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Restrictive Covenants in Mexico

1. Definition of Restrictive Covenants

Although Mexican legislation does not provide for a specific concept of restrictive covenants, they may be defined as any contract, covenant, or agreement having as scope the restriction, loss or irrevocable sacrifice of the personal freedom.

Mexican law does not expressly prohibit clauses or covenants of this nature during the employment relationship. In fact, if a worker engages in activities that result in competition against the employer’s business during the course of employment, that conduct would constitute just cause for termination of the work relationship, even in the absence of a non-compete covenant.

Mexican employers that require certain workers to enter into non-compete covenants must narrow down the scope of the worker’s post-employment restrictions by (a) setting limits to the duration of the covenant, such as a maximum of one year after the conclusion of the work relationship; (b) defining the type of competitive activities from which the former employee is to refrain; and (c) specifying the competitors and the geographic area or market segment in which the former worker cannot accept employment.

2. Types of Restrictive Covenants

Non-Competes, Non-solicitation of customers and Non-solicitation of employees are clear examples of Restrictive Covenants. Execution of restrictive covenants has become more common in Mexico as a means to protect the employer’s confidential information and trade secrets, as well as to ensure the companies’ right to loyal competition.

3. Enforcement of Restrictive Covenants—process and remedies

In principle, Restrictive Covenants are only “enforceable” during the employment relationship as a cause for termination and without liability on the employer.

From a labor standpoint, post-employment Restrictive Covenants are null and void under Mexican legislation and, therefore, unenforceable; the only possibility for “enforcement” is before the Civil Courts as explained in Section IX.1 above.

If the Non–Compete and Non-Solicitation agreement is declared null and void for the reasons provided in Article 5 of the Mexican Constitution, both parties are able to retrieve their prior status, meaning the employee will be requested to pay back any and all moneys received for performance of the obligations established in the agreement.

The employer can also exercise a civil action claiming damages derived from such infringement or even take criminal action if the employee had access to confidential information and/or trade secrets while performing his/her duties.

Note that an injunction to prevent someone from rendering services or working in a certain field or activity cannot be issued because, as mentioned in Section A above, Article 5 of the Mexican Constitution and 4 of the FLL bar such relief.

4. Use and Limitations of Garden Leave

There are no garden leaves under Mexican legislation.

For more information on these articles or any other issues involving labour and employment matters in Mexico, please contact Oscar De La Vega, Partner at De La Vega & Martinez Rojas S.C. (www.dlvmr.com.mx) at ODelaVega@dlvmr.com.mx
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