Mexico: Structural Effects Of Labor Reform In Mexico: Perspectives For 2018-2024

The concept of Work and its social dimension will undergo important changes in the coming years in Mexico. After the neoliberal regime, the newly elected government headed by Andres Manuel López Obrador ("AMLO"), political agenda and social values will modify the status quo.

Recently, after a reform of the Federal Labor Law in 2012, we saw how competitive labor policies based on the free market and a supply of cheap labor crossed borders, becoming an obstacle for Mexico's main trading partners. These dynamics were accentuated to the detriment of the economic conditions of the working class.

The effects became apparent when the US formed a visiting commission to verify employment conditions and collective bargaining in Mexico. Then came the negotiation of the Trans-Pacific Partnership (TPP) that included minimum labor standards, based on the 1998 Declaration of Fundamental Rights of the International Labor Organization ("ILO"). The real lack of freedom of association and collective bargaining in Mexico became ever more evident, especially in light of the predominance of non active collective bargaining agreements or contracts of "protection".

"External pressures in combination with dismal local employment conditions led to intensive legislative activity in labor matters"

Thus, towards the end of Enrique Peña Nieto's six-year term, the need to adapt the legislative framework became not only a strategic issue, but an urgency that was necessary to avoid international sanctioning.

External pressures such as the negotiation of the TPP, the rhetoric of the US government headed by President Trump, and the renegotiation or dismantlement of NAFTA, in combination with dismal local employment conditions that required increases in minimum wages, led to intensive legislative activity in labor matters.

Constitutional Labor Reform

In the first place, the Constitutional Reform of February 2017 to articles 107 and 123 stands out. In essence, this reform provided for the following:

  • The formation of Centers for Alternative Dispute Resolution, Union Administration and Collective Bargaining that will assume the conciliatory functions in federal or local jurisdictions, exhausting (with some exceptions) the conciliatory instance before proceeding to the jurisdictional one. The reform stipulates that the federal conciliatory body must also assume responsibility for registering collective labor contracts and those of trade unions, as well as being familiar with all related administrative procedures. This body must be established as a decentralized public body, the head of which will be appointed by the Executive and the Senate.
  • The transformation of the Conciliation Boards into "local or federal labor courts or tribunals". If the conflict is not resolved at the conciliation stage, the Federal and Local Judicial Branches will be responsible, according to their competence, for imparting labor justice. This means that the labor courts will be part of the Judicial Branch and will no longer depend on the Executive Branch. In accordance with the transitional provisions of the reform, while the labor courts, conciliation centers and the decentralized agency are being set up, the Boards will continue with their jurisdictional and registration tasks, who will have to resolve ongoing matters on the date of entry into force of the reform, in accordance with the provisions applicable at the time of its inception. Once formed, pending matters may be transferred.

Fig. 1 - Legacy in Labor matters: indicators of conflict (Source: STPS, JCFA)

The implementation of procedures and requirements to ensure freedom of collective bargaining and the legitimate interests of workers and employers, pursuing the following principles:

  • Representativeness of trade union organizations, and
  • Certainty in the signing, registration and filing of collective bargaining agreements:
  • The vote of the workers will be personal, free and secret for the resolution of conflicts between unions, for the request for the execution of a collective bargaining agreement and for the election of union leaders;
  • Establish procedural modalities applicable to the respective processes for the election of leaders in accordance with the provisions of the law;
  • When it comes to obtaining the execution of a collective bargaining agreement, proof must be provided that the workers are duly represented.

In order to be able to materialize the constitutional reform, transitory provisions established the mechanisms and times to carry it out, namely:

  • Congress and the legislatures of the federal entities will have to carry out the legislative adjustments within the year following the entry into force. These adjustments must include:
    • Pass the law that creates the decentralized public organism in charge of federal dispute resolution, as well as the registries for unions and collective contracts, and related administrative procedures;
    • The modification and addition of various articles to the Federal Labor Law, on the one hand, to address the harmonization of the aforementioned body of norms to the constitutional reform in question and, on the other hand, to incorporate the norms related to conciliation, its procedure and the system of selection of conciliators, jurisdictional procedural norms and finally norms that will govern the registry of unions, collective labor contracts and related administrative procedures;
    • Adaptations to the Organic Law of the Judicial Branch of the Federation, the Federal Law of Parastatal Entities, the Organic Law of the Federal Public Administration, the Law of Social Security and the Law of the Institute of the National Housing Fund for Workers.
  • As soon as the new institutions are established and become operational, the Conciliation and Arbitration Boards and, where appropriate, the Ministry of Labor and Social Security or the local labor authorities, will continue to address labor disputes or conflicts.

