An interview with Monsalvo Duclaud discussing Labour … – Lexology

This article is an extract from GTDT Market Intelligence Labour & Employment 2023. Click here for the full guide

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Luis Monsalvo Álvarez is co-managing partner and head of the labour and employment practice of Monsalvo Duclaud. Luis has more than 20 years of experience in the labour and employment practice, supporting international corporations with local investments in Mexico, in connection with all kinds of legal compliance. He served as member of the Joint Room for the final negotiations of the Protocol of Amendment to the United States-Mexico-Canada Agreement and has been designated as an expert panellist for the rapid response labour mechanism for claims between the United States and Mexico. He is a current representative of the Mexican employer delegation before the ILO annual conference in Geneva.

Isabel Pizarro Guevara is a partner and head of the labour and employment consultancy practice. Isabel is a well-recognised lawyer with more than 15 years of experience assessing national and international companies on labour and employment matters. She provides constant counselling to companies that start their operations in Mexico, helping them to design benefit plans, work policies and codes of conduct, employment contracts, stock and incentive awards programmes as well as the correct treatment of independent contractors. She has handled several employee investigations in international companies related to anti-corruption practices in Mexico and Latin America.

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1 What are the most important new developments in your jurisdiction over the past year in employment law?

Vacations

As of 27 December 2022, the Federal Labour Law (FLL) was amended to significantly increase the number of vacation days provided in Mexico. Before this reform, employees in Mexico were entitled to six days after a complete year of services. Now, employees are granted 12 days for the first year of services, as set forth below:

Years of service	Vacation days
1	12
2	14
3	16
4	18
5	20
6-10*	22*

* After the 6th year of services, the vacation period will increase by 2 days for every 5 years of service.

As the FLL provides that vacation days may be distributed by employees, but also provides that employers’ ability to approve the vacation period, it is recommendable to agree the vacation periods with employees in writing.

This reform had an important effect for employers in 2023 as increasing vacation days also increased the vacation premium (25 per cent over vacation days) and the salary for social security contributions.

Labour reform on subcontracting

As of 23 April 2021, the FLL provides that outsourcing or subcontracting personnel is no longer permitted.

In addition, as of 1 September 2021, services that require the assignment or secondment of employees (ie, whenever a contractor’s personnel render their services under the control or supervision of the beneficiary or whenever the services are rendered from the facilities of the beneficiary) must comply with the following requirements:

• the services must be specialised (contractor must have distinctive specialisation elements such as certifications, permits, experience or licences needed for a certain activity);
• the services cannot be included as part of the corporate purpose or the main business activity of the entity that will benefit from the services; and
• the contractor must be registered with the Ministry of Labour and Social Welfare (Ministry of Labour) public registration system called REPSE.

In addition, the following obligations must be met: (1) a contract that includes the number of employees that will be assigned or seconded and the specific registration number issued by the REPSE must be executed in writing; (2) a contractor must identify its employees while the services are being rendered; (3) a contractor shall file the corresponding notices to the Mexican Social Security Institute (ICSOE) and the Workers’ National Housing Fund Institute (SISUB); and (4) from a tax perspective, it will be necessary to ensure that the employees being assigned were not previously employed by the beneficiary of the services.

Non-compliance could lead to: (1) fines that range from 2,000 up to 50,000 times the measurement and update unit (UMA) (ie, in 2022 from approximately US$9,622 up to US$240,550, which may be applied by action or violation or even per affected employee) in the case of a labour inspection; (2) payments or considerations related with the services could be considered as non-deductible or accreditable for tax purposes; (3) fines that range between 500 to 2,000 and 251 to 300 times the UMA may be applied if the corresponding notices to ICSOE and SISUB are not delivered; and (4) in certain cases, a criminal offence related to tax fraud may be determined. In addition, if the services provider fails to comply with its obligations, the REPSE registration may be cancelled.

As the beneficiaries of these specialist services will be considered jointly liable with providers in connection with the employees being assigned in the case of a potential non-compliance, it is highly advisable to reinforce indemnity clauses in the corresponding agreements.

Profit sharing distribution rules were also adjusted in this labour reform, setting two new caps for the amounts that employees will receive – either three months’ salary or the average received as profits in the past three years by the employee, having to apply the amount that is most favourable to each employee. However, certain industries, such as the mining and manufacturing sectors, were unable to benefit from these caps since unions organised and threatened to summon a strike. This matter will be a sensitive issue for upcoming years.

Due to this reform, companies in Mexico were required to make several labour and corporate restructures within a very limited time frame, which led to important costs and administrative work.

