1. Grounds for Termination
An employer may dismiss an employee only where the latter gives cause for dismissal. Under Mexican labor law, “integrity at work” is mandatory behaviour for the employee. An employee is deemed to act with integrity when the work is carried out with intense effort, care, and attention, in the agreed-upon time, place, and manner. “Lack of integrity” is a generic cause for dismissal.
2. Collective Dismissals
According to the FLL, there must be a legally permitted cause of termination that substantiates the collective dismissal. The severance payment and the subsequent procedure will be determined depending on the cause.
The first step is to determine whether the company has unionized workers and confidential employees. If it does, the working conditions of the union workers are governed by the CBA. Therefore, both the termination of the union workers and the CBA must be negotiated with the Union.
Concerning the termination of individual employment relations with union workers, the FLL sets forth a formula to calculate the amount of severance to be paid to each employee, as described in Section 3.a below.
The aggregate salary of union workers must include: (1) the base salary; (2) any other benefit in cash or in kind (such as life insurance, savings fund, food coupons, vacation premium, year-end bonus, etc.); and (3) any other benefit provided to the employee for services rendered.
3. Individual Dismissals
a. Is severance pay required?
Termination payment is calculated depending upon the cause of termination:
- Voluntary resignation: The employer must pay all due benefits.
- Termination with cause: The employer must to pay all due benefits.
- Termination without cause: Employees that are terminated without cause are entitled to the following lump sum severance: (1) three months of the employee’s daily aggregate salary, plus: (2) twenty days of the employee’s daily aggregate salary for each year of service; (3) a seniority premium of twelve days’ salary for each year of service (but with a cap of twice the minimum daily salary in the same terms as explained before), (4) due benefits.
4. Separation Agreements
According to Article 53, Section I of the FLL, the mutual consent of the parties is a cause for termination of the employment relationship with no responsibility on either the employer or the employee.
This cause for termination is therefore subject to the will of the parties.
a. Is a Separation Agreement required or considered best practice?
A Separation Agreement is not required but may be considered best practice. However, it must be ratified before and approved by the Conciliation and Arbitration Labor Board in order to be valid.
b. What are the standard provisions of a Separation Agreement?
The Standard provisions of a Separation Agreement are:
- Reciprocal acknowledgement of the parties’ status and representation, and legal capacity.
- Employee’s statement containing the employer’s name, hiring date, position, work shift and salary.
- Express consent by the parties to terminate the employment relationship and the termination date.
- Total settlement of obligations and acknowledgement of receipt on behalf of the employee of the net and gross amounts due by the employer, including a breakdown of the concepts that are being paid, applicable taxes and deductions.
- Full release by the employee of all labor and social security obligations in favour of the employer, its parents, subsidiaries or affiliates, predecessors, successors or assigns, as well as their respective current and/or former partners, directors, shareholders/stockholders, officers, employees, attorneys and/or agents, all both individually and in their official capacities.
- Employee’s statement under oath of the working conditions and benefits enjoyed while in service with the employer.
- Confirmation by the employee of the last day worked for the employer.
- Ratification of the Agreement and request of the Labor Board’s approval.
c. Does the age of the employee make a difference?
No, the employee’s age makes no difference.
d. Are there additional provisions to consider?
Other provisions to consider in the Separation Agreement are those related with:
- Company’s files, documents and property.
- No disparagement.
- Confidentiality clause.
- Non-compete and/or non-solicitation.
5. Remedies for employee seeking to challenge wrongful termination
According to the FLL, employees who have been wrongfully terminated can file a complaint with the Conciliation and Arbitration Board for: (a) constitutional severance consisting of three months of aggregate salary; or (b) reinstatement to the same position he/she held, plus back wages.