Dismissals and Termination of Employment in Mexico

At-will employment does not exist in Mexico, and termination at-will clauses are only applicable in favor of the employee, therefore employers may not terminate employment relationships without just cause (i.e. unfair dismissal).

There is a closed list of causes in the Mexican Federal Labour Law and a set procedure to terminate employees at any time without incurring liability, which includes, inter alia:

• false statements about work qualifications;
• breaches in obedience or honesty principles;
• vandalism;
• sexual harassment;
• alcohol in the workplace;
• revealing company secrets;
• refusing to comply with safety procedures; and
• four unexcused absences in a 30-day period.

If there is no substantial motive or evidence, labour relationships can be terminated via a voluntary agreement where the employee is entitled to statutory benefits and possibly some form of compensation. (Each case must be treated individually through human resources).

If there is no termination with just cause or a negotiated exit for an employee, the employee is entitled to claim wrongful termination and sue either for substantial statutory benefits, lost salaries and the severance package, or reinstatement to the job.

Employees must claim within 60 days following alleged wrongful termination.

Before the employee is entitled to sue for either substantial statutory benefits or job reinstatement, the employee and the employer will be subject to a "conciliation hearing", which shall not last more than 45 calendar days. If the conciliation is not successful, then the employee will be entitled to proceed with his/her claims against the employer.

If an employer has just cause to terminate an employment relationship, there is an obligation to give personal notice to the employee or, where not possible, to the competent Labour Board, and to prove the cause for dismissal. If the notice is not delivered, the termination will be deemed to be without cause.

There is no obligation to serve a notice in advance to the employee in case of dismissal but only upon the dismissal moment. The notice shall contain the just causes for dismissal, and the date of their occurrence.

If it is not possible to deliver the notice to the employee, the employer shall serve the notice to the competent Labour Board and provide it with the last known domicile of the dismissed employee.

Failure to deliver the notice to the employee or to the Labour Board will be deemed dismissal without just cause.

The involvement of employee representatives in the dismissal is not mandatory. 

The involvement of a union in the dismissal will be tied to the actual rights and obligations assumed under the corresponding Collective Bargaining Agreement, which may provide for union representatives to be present during the act of providing notice for dismissal.

Not necessary.

Collective redundancies are only permitted in Mexico as a consequence of the closure of the company or the definitive reduction of jobs.

Such circumstances can, inter alia, be the result of:

• Acts of God;
• Employer’s disability or death (where the employer is an individual) that results in the termination of work;
• Non-profitability of the business;
• Depletion of the product (in the extraction industries);
• Bankruptcy, if the same results in the closure of the company or a definitive reduction of jobs.

The employer must obtain the authorisation of the Labour Board to implement collective redundancies. If they are approved, the employer must pay the affected employees the statutory severance package, except for the requirement to pay 20 days of daily wage per worker.

In case of a definitive reduction of jobs, the employer shall take into consideration the seniority of the employees and primarily apply collective redundancies to workers with less seniority.

Summary dismissals are not allowed under Mexican law; failure to provide the corresponding notice to the employee will lead to the dismissal being considered as a dismissal without just cause.

If the employer dismisses an employee without just cause, or if it does not serve the notice of dismissal upon the dismissal, the employer will be obliged to pay the severance package and, in some cases, to reinstate the employee to his position.

Employees hired for an undetermined term who are dismissed without just cause are entitled to claim reinstatement or the payment of a mandatory severance package comprised of the amounts described below. Note that the determination of the “daily wage” should include the daily proportion of any employment benefits paid on a regular basis to the employee (e.g. private medical insurance; performance bonuses), and should amount to:

• 20 days of daily wage for each worked year.
• 90 days of daily wage as Constitutional Indemnification
• 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
• Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Employees hired for a determined term who are dismissed without just cause are also entitled to a severance payment, but this is calculated differently, as follows:

• If the employment relationship was for a determined term less than one year, an amount equal to the amount of the salaries of half the time of services rendered
• If the employment relationship was for a determined and exceeded one year, in an amount equal to the amount of wages of six months of wage for the first year and 20 days of daily wage for each of the following years in which the employee had rendered the services
• 90 days of daily wage as Constitutional Indemnification
• 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
• Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Where an employee is dismissed for just cause under the Mexican Federal Labour Law, that individual will only be entitled to the payment of accrued salary and benefits, and will not be entitled to any of the other statutory severance payments outlined above.

Non-compete arrangements on individuals are generally unenforceable under Mexican law, as they are perceived by courts to limit an individual’s constitutional rights to employment and the exercise of a profession.

However, the Mexican Supreme Court has ruled that under limited circumstances (e.g. where there is proportionate compensation, and limitation of time and geographic scope), non-compete agreements may be enforceable. The enforceability of non-compete (and no-solicitation) arrangements in Mexico must be carefully analysed on a case-by-case basis.

Relocation of the company / Change location of the work

Some court precedents establish that a change to the work place is a unilateral change to labour conditions. Therefore, it will allow an employee to terminate employment with just cause and consequently access the severance package payment.

Pursuant to Mexican Law, employees will be considered trust employees who perform:

• direction, inspection, vigilance or supervision activities, when of a general nature (applying to all areas of a company); and/or
• personal services for the employer (they are in personal or direct contact with the employer regardless of their position and activities).

will be considered as trust-employees.

The classification of a trust employee depends on the activities performed and not on the name given to their position.

Based on this definition, Directors will be considered trust employees and special rules will be applicable for their dismissal.