Fig. 2 - Individual disputes before the Federal Board (Source: STPS, JCFA)

  • The Collegiate Circuit Courts of the Judicial Branch of the Federation continue to hear the injunctions filed against the awards issued by the Boards in terms of the provisions of Section V of Article 107 of this Constitution.
  • Matters that were pending at the time the labor courts began their functions shall be resolved in accordance with the provisions applicable at the time of their commencement.
  • The competent authorities and the Conciliation and Arbitration Boards shall transfer the procedures, files and documentation that, within the scope of their respective competencies, they have under their care or protection to the labor courts and the Conciliation Centers.
  • The competent authorities and the Conciliation and Arbitration Boards shall transfer the files and documentation to the decentralized body that shall be responsible for dealing with matters related to the registration of collective bargaining agreements and union organizations.

Ratification of ILO's Convention 98

On December 1st 2015, the Commissions on Foreign Affairs, International Organizations, and Labor and Social Security of the Senate approved ILO Convention 98, regarding the Application of the Principles of the Right to Organize and Collective Bargaining of workers.

However, the opinion and approval of the convention was not carried out until October 30, 2018, once the senators elected in the June 2018 election were in function and Morena, the political party founded by current president López Obrador, was able to push through the approval of the convention without any further setbacks.

With the elimination of the exclusion clause contained in the Federal Labor Law of 2012, the only substantive issue preventing ratification of the Convention was removed. The convention will enter into force one year after its deposit at the ILO, and along with the Constitution and federal laws will be part of the Supreme Law of Mexico.

"With the elimination of the exclusion clause contained in the Federal Labor Law of 2012, the only substantive issue preventing ratification of the Convention was removed"

In general terms this agreement forces Mexico to grant the necessary legal guarantees to ensure:

  • That workers be protected from any discriminatory act tending to undermine the freedom of association;
  • That the workers are not conditioned to certain union affiliation in order to be eligible for employment;
  • That workers cannot be dismissed because of their union affiliation;
  • That workers and unions are protected against any act of interference by the employer regarding their union and right to strike; and
  • Encouragement of voluntary bargaining and collective bargaining to regulate conditions of employment.

The content of the Agreement is thus consistent with current labor law, and therefore does not require any modification to the current labor legislation. The latter will be reinforced by the provisions that are added due to the constitutional reform of 2017 in relation to (i) freedom of collective bargaining, (ii) representativeness in labor unions, (iii) certainty in the signing, registration and deposit of collective agreements, (iv) free and secret voting rights in union matters and collective agreements, as well as (v) union representation and democracy.

Relevant trade agreements

In the world of international trade, labor rights have never played a major role. The World Trade Organization (WTO) leaves labor issues in the hands of the ILO, and in its normative framework there are no mechanisms to protect labor standards.

For example, NAFTA initially left compliance with minimum labor rights, conceptualized in 11 labor principles, only subject to violations around (i) minimum wage, (ii) safety and health, and (iii) child labor provided for the exhaustion of the dispute resolution procedure and eventually the loss of commercial rights under that treaty.

Little by little, the treaties in which compliance with labor laws is the sovereign and domestic responsibility of each State party have been set aside, and the ILO has found its way into international trade treaties, and has made way for provisions regarding the fundamental rights and their compliance as a condition for access to trade benefits

Fig. 3 - Minimum wages in Latin America (Source: tradingeconomics.com)

1. Trans-Pacific Partnership Treaty (TPP)

This trade treaty is signed by Japan, Australia, Canada, Mexico, Peru, Chile, Malaysia, Vietnam, New Zealand, Singapore and Brunei. The TPP involves 14% of world Gross Domestic Product (GDP) and 15% of world trade, and covers a population of 500 million people. Trump attacked the treaty during his presidential campaign, and once he took office as president withdrew the participation of the United States.

