Employment Termination

Can an employer dismiss an employee for any reason, or must there be a valid cause?

How are these causes defined under the Federal Labor Law?

There are several causes provided for the termination of an employment relationship in the Mexican Federal Labor Law (LFT), such as:

For individual cases: the mutual consent of the parties, the death of the employee, termination of the work or maturity of the term or capital investment, depletion of capital, or the physical or mental incapacity of the employee that makes it impossible for him/her to perform the work.

For collective cases: in force majeure or acts of God events not attributable to the employer; or due to physically or mentally incapacity of the employer, and even in the event of the employer’s death, if these circumstances directly lead to the termination of the work. Likewise, the evident unprofitability of an operation, the depletion of extractive materials in mining activities, the legally declared bankruptcy or insolvency are grounds for the collective termination of an employment relationship.

The Article 47 of the Federal Labor Law (LFT) sets forth the justified grounds (good causes) for an employer to terminate the employment relationship.

For this purpose, the cause or causes invoked must be fully substantiated and documented. Additionally, the employer must deliver to the employee the corresponding NOTICE OF TERMINATION, either directly or through the corresponding Court, since otherwise, the dismissal will be considered unjustified, entailing the payment of constitutional compensation and additional financial burdens in favor of the employee.

The employment relationship can be terminated without liability for the employer, if the employee incurs in any of the following causes:

1. Deceiving the employer with documents or references that attribute to the employee abilities or skills the employee lacks, as long as such deception has been detected within the first 30 days from the date of the employee’s admission.
2. Lack of probity or honesty, acts of violence, threatening, insulting, or mistreating, whether directed against the employer, their family members, or the management or administrative staff, clients, or suppliers of the company, without provocation or in self-defense.
3. Any of the above acts against co-workers, disrupting the company’s discipline.
4. Any of the aforementioned acts, even if performed outside the service, provided that they are so serious that they make fulfilling the employment relationship impossible.
5. Intentional or negligent material damages to buildings, machinery, raw materials, and work-related objects.
6. Compromising the establishment’s security or the individuals therein by imprudence or inexcusable negligence.
7. Immoral acts, harassment, or sexual harassment in the workplace.
8. Disclosing manufacturing secrets or confidential matters to the detriment of the company.
9. More than three unjustified absences within a thirty-day period.
10. Unjustified disobedience to the employer or their representatives regarding the contracted work.
11. Refusing to take preventive measures to avoid accidents or diseases.
12. Attending work under the influence of alcohol, narcotics, or drugs, except when under medical prescription and with prior notice and presentation of the prescription to the employer.
13. Enforceable judgment that prevents fulfilling the employment relationship due to a prison sentence.
14. Lack of documents required by laws and regulations necessary for service provision due to the employee’s fault, from the date the employer becomes aware, for a period of up to 12 months.
15. Similarly serious causes with equivalent gravity and of similar consequences in relation to work.

Is it necessary to provide notice of termination prior to a dismissal? Can the employer provide payment to the employee instead of giving notice?

As referred to in the previous point, in Mexico, it is important for the employer to provide the employee with a notice outlining the grounds for contract termination without liability for the employer, or alternatively, request the competent Labor Court to notify the employee of the termination notice. This ensures the employee’s right to defend against the grounds invoked for justified dismissal. It is also important to consider that the legal representative with the necessary labor authority and expressly granted powers should sign this termination notice, being also necessary to obtain the employee’s signature as proof of document delivery, or otherwise request the competent Court to carry out the notification within the legal terms established for such purpose.

Under what circumstances can an employer dismiss an employee without notice, or provide payment instead of giving notice of termination?

The employer may at any time dismiss an employee without good cause, for which it will be necessary to pay the employee all severance payments because of the unjustified dismissal and obtain the employee’s consent to such effect. In Mexico, it is possible for an employer to approach Conciliation Centers to enter into labor termination agreements by mutual consent that terminate the employment relationship. In this case, the employer must ensure payment of pending benefits and any additional amounts agreed upon by the parties. Therefore, if there is no good cause for dismissing an employee, it is advisable to seek to mutually terminate the employment relationship by reaching an agreement between the employer and the employee, by paying the corresponding negotiated amount. This agreement should include a breakdown of the amounts to avoid any waiver of the employee’s rights.

Is there any legislation that establishes the right to receive severance pay upon ending employment? How is this severance pay calculated?

