Shop Regulations where the group of compulsory provisions for employees and employers in the development of the jobs in the company or establishment are provided. Safety and hygiene provisions should be set forth in an Internal Shop Regulation, particularizing it for each establishment. If employees fail to follow such obligations, and jeopardize the safety of the co-workers, it would entitle the employer to legally dismiss the employee with a justified cause2. Employees that put in danger the safety of their co-workers may cause an occupational accident, which in return, has a direct impact in social security contributions paid by employers, increasing operational cost for employers.

VI. The employee commits immoral acts in the establishment or place of employment.

In order to understand this cause, we need to clarify what "immoral" means. Immorality should not be taken on a very narrow nor broad manner ; since, if considered too narrowly, it would only allow to rescind an employee in cases of law infringements or felonies. On the other hand if considered too broadly, it would leave to employer’s sole criteria to decide what constitutes an immorality act. It is worth noting that such immoral acts must have occurred in the workplace to have a justified cause for dismissal. The evidence that an employer can provide to justify the dismissal are: witnesses, administrative reports, photographs or video in which the employee is fragrantly executing such immoral acts. Among the most recurrent immoral actions are employees that swears out loud, employees not properly dressed (showing parts of the body that commonly would be sanction by municipal administrative laws), etc.

VII. The employee reveals manufacturing secrets or confidential matters in detriment of the business.

In Mexico, the practice of including confidentiality clauses to labor agreements or the execution of NDAs is relatively recent. The FLL penalizes (beyond the termination of employment relationship) those employees that reveal confidential or secret information to any third party causing an injury to the employer. Unfortunately, the sanction, as provided by the FLL, is limited to a fine equal to one daily wage, which is clearly unbalanced with the significant damage that the revelation of such information may cause to a company.

The protection of confidential information is a complex topic, which surpasses the purposes of this paper. Suffice to say that it is not the FLL but a different body of law (the Industrial Property Law) which deals in length with the protection of trade and commercial secrets. Moreover, the revelation or misappropriation of confidential information is considered a crime. Therefore, despite the limited legal actions derived from the FLL, employer have legal resources to prosecute such employees and even employers that may hire ex-employees of a competitor trying to gain access to trade secrets.

VIII. The employee has more than three (3) unjustified absences in any thirty (30) day period.

This is the most common rescission cause among companies operating in Mexico. However even this, seemingly straight forward, cause is also, the one most commonly misapplied. To begin with, this cause for termination requires more than three absences, not three absences, thus, the employer, in order to terminate or rescind the employment relationship, needs to evidence the fourth absence of the employee. Further, it provides a thirty day period, that Human Resources manager tend to confuse with a month. Absences may occur in two different months, in a time frame not higher than thirty days.

I f a Company, pursuant with the terms and conditions of its Internal Shop Regulations, apply a sanction to those absent employees without a justified cause, those absences would not be considered for a termination, given that under Mexican legal principles, nobody can be sanctioned twice for the same infraction or omission. In addition, the Internal Shop Regulations should contain provisions regarding those occasions when a delay will constitute an absence. The latter only applies if the Internal Shop Regulations are duly registered before the Conciliation and Arbitration Labor Board.

In order to evidence the justified termination, employers should have in place attendance punch cards or sheets, duly signed by employees on a daily or weekly basis. It is common for employers once the fourth absence is effected, to immediately prepare the rescission letter to the employee, without "closing" that fourth absence. By "closing" we mean that the employee should sign his/her fourth absence in the attendance card or sheet, or in his/her salary receipt that contains the work schedule, regardless if it is a week later, in order to have an express confession of the absence.

IX. Employee disobeys the employer or its representatives without justified cause, in matters related to the services to be rendered.

Subordination vs. payment are the essential elements of a labor relationship, implying that the employee is subjected to the instructions and orders of the employer. If employee does not or refuses to provide the services for which he/she was hired, the employer is entitled to separate the employee without any liability.

For these purposes (among many), the Individual Employment Agreement entered by and between the employer and the employee is a key element, since it is precisely in such document where the functions and position of the employee are established. It is advisable that the Individual Agreements include, among other clauses, the right for employers to switch employees through the different work shifts in place in the Company, otherwise, it would not be considered as disobedience if the employee refuses to render services in another work shift different from the one provided in the Agreement. The harm or damages caused by such disobedience are not taken into consideration for this cause for justified termination, only the disobedience to comply instructions or orders provided by the employer.

Witnesses are essential to evidence this kind of actions, but employers should request the express recognition by the employee in a written document if possible. Likewise, written instructions not fulfilled by the employee, enclosing the Individual Employment Agreement where functions and position are established, are also evidence for this justified cause for dismissal.

