On January 20, 2016, Mexico's Supreme Court affirmed the constitutionality of the Federal Labor Law (FLL)'s provision allowing back wages to be capped at 12 months' compensatory damages in all employment-related lawsuits commenced after December 1, 2012.
In December 2012, the FLL was amended, in part, to place a limit on the accrual of back wages to 12 months. For years, the unlimited accumulation of back wages had served as an incentive for plaintiffs to prolong trials. With no comparable tools by which to compel plaintiffs to prosecute their claims in an expedient manner, most companies – especially small and medium-sized businesses – felt compelled to settle their disputes even at unreasonably high amounts, or risk massive economic liabilities if plaintiffs prevailed at trial.
Paragraphs 2 and 3 of Article 48 of the FLL, which were enacted as part of the reform to the FLL in 2012, effectively place a limit on the accrual of back wages. Once the 12-month period has concluded, a monthly interest rate of 2% is generated on 15 months of the employee's monthly wage, to be paid once the litigation process has concluded. Additionally, the accrual of back wages is suspended if the worker dies during the litigation process.
These provisions, which to a degree leveled the playing field for the parties, was the subject of multiple constitutional challenges at the state level, which created conflicting jurisprudence at the circuit level. With the January 20, 2016 decision, the Supreme Court upheld the constitutionality of the cap on back wages, holding that it does not violate the principle of progressive contribution required under Article 1 of the Constitution, nor does it violate human rights. The Supreme Court's decision is binding on all state and federal courts of the nation.
The full text of the Supreme Court's decision will be published in Mexico's Weekly Judicial Gazette.
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