According to Article 50 of the Federal Labor Law (LFT) in Mexico, any employee who is unjustifiably separated from their job is entitled to receive severance pay. This pay consists of the equivalent of three months of integrated salary, payment of overdue wages and interests. Additionally, the employee can choose to request reinstatement to their job, and if this is not feasible, they can claim an additional severance payment equivalent to 20 days of salary for each year of service (if the employment relationship was indefinite).

In the event that the employment relationship was for a fixed term of less than a year, the employee can choose to receive an additional amount equal to the sum of half the wages for the time of service rendered. If the employment relationship lasted for more than a year, the amount should be equivalent to the wages for six months for the first year and 20 days for each subsequent year beyond the duration of the employment relationship.

The constitutional severance pay of 90 days’ wages is calculated based on the employee’s integrated daily wage. To determine the integrated daily wage, the base wage should be considered, and then the daily proportional amounts received by the employee for bonuses, allowances, housing, bonuses, commissions, in-kind benefits, and any additional amounts or benefits provided to the employee due to their employment should be added. On the other hand, the seniority bonus must be provided when the employee has been employed for more than 15 years with the company, as well as in cases of termination in proportion to the time worked, regardless of the justification.

Are there procedural requirements for dismissing an employee?

Firstly, the employer must bear in mind that any termination of employment, with or without justification (good cause), should be thoroughly documented.

In cases of dismissal with good cause, the employer additionally needs to prove that they notified the employee of the termination notice. This notice, as already mentioned, should include the signature of the employer or their legally authorized representative with necessary labor authority and expressly granted powers. The termination notice should clearly outline the circumstances of manner, time, and place regarding the reasons that led to the termination of the employment relationship. The employer can directly notify the employee or alternatively request assistance from the corresponding Labor Court to carry out the notification. To do this, the employer needs to provide the authority with the employee’s contact details and sufficient information for the Court to conduct the notification process. This should be done within five days after the labor court has received the request to notify the corresponding termination notice from the employer.

In what circumstances are employees protected against dismissal?

The Federal Labor Law (LFT) states that dismissal must be fully justified based on the grounds provided by the law, as mentioned above. These grounds must be presented within the timeframes specified by the LFT for each particular case. If there is no valid justification for the dismissal, the employee will be entitled to receive the benefit payment, in addition to the statutory benefits they have already accrued (such as accrued and unpaid wages, proportional vacation pay, vacation bonus, year-end bonus, employee savings fund, and any other pending benefits related to the employment relationship).

Are collective or class actions allowed, or can employees only file labor claims individually?

In Mexico, it is possible to file collective actions as long as there is an active collective labor agreement in place within the company. Additionally, even without a collective agreement, it is possible for multiple employees from the same company to join together to file claims. This is allowed when they collectively address violations of employer obligations by the same employer.

Does the law in your jurisdiction allow employers to impose a mandatory retirement age? If so, at what age and under what limitations?

There is no mandatory retirement. According to the Social Security Law, the voluntary retirement age is 65, although starting from 60 years old, one can apply for early retirement with a reduced amount. However, the same Law includes different retirement schemes and special conditions that could influence the retirement age in a specific manner for each employee, such as:

1. Retirement System Type: In the pension system in Mexico, there are two main types: the pay-as-you-go system (also known as the defined benefit pension scheme) and the individual accounts system (Afore). The type of system an employee belongs to can influence the retirement age.
2. Contribution Time: The duration for which an employee has been contributing to the social security system and/or an Afore is an important factor. In the individual accounts system, it’s necessary to accumulate a certain number of contributed weeks to be eligible for a pension.
3. Early Retirement Age: Employees can choose to retire from the age of 60, although they will receive a lower pension amount since the standard retirement age is 65.
4. Salary Level: The employee’s salary during their working life can influence the calculation of the pension amount. Some systems use an average of salaries from the last years of work to determine the retirement benefit.
5. Company Pension Scheme: Companies make bi-monthly contributions to the Mexican Social Security Institute (IMSS), which is responsible for covering employee pensions. Some companies offer additional pension schemes to their employees.
6. Legal Changes: Laws and regulations regarding retirement age and eligibility for pensions can change over time. It’s important to stay updated on any changes in legislation.

It’s essential for employees to gather information from official sources and consult with social security experts to understand how these specific factors can influence their own retirement situation. The Retirement Fund Administrators (Afores) and the Mexican Social Security Institute (IMSS) are reliable sources for obtaining information about retirement in Mexico.