Labor Trends in Mexico
As noted in the International Trade Trends in Mexico, labor law and policy is currently in the spotlight not only internationally, but also domestically as a result of COVID and political “interests”.
Notably, Mexico had to adapt its labor legislation and promote reforms as a result of USMCA. These reforms are focused on promoting union representation and collective bargaining, as well as creating new government institutions and courts.
Recall that the US and Canada pressured Mexico to protect against labor exploitation, child labor, and other issues related to unions and collective contracts. With these changes in mind, our business partners expect Mexican wages to increase gradually. In turn, cheap labor should no longer be a decisive or attractive factor for companies to establish in Mexico. Of course, the aim is to level the playing field in terms of wages in North America.
In 2019 Mexico published its labor reform, but it came into effect in 2020, a few days before USMCA’s entry into force. This reform refers, above all, to the freedom of workers to organize and collective bargaining. In other words, now the famous “protection contracts” that companies had with “white unions” are really dying or their existence is getting complicated.
Unions and Collective Contracts
On many occasions, the workers did not even know they were unionized. The collective contract was simply signed between the employers and the unions, and all or most of the workers were subject to said collective agreement since they are members of the union.
Unions and Collective Bargaining Trends
As a result of this update to Mexican employment laws in June 2020, the law now orders a certification that workers want to participate in a union in order for a union to legally exist. Accordingly, at least 30% of the workers, in free and secret voting, have to agree to belong to the union of their preference through an assembly, which has to be certified.
A notary public, the Local or Federal Board of Conciliation and Arbitration, or the new Federal Center for Conciliation and Labor Registration can certify the assemblies.
Gradual Implementation of the Labor Reform
Now, I would like to point out that although the labor reform entered into force last year, its implementation is gradual through regions or Mexican states (provinces).
Needless to say, the labor reform in terms of procedures and the new labor authorities have already entered into force “completely” in some states. If that’s the case, the new Federal Center for Conciliation and Labor Registration is the authority in charge of registering unions and collective bargaining agreements.
Given the gradual implementation of the reform, the Union officials must register the minutes of a certified assembly before an authority, either the Local or Federal Conciliation and Arbitration Boards or Federal Center for Labor Conciliation and Registration (if it is already operating in the state, of course).
The Federal Center for Conciliation and Labor Registration
This new decentralized government body will eventually be the only authority authorized to register each and every union and collective bargaining agreement. Without said registration, a collective bargaining agreement, for instance, is not valid.
USMCA provides for the possibility of establishing dispute settlement panels in labor matters. In short, there are two kinds of disputes the “general”, all matters covered by the Labor Chapter, and a “special” called the facility-specific rapid response labor mechanism, whose scope relates to unions and collective bargaining. The rapid response mechanism only applies between the US-Mexico and Canada-Mexico.
Consultations first, panels second.
In essence, if a USMCA party, say the US or Canada, considers that another party, say Mexico, is not complying with its obligations, it may request consultations that could eventually trigger a dispute settlement mechanism, including the establishment of a panel.
We will probably see this year how these USMCA dispute settlement mechanism will operate and function. However, the expectation is that regulations and labor laws matters will improve without the need for disputes.
Another interesting trend was the recently approved reform regarding “home office”. Now, the employer has the responsibility to provide all the technological tools, even pay a proportional part of the electricity or internet service, to his workers, while the workers now have the “right to disconnect”.
The COVID pandemic evidently forced many companies and their workers to resort to the “home office”, causing longer workdays. Workers are thought to be connected most of the time. So, the reform’s spirit considers the right to disconnect, that is, workers are at home, but work hours must be respected as contracted. In any case, employers should preferably review their employee’s contracts.
Finally, this post cannot ignore the famous presidential initiative to ban outsourcing that was submitted to Congress at the beginning of December. In short, this project would reform the Federal Labor Law and different tax and social security laws. If the initiative is materialized as such, this so-called ban would entail a radical overhaul in Mexico’s employment.
This reform initiative caused a lot of noise in the private sector because it establishes a general prohibition to labor outsourcing and an “authorized” exception, creating hurdles to this