Severance
Understanding that Mexico is an “employee friendly” country before making any move into its market, is crucial to avoid undesirable conflicts and pricey penalties that would damage any business’s success.
And, because we are aware of – after working for more than 8 years with clients from all over the world – how important it is for any business to be armed with the basics when it comes to this field, that we want to share with you:
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What every Company Owner or Entrepreneur should know regarding severance pay in Mexico.
Mexican severance pay can be a real hassle. Trust us, you won’t want to terminate an employment relationship without complying with Mexican regulations, so, it is important for you to be aware that there are circumstances around when you can legally fire an employee in Mexico: with or without having to pay severance or otherwise be penalized depending on the classification of the dismissal. These fall circumstances fall into any one of three categories.
Having an expert backing you up it is very important when it comes to identifying which circumstance applies to a specific situation, since it is much more complicated than you might think: It will depend on the employer-employee type of relationship , length of employment, signed agreement terms, surrounding context and reasons behind the dismissal.
When firing an employee, all related factors to the matter will be very important to cautiously handle because everything will be considered when classifying the dismissal according to Mexican Federal Labor Law in one of the below scenarios:
Category A) Dismissal for Cause:
This is the one that keeps you from legal consequences, since it encompasses dismissals that fall into the circumstances outlined at article 47 of the mentioned law. Above them, we can highlight:
1. 3 days of unjustified absences during a single 30-day period
2. Fraud or deception with supporting documentation
3. The employee comes to work in a drunken state or under the influence of drugs
4. Sexual harassment
5. Carelessness, negligence, that otherwise endangers the safety of the workplace
6. Material damage to property; or
7. Threats to the employer, the employer’s family, or other workers.
However, please remember that although we did not include all situations that would constitute a dismissal for a cause on the list, in Mexico, there is no such thing as truly at-will employment.
Amount due. No-severance pay at all. Only when it comes to Dismissal for a cause, you are not obliged to pay severance, however the worker is always entitled to accumulated vacation pay and annual bonus in proportion to the employee’s time worked during the year
Category B) Justified Dismissal, but not for Cause:
Under this category, the employee is dismissed for a reason that does not fit into the specific list of causes within the first category, no matter if the actions of the employee are cause of the dismissal. Whether the employee is not performing well or does not have the sufficient skills for the job, they are not a will not be considered a fair cause after 3 months of hiring, even when justified.
Amount due. Basic severance pay: You will have to pay basic severance pay whenever your dismissal is justified, but not considered for cause. Under this category, the employer must pay:
• 3-months’ severance pay
• Seniority pay of 20 days salary per year worked, which are the same as with the previous categories
• Accumulated annual bonus and vacation pay proportionally for that year.
Category C) Unjustified Dismissal:
This is a particular and concerning category. Dismissals that do not fill into A) or B) will be considered unjustified, and the authorities will consider that the employee was dismissed for not reason attributable to their own actions. (As an example, we could outline company merging, insolvency or financial difficulties, or any other reason that result in the dismissal of an employee but is not connected with their job performance.
Amount due. Severance pay with employer penalty. You will be penalized when the dismissal is considered unjustified. In this case, the employee is entitled to:
• 3-months’ severance pay
• Seniority pay of 20 days salary per year worked, which are the same as with the previous categories
• The employee is also entitled to an additional 12 days of salary per year worked
• Accumulated annual bonus and vacation pay proportionally for that year.
So remember, next time you are in this type of trouble, make sure to be backed up by a specialist in the field to be relieved from unnecessary costs and unwilling problems before Mexican authorities, because they can really become a big headache, especially since as we talked about this country being protectionist, as a businessman, you will have the burden of proof every time.
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[Page Title] Types Employment Agreements in Mexico
As you may be aware after reading our article concerning Mexican severance pay [add link to article]. Under all but a few circumstances may an employer in Mexico dismiss a worker without having to pay severance to the employee.
Nonetheless, there are some methods to get around it (for the first couple of months) when you are still confirming if the employee relationship is going to work out. We understand (after working for more than 8 years with clients from all over the world) that as an employer it is very important to feel comfortable with an employee, especially when managing the company from abroad.
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There are 3 Types of Contract You Can Safely Use when starting an employment relationship in Mexico
Mexican Labor Law includes some provisions that allow employers to have a period of time at the beginning of the employment relationship to confirm the employee is a good fit: temporary contracts, probation periods and training periods that vary in length and time depending on the nature of the worker’s employment.
Contract type 1. Employee Trial Period. In this Mexico, it is permitted to dismiss any type of employee during the first 30 days of the employment without being obliged to pay severance. However, this period can be extended for up to 180 days or a half a year, if the worker is considered to have a managerial, administrative, or other administrative position that require specialized professionals.
Contract type 2. Employee Training Periods. This the second type of contract that allows the employer to dismiss the worker without the obligation to pay severance. It may be used within a period of up to 3 months in the case of general staff or up to 180 days when talking about a specialized professional or a job where technical knowledge is a most.
Is the employee entitled to any benefits during the training and trial periods?
Yes, as we learned from What every Company Owner or Entrepreneur should know regarding severance pay in Mexico, Mexico is a country that protects is workers above employees. So, as long as you have somebody working for you, that person will be entitled to earn salary, be protected by social security, and law benefits.
What’s the difference between the two of them?
It’s simple: While training period implies that the worker must be subject to some type of specific particularized training for their efficient functioning in their position, a trial period, generally does not really have any particular training requirements .
Nevertheless, it obviously makes more sense wherever possible, to designate a worker under a training period so as to take advantage of the extended periods to ensure the employer will work out.
Something you can never forget is that, in any case, the employer needs to have the labor agreement in writing , or the employee will be considered a permanent worker for the authorities.
What happens when the training or trial period ends?
After the period ends, there is no need to re-write or sign a new agreement. The labor agreement in place for the probationary period will automatically convert into a permanent labor arrangement for an indefinite period, subject to the terms of Mexican severance pay, so it is essential to include all wanted terms since the first agreement.
Could I rehire an employee using a trial period contract?
No. According to article 39-D from Mexican Federal Law, it is forbidden for an employer to rehire employees under a new training agreement or probationary period, even if the employee is going to occupy a new position, receive a raise, be given a promotion or if the previous agreement has expired.
Contact type 3. Temporary Employment Contracts.
You may hire an employee for a temporary position if the nature of the work allows it or if hired to temporarily fill in for another employee. However, if at the end of the predetermined period, the employee continues, Mexican regulations state that the agreement will be automatically extended with this circumstance.
It is important to note, that theoretically not every position is able to be contracted for temporary labor agreement. Mexican law requires that the temporary period “arise from the nature of the project”. A description of the position in such as a way that it is linked as much as possible to a specific start and end date, or a specific start and ending objective, is important to make sure that the temporary nature of the employment agreement is respected in the case a conflict arises with the employee. At the end of the period, the employee is simply dismissed without having to pay severance.
Up to this part, we are sure you’ve gotten a wide idea of how it is safe to start an employment relationship in this country. However, please remember, when deciding to hire employees in Mexico, to be backed up by a specialist in the field. This will relieve you from unnecessary costs and unwilling problems before Mexican authorities, since they can really become a big headache, especially because we are talking about a worker’s protector country, and as a businessman, you will always have the burden of proof.