In Mexico, the TPP was ratified by the Senate in April 2018, and in labor matters will adopt and maintain laws and regulations which regulate acceptable working conditions regarding minimum wages, working hours, and occupational safety and health, as well as the following rights:

  • Freedom of association and effective recognition of the right to collective bargaining;
  • The elimination of all forms of forced or compulsory labor;
  • The effective abolition of child labor and, for the purposes of the Treaty, the prohibition of the worst forms of child labor; and
  • The elimination of discrimination in respect of employment and occupation.

Under the treaty, each party retains the right to exercise reasonable discretion in applying and making good faith decisions on the allocation of resources for labor enforcement activities relating to fundamental labor rights.

However, failure to effectively enforce the laws and minimum rights that result in an effect on trade or investment between the parties, leads, after exhausting the applicable dispute resolution procedures, to the imposition of sanctions for non-compliance with treaty obligations, which may include financial compensation and suspension of commercial benefits.

2. TMEC (formerly NAFTA)

As a result of the supply of cheap labor as a competitive advantage to attract foreign direct investment, among other factors, the United States threatened to rescind the free trade agreement with Canada and Mexico. It is worth remembering that opponents to the NAFTA trade agreement in 1991 anticipated labor problems and job as a consequence of a significant difference in labor costs between the signing parties. The only way to salvage the negotiations was to establish parallel agreements of environmental and labor matters, respectively. The parallel agreement (NAALC) included the recognition of the particularity and difference in their labor systems, and that each State should tackle its issues locally.

The results of autonomous and independent management of labor matters versus trade issues brought imbalances between the parties and greater socio-economic inequality in Mexico.

Arduous negotiations resulted in a labor chapter very similar to that of the TPP, complemented with an annex referring to the representation of workers in collective bargaining in Mexico, which assumes the obligation to comply with the following special obligations:

  • Establish in their labor laws the right of workers to participate in concerted collective bargaining or protection activities and to organize, form and join the union of their choice;
  • Prohibit employer domination or interference in union activities, discrimination or coercion against workers by virtue of union activity or support, and refusal to bargain collectively with the duly recognized union;

Fig. 4 - Effects of Public policies on Labor costs (Source: tradingeconomics.com)

  • Establish and maintain independent and impartial bodies to register union elections and resolve disputes relating to collective agreements and the recognition of unions;
  • Establish (i) an independent entity for the conciliation and registration of collective bargaining agreements and (ii) independent Labor Courts for the resolution of labor disputes;
  • Provide an effective system for verifying that elections of union leaders are conducted through a personal, free and secret ballot system;
  • Adopt legislation that requires (i) verification that collective agreements comply with workers' support and recognition, (ii) that supports that the registration of an initial collective agreement, has majority support from the workers, through the exercise of personal, free and secret voting, (iii) existing collective agreements will be reviewed at least once during the four years following the entry into force of the legislation verifying that workers know the contract and support the review, and (iv) that contracts are publicly accessible.

While TMEC has not been ratified by the Mexican or U.S. Senate, nor has it been approved in Canada's parliament, experts expect the new treaty to enter into force in 2020.

What's Next: Labor Reform

As a preamble to the ratification of the trilateral treaty in the Senate, several legislative projects on labor justice have been presented in the Mexican Chamber of Deputies. These projects are a direct consequence of the above-mentioned constitutional reform, the negotiation of the TMEC and the pressure from the United States to complete the labor reform.

It seems that the political timing is right, and that the federal government wants to align the enactment of the new laws symbolically on 1st of May, International Labor Day.

The plenary of the Chamber of Deputies has approved the Opinion prepared with the reforms and will send it to the Senate of the Republic in the coming days, for their respective approval in commissions and voting in the Plenary.

Soon we will be communicating to you the most relevant changes in terms of hiring, collective relations, jurisdictional procedures, and transition rules that derive from the new legal framework.

* Source: Información estadística y administrativas presentados por la Secretaría del Trabajo y Previsión Social Junta Federal de conciliación y arbitraje.

** Source: tradingeconomics.com

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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