After two years of this reform, companies continue to work and analyse the different types of services they render to clients and those they receive from contractors, to determine whether they need to comply with these subcontracting provisions or not. As this reform is still ‘new’, the authorities’ interpretation continues to be pending; therefore, many companies have decided to make conservative decisions to reduce potential risks in case of conflict. The Ministry of Labour has started to conduct labour inspections on subcontracting; therefore, companies in Mexico must ensure full compliance on these matters.

Telework (remote work)

Telework is considered as a personal, subordinated and remunerated service carried out remotely (not on-site), by using information and communication technologies. To be considered telework, the activities performed under this modality must be rendered over 40 per cent of the weekly shift and shall not be performed occasionally.

As of 12 January 2021, the FLL provides several employer obligations related to telework, such as: (1) the need to agree this work in writing, except in cases of force majeure; (2) provide, install, maintain and take care of the necessary equipment (eg, computer equipment, ergonomic chairs, printers), having to keep a written record of the same; (3) assuming the costs derived from telework (including the payment of telecommunications and electricity expenses); (4) ensure a decent work and equal treatment; (5) honour the employees’ right to disconnect by the end of the work shift; (6) adjust the internal labour regulations and the collective bargaining agreements (if applicable); and (7) provide the parameters for the activities and workspaces that employees must comply with to avoid occupational hazards or diseases in accordance with the Mexican Official Standard NOM-037-STPS-2023, published on 8 June 2023 by the Ministry of Labour, which will become effective on 8 December 2023.

Considering that telework expenses could lead to salary integration for severance and social security purposes as well as potential tax implications in terms of deductibility, employers must decide the best way to comply with these obligations to reduce potential costs.

This reform was published during the covid-19 pandemic, when employers within several cities of the country were still required to allow employees that were not considered as ‘essential’ to work from home. Therefore, employers had a very limited time frame to comply with these new obligations and costs.

Some of the main obligations provided by this NOM include: (1) having a list of employees working under this modality; (2) agreeing on the location(s) where the remote work will take place, ensuring minimum safety and health conditions; (3) implementing a Telework Internal Policy; (4) providing employees with a Health and Safety Conditions Verification Checklist, which shall be answered by the employees, along with a follow-up verification checklist or, alternatively, the NOM provides the possibility for employers to visit the location from which employees are working remotely to verify that the health and safety conditions are being met, (whenever employees allow it); (5) conducting appropriate medical examinations for employees who work under this modality; and (6) following up on any occupational hazards that occur as a result from or during the performance of the activities.

Even if this NOM’s purpose is to guarantee safety measures for employees working under the telework modality, we anticipate that its compliance will affect the flexible work arrangements implemented by several companies.

Currently, we have not seen the Ministry of Labour conducting labour inspections on telework. It is our opinion that these inspections will be triggered within 2024, after the NOM is effective.

New labour justice system

On 1 May 2019 a decree that amended various provisions of the FLL was published with the purpose of transforming the labour justice system. The implementation of this reform was divided into three different stages, and its final stage became effective on 3 October 2022.

Some of the main adjustments are the following.

• Conciliation will be mandatory as a pre-judiciary stage, creating the labour conciliation centres. If the parties are unable to settle, a certificate of non-conciliation shall be issued, and a labour claim may be filed with the labour courts. Conciliation will be free, impartial and confidential, with a maximum duration of 45 days.
• The new labour procedure will be litigated before the new labour courts, which shall be governed by the values of orality, immediacy, continuity, concentration and publicity.
• The Federal Labour Conciliation and Registration Centre will oversee the registration of internal labour regulations and collective bargaining agreements (CBAs).

The conciliation and arbitration boards will continue to solve all labour claims that were filed before this reform; therefore, for the next seven to 10 years, labour authorities and rules of procedure will be subject to duplicate procedure.

The implementation of this new labour justice system will lead to a great challenge for authorities, employees, employers and attorneys, but we foresee a long-term benefit in the way labour justice will be administrated, especially considering that the budget will increase, and that authorities are focusing on training and capacity-building judges as part of the new system strategy.

Labour transparency and representation

Freedom of association and democracy

The main scope of the 2019 Labour Reform entitles employees to decide whether they want to join a union, change their current union or refrain from belonging to one. In addition, the employees will be able to participate in the fundamental decisions of its union’s accountability and leadership through their personal, free, direct and secret vote. This new democratic perspective is twofold: legitimisation of existing CBAs and rules for executing new CBAs.

Legitimisation of CBAs

Due to regulatory gaps, a vast majority of CBAs were executed strictly at a documentary level between employers and union leaderships without the involvement or even knowledge of the workers the unions allegedly represented. The absence of a CBA enabled any union to strike against employers that failed to have a CBA already executed, hence the term ‘protection CBAs’ was coined for such practice.

Furthermore, the US–Mexico–Canada Agreement established in its labour Chapter 23 and 23-A Annex that all existing CBAs in Mexico should be revised or ‘legitimised’ at least once during the four years following the new legislation became effective (ie, 1 May 2023).

The purpose of all these critical changes is to authenticate and verify that CBAs truly represent the worker’s interests, through a personal, free, and secret vote that will show majority support.

If the voting process of a CBA was not held before the deadline or the incumbent trade union did not obtain majority support in the election, the CBA was automatically terminated. Although the process was technically assigned to be managed by the unions themselves, employers had a critical role to enable the vote, taking care not to influence the outcome.

Initially in 2019, the labour legal market expected to see a massive trend for legitimisation; however, the covid-19 pandemic paralysed the activity for two years. The USTR provided a report mentioning a universe over 550,00 existing CBAs in Mexico; later in 2023 the Ministry of Labour reduced the amount to 139,000 and extended voting sessions until the last day of July 2023, nevertheless, current official records show 27,898 legitimised CBAs in Mexico and roughly 3,000 pending resolution.

The conclusion of the legitimisation process shows us that the union activity is concentrated in specific industries and workplaces, such as automotive, auto-parts, mining, manufacturing plants and distribution centres. Considering that more than 80 per cent of the companies in Mexico will not formally have a collective relationship, the country represents a considerable opportunity for unionisation within the right circumstances. Nevertheless, most employers will now face a union-free reality, which requires an entirely different skillset for managing labour relations to be capable to identify employee proneness to unionisation or potential conflicts in this regard.

Execution of initial CBAs

From 3 November 2021 onwards, to execute an initial CBA, a union must obtain a ‘representation certificate’ to evidence the support of at least 30 per cent of the union sable workforce. This document enables the union to negotiate with the employer for six months, to gain momentum and a more consistent representation.

This is especially relevant given the results of the legitimisation process over the country since it is the formal process to reactivate collective relations through the execution of a CBA.

Once the union deems its ranks to be sufficient it may reach an agreement regarding the CBA’s content. If the parties fail to reach a settlement, the union may file a summon to strike procedure and the employer must appear before the new labour courts to argue its case.

Consequently, the final text of the CBA must be subject to vote by the entire workforce to be registered and valid before the Federal Labour Conciliation and Registration Centre.

Additionally, CBAs must endure review procedures regarding wages (once a year) and its entirety (every other year). Leap year CBA reviews will require a majority vote as well, which will, in turn, require all employers to deliver a copy of the CBA to the employees before the voting session.

Furthermore, due to the substantial changes in law and practice, it is reasonable to expect a considerable rearrangement of union leaderships, which might create turmoil for certain industries, if employers fail to establish thorough and efficient communications with leaders and employee committees. HR and labour legal departments will now be required to engage in closer relationships with all parties involved.

2 What upcoming legislation or regulation do you anticipate will have a significant impact on employment law in your jurisdiction?

Minimum wage increase

In Mexico, the minimum and professional wages are increased every year by the National Minimum Wage Commission. These adjustments are normally published in December every year, to become effective on 1 January of the following year.

The minimum daily wage applicable in Mexico is currently fixed at 207.44 Mexican pesos per day and 312.41 Mexican pesos per day for the Northern Border Free Zone Area, which includes several border cities in Baja California, Sonora, Chihuahua, Coahuila, Nuevo León and Tamaulipas.

The estimated increase of the minimum wage is normally related to annual inflation; however, for 2023 the minimum wage was increased by 10 per cent, plus an additional recovery amount (MIR) for the Northern Border Free Zone Area.

Wages already above the minimum are commonly increased using the inflation increase factor; therefore, employers should bear this in mind for 2024.

3 How has the #MeToo movement impacted the investigation or settlement of harassment or discrimination claims in your jurisdiction?

As in most countries, the #MeToo movement has gained strength in Mexico, which led to the implementation of different laws and policies to protect women from sexual harassment and violence.

From a labour perspective, the following measures and requirements have been set to avoid gender discrimination and prevent violence and sexual harassment in the workplace.

• When recruiting, employers in Mexico should not include wording that could favour a specific gender.
• Employers are not allowed to request non-pregnancy certificates when hiring or promoting female employees.
• It is strictly forbidden to terminate the employment or directly or indirectly coerce a female employee to resign due to her marital status, pregnancy or being a parent.
• Any kind of harassment (including sexual harassment) or violence within the work establishment shall not be tolerated or allowed. Employees may be terminated for cause (ie, without liability for the employer) whenever committing any of these acts.
• Employers have the obligation of implementing a protocol to prevent gender discrimination and addressing violence, harassment and sexual harassment cases.

In addition, Mexico’s Supreme Court of Justice has established a protocol for judging with gender perspective, with the main goal of ensuring that vulnerable situations and gender-related issues are being considered while ruling.

4 What are the key factors for companies to consider regarding the enforcement of restrictive covenants against departing employees?

From an employment perspective, restrictive covenants related to non-disclosure, non-competition and non-soliciting may be agreed with employees while the employment is active. However, once the employment ends, these obligations may be difficult to enforce, especially considering the constitutional right of ‘freedom of work’, which provides that individuals in Mexico are entitled to work in any profession, as long as it is a legal activity.

With the purpose of providing further enforceability to these obligations, a civil nature agreement must be executed between the departing employee and the former employer. Ideally, this agreement should:

(1) include a specific or limited territory for such restrictions (eg, Mexico City, Guadalajara and Monterrey); (2) include the industry or sector that will apply (direct competition); (3) limit the validity of the agreement to a certain period (for example, two years); and (4) include a payment or compensation in exchange for the restrictive obligations. For this last point, we suggest agreeing to make the payment by the end of the term or period, to confirm full compliance with such obligations, allowing the former employer to cancel or suspend any future payments in the case of a potential breach.

5 In which industry sectors has employment law been a hot topic recently? Why?

The subcontracting reform affected all sectors and industries in Mexico; however, some of the most affected sectors include the construction sector and the service sector.

The service sector was mainly affected by this reform, as companies that render services, in addition to having internal labour and corporate restructures, had to register as specialist services providers to continue rendering services to their clients. As the beneficiary of the services or the contracting party is the final decision maker on whether certain services will have to meet subcontracting provisions or not, the service sector had to readjust to its clients’ new needs. Some of these service industries include cleaning services, IT, private security and dining services.

On the other hand, considering the way the construction industry operates, we have seen that the subcontracting reform had a significant impact on this industry. Before the subcontracting reform, it was very common for all companies (including those in construction) to have wide corporate purposes that allowed them to adjust to different projects and services, with very limited restrictions on the possibility of assigning or engaging third parties for certain activities. Now, as one of the new legal restrictions on subcontracting includes the possibility of hiring services that are included in the corporate purpose or the company’s main activity, construction companies had to specialise in very specific occupations or fields, to be able to subcontract other activities different from the ones they performed. However, we have seen that public tender requirements could generate certain contradiction with these new requirements, becoming a special challenge for this sector. In addition, the construction industry must comply with the provisions issued by the IMSS for construction employees.

Other sectors, such as the automotive, energy and steel industries, have been challenged by the need to legitimise the CBAs within a context of adaptation and international surveillance generated as a direct consequence of the US–Mexico–Canada Agreement.

6 What are the key political debates about employment currently playing out in your jurisdiction? What effects are they having?

Digital platforms

Since platform economy is on the rise and has been experiencing spotlight from different jurisdictions around the world, the Ministry of Labour has been explicitly outspoken in their intent to forward legislation that regulates the independent contractors by considering them as employees of the platforms, with benefits entitlement and full social security coverage.

The matter represents a complex issue since there is no universal definition of the concept, and many aspects are still pending to be defined, both locally and internationally, with topics such as classification, social protection, freedom of association, etc.

Regardless of the specificities of any new regulation, it must bear in mind the flexibility and safety net provided by the platforms, particularly in a post-covid-19 era, with stagnant wages and limited economic growth. Furthermore, flexibility should also be a concern enabling the independent contractors to fulfil their own expectations of time, economic needs, other activities and growth.

This chapter was accurate as at December 2022

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The Inside Track

What are the particular skills that clients are looking for in an effective labour and employment lawyer?

Specialisation, cost-efficiency, and business-oriented and timely advice. Clients search for law firms that will become their partner. They want attorneys that provide specialist legal advice that will meet their business expectations even if this means taking measured risks into account, within the expected time frame and with a fair price.

What are the key considerations for clients and their lawyers when handling employment disputes?

There are two main factors: preventing unnecessary litigation and negotiation. Law firms must guide their clients to identify essential or necessary litigation from those cases that could be negotiated or prevented by the application of internal policies and guidelines

What are the most interesting and challenging cases you have dealt with in the past year?

• We were selected as representatives of the employer sector to discuss Decent Work in the Platform Economy report before the International Labour Organization at a meeting of experts in Geneva in October 2022.
• We conducted the support strategy of the legitimation process of 60+ collective bargaining agreements of a leading retail company in Mexico, with more than 120,000 employees.
• Our team provided leading legal counsel for the largest car manufacturer in Mexico, consisting of the restructuring of its internal processes to fulfil their obligations, overlooking more than 2,000 vendors in the qualification of their definition if they were providing the novel ‘specialty service’, as defined by the new regulation.