X. Employee refuses to adopt preventive measures or to follow the procedures established to avoid accidents or illness.

As explained in sections V and VIII above, the employee could cause economical and material damages to employer if he/she refused to follow the safety and hygiene measures established under the Internal Shop Regulations or provided by law.

XI. Employee arrives to the workplace intoxicated or under the influence of some narcotic or drug, except in the latter case, where there is an existing doctor’s prescription. In the latter case, before beginning labors, the employee must inform the employer about it and present the prescription as prescribed by the doctor.

Although not compulsory, it is recommended to have the employee take a medical exam evidencing his/her alcoholic levels. If the employee provides to the employer a medical prescription, the employer should request the employee not to render services for the period required for his/her recovery, specially if the employee is not in acceptable conditions and could put in danger any of his/her co-workers. Alcoholic breath by itself, is not a cause for termination.

In addition, besides being a cause for justified dismissal, it is prohibited for employees to render services while intoxicated or under the influence of a drug pursuant with article 135 of the FLL Even if the employer does not pursue the termination of the employment relationship, it is entitled to sanction the employee in any other way permitted by the FLL or established under the Internal Shop Regulations.

XII. The employee cannot perform his services due to a final judgment imposing a prison sentence.

This cause should not be confused with an administrative apprehension or preventive imprisonment, which only may result on the suspension of the employment relationship. The Mexican Supreme Court of Justice has considered that, even when a prison sentence is issued, if the employee has complied his sentence during the duration of the legal procedure; and is entitled to be released after such sentence is issued, he/she is entitled to recover the employment. Although this is completely adverse for the employer, since an employee that has committed a crime, should not be entitled to his/her former position. Such is the current status of the law and its jurisprudence.

XIII. Other analogous causes that are equally serious and have similar consequences exist.

This cause for termination is self explanatory, but the employers need to carefully justify the correlation of any causes similar to those established under the FLL.

B. White collar employees

As with respect to "white collar" employees, the FLL provides in Article 185, that whenever the employer loses the trust of the employee for cause that may be reasonable for the Labor Board, the employer will be entitled to dismiss the employee with justified cause.

IX. A white collar employee loses confidence of the employer for reasonable cause satisfactory to the Labor Board.

White collar employees include supervisors, inspectors, , security personnel (but not guards or police), and those in positions of financial responsibility in general, and positions related to personal labor for the employer in the company or establishment are considered positions of trust pursuant with the FLL. White collar employees due to their responsibilities are in direct contact with top management and even the employer. A healthy employment relationship must exist between these parties; hence, if the white collar employee commits an act3 that may him/her appear as untrustworthy before the employer, which, deteriorated the working relationship, the employer may dismiss the employee with justified cause. Since the "loss of confidence" has a subjective nature, the employer should produce objective evidence that justifies the grounds for separation. Employers do not require evidencing a lack or probity action, because it is the Labor Board who determines whether the argued cause in fact justifies termination. Reports, disciplinary notices, videos, tape recordings and any other evidence element can be implemented for the justified termination.

C. Execution of Termination

Execution of Termination. As stated at the beginning of this document, the termination of a employment relationships with justified cause, should be executed within the thirty days after the employer is aware of such cause. The employer must provide a written notification to the employee of the date and cause or causes of the termination. Such notice must be brought to the attention of the employee, and if he refuses to accept it, the employer within the five business days following the termination must bring it to the attention of the respective Labor Board, providing the Labor Board with the address the employer has on file and requesting they notify the employee.

The lack of a written notification to the employee or the Labor Board will be considered as an unjustified termination.

Conclusion: As we have explored, although the causes to justifiably terminate an employee may appear as clear –even to Mr. X– the fact is that Mexican Labor law is significantly different from those of other countries and filled of intricacies derived of its pro-employee approach and the complexities of the Mexican labor system. Notwithstanding it is in fact possible to terminate an employee.

Keep in mind that the rescission notice should answer the following questions concerning the alleged act that justifies termination: (i) When did it occur? Where did it happen?; How did it happen? Why did it happen? And finally: WWMAR? (What would my attorney recommend?).

Footnotes

1. Messrs.Puente-Tostado and Gonzalez-Uribe head the labor practice of Sanchez-DeVanny, Eseverri's Monterrey and Mexico City offices respectively.

2. Apart from the Internal Shop Regulations, it is important to keep in mind the guidelines for safety compliance established under the applicable Mexican Official Standards, which every employer must follow. Doin otherwise, may result in fines and sanctionsto the employer.

3. Such acts are not specified in the FLL

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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