Background on Recent Labor Law Amendments in Mexico
In recent times, there has been a trend to elevate the parameters and minimums set by the Federal Labor Law (LFT) in Mexico. Despite the assumption that most companies have unlimited resources and are large in scale, legislative proposals have aimed to increase nearly all benefits outlined by the LFT over recent years. While most of these proposals have remained as initiatives, a new proposal now circulates in the Chamber of Deputies to raise the current severance pay from 20 to 90 days of salary per year of service, as mentioned in Article 50 of the LFT.
Implications for Companies Operating in Mexico
Although it might seem challenging for this proposal to navigate through the legislative process without obstacles, it’s true that such a reform would have unfavorable consequences for companies operating in Mexico, especially considering the significant jump from 20 to 90 days of salary. Moreover, it’s essential to remember that these indemnifications are calculated based on the integrated daily salary of the worker.
Current Severance Pay: A Closer Look
The existing severance pay of 20 days per year is not as straightforward as it may seem. It does not guarantee immediate payment upon job termination without justification. Specific circumstances must be met for the payment to proceed, such as wrongful termination by the employer, refusal of reinstatement, or insubordination, among other technical and litigious conditions.
In simpler terms, if you were to face a conventional job termination today, you wouldn’t automatically receive the 20 days’ pay. You would need to win a lawsuit for that. Of course, if the company chooses to pay it voluntarily without a lawsuit, they can. However, without the mentioned circumstances and others, there’s no legal obligation.
Contextualizing Mexico’s Severance Pay Among Global Standards
Mexico already has some of the highest severance pay levels globally for labor disputes. Conversely, countries like the United States have no such concepts due to their highly flexible labor relationship regulations. In the U.S., severance pay can be negotiated, but there’s no legal requirement for companies to pay it in cases of job termination.
The Need for Legislative Rigor and Social Dialogue
Legislating requires special responsibility and should not be done merely based on intentions. It must involve technical rigor and sensitivity towards both production factors. Popular proposals, though appealing, can negatively impact employment itself. In an environment of commercial uncertainty, it’s crucial for those making laws to be strategic in their messaging towards job creators.
Key Questions and Answers
- What is the proposed change in severance pay? The proposal aims to increase severance pay from 20 days per year of service to 90 days.
- Under what circumstances can the current severance pay be claimed? The existing 20 days’ pay applies when specific conditions are met, such as wrongful termination by the employer or refusal of reinstatement. These conditions often involve litigation and a favorable court ruling for the worker.
- How does Mexico’s severance pay compare to other countries? Mexico has some of the highest severance pay levels globally. In contrast, countries like the United States do not have similar regulations due to their flexible labor relationship rules.
- What are the potential implications of such a significant increase in severance pay? Critics argue that it could negatively impact businesses, especially smaller ones, due to the already high indemnification burden. Moreover, it might not lead to improved motivation or compensation for workers.