At-will employment does not exist in Mexico, and termination at-will clauses are only applicable in favour of the employee. Therefore, employers may not terminate employment relationships without just cause (i.e. unfair dismissal).

There is a closed list of causes in the Mexican Federal Labour Law and a set procedure to terminate employees, at any time without incurring liability, which includes, inter alia:

• false statements about work qualifications;
• breach of obedience or honesty principles;
• vandalism;
• sexual harassment;
• alcohol in the workplace;
• revealing company secrets;
• refusing to comply with safety procedures; and
• four unexcused absences in a 30-day period.

In the case of Directors, in addition to the regular causes, the employer may terminate the employment relationship with a trust-employee if there is a reasonable ground for loss of trust.

However, if the reason for dismissing a Director is loss of trust, and if the trust employee (i.e. the Director) was promoted from a non-trust employee position, the employer will have to switch him back to the non-trust position rather than to dismiss him.

If there is no substantial motive or evidence, labour relationships can be terminated via a voluntary agreement where the employee is entitled to statutory benefits and possibly some form of compensation (each case must be treated individually through human resources).

If in any case there is no termination with just cause or a negotiated exit for the Director, the Director is entitled to claim for wrongful termination and sue either for substantial statutory benefits, lost salaries and the severance package. Given that the Director is a trust employee, he/she won´t be entitled to request reinstatement in the job position, but will be obliged to receive statutory severance pay.

Trust employees must claim within 60 days following alleged wrongful termination.

Before the Director is entitled to sue for either substantial statutory, the employee and the employer will be subject to a "conciliation hearing", which shall not last more than 45 calendar days. If the conciliation is not successful, then the employee will be entitled to proceed with his/her claims against the employer.

If an employer has just cause to terminate an employment relationship, there is an obligation to give personal notice to the employee or, where not possible, to the competent Labour Board, and to prove the cause for dismissal. If the notice is not delivered, the termination will be deemed to be without cause.

There is no obligation to serve a notice in advance to the employee in case of dismissal but only upon the dismissal moment. The notice shall contain the just causes for dismissal, and the date of their occurrence.

If not possible to deliver the notice to the employee, the employer shall serve the notice to the competent Labour Board and provide it with the last known domicile of the dismissed employee.

Failure to deliver the notice to the employee or to the Labour Board will be deemed as dismissal without just cause.

The involvement of employee representatives in the dismissal is not mandatory. 

The involvement of a union in the dismissal will be tied to the actual rights and obligations assumed under the corresponding Collective Bargaining Agreement, which may provide for the right for the union to be present during the act of providing notice for the dismissal.

Pursuant to Mexican Federal Labour Law, trust employees, such as Directors, cannot be members of the same union as normal employees.

Not necessary.

Collective redundancies are only permitted in Mexico as a consequence of the closure of the company or the definitive reduction of jobs. Such circumstances can, inter alia, be the result of:

• Acts of God;
• Employer’s disability or death (where the employer is an individual) that results in the termination of work;
• Non-profitability of the business;
• Depletion of the product (in the extraction industries);
• Bankruptcy, if the same results in the closure of the company or o a definitive reduction of jobs.

The employer must obtain the authorisation of the Labour Board to implement collective redundancies. If they are approved, the employer must pay the affected employees the statutory severance package, except for the requirement to pay 20 days of daily wage per worker.

In case of a definitive reduction of jobs, the employer shall take into consideration the seniority of the employees and primarily apply collective redundancies to workers with less seniority.

Summary dismissals are not allowed under Mexican law; failure to provide the corresponding notice to the employee will lead to the dismissal being considered as a dismissal without just cause.

If the employer dismisses an employee without just cause, or if it does not serve the notice of dismissal upon the dismissal, it will be obliged to pay the severance package.

Trust employees such as Directors, hired for an undetermined term who are dismissed without just cause are entitled to the payment of a mandatory severance package comprised of the amounts described below. Note that the determination of the “daily wage” should include the daily proportion of any employment benefits paid on a regular basis to the employee (e.g. private medical insurance; performance bonuses), and should amount to:

• 20 days of daily wage for each worked year.
• 90 days of daily wage as Constitutional Indemnification.
• 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
• Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Employees hired for a determined term who are dismissed without just cause are also entitled to a severance payment, but this is calculated differently, as follows:

• If the employment relationship was for a determined term of time less than one year, an amount equal to the amount of the salaries of half the time of services rendered.
• If the employment relationship was for a determined and exceeded one year, in an amount equal to the amount of wages of six months of wage for the first year and 20 days of daily wage for each of the following years during which the employee rendered services.
• 90 days of daily wage as Constitutional Indemnification.
• 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For the purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
• Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Where an employee is dismissed for a just cause under the Mexican Federal Labour Law, that individual will only be entitled to the payment of accrued salary and benefits, and will not be entitled to any of the other statutory severance payments outlined above.

Non-compete arrangements on individuals are generally unenforceable under Mexican law, as they are perceived by courts to limit an individual’s constitutional rights to employment and the exercise of a profession.

However, the Mexican Supreme Court has ruled that under very limited circumstances (e.g. where there is proportionate compensation, and limitation of time and geographic scope), non-compete agreements may be enforceable. The enforceability of non-compete (and no-solicitation) arrangements in Mexico must be carefully analysed on a case-by-case basis.

Relocation of the company / Change location of the work

Some court precedents establish that a change to the work place is a unilateral change to labour conditions. Therefore, it will allow an employee to terminate employment with just cause and consequently access the severance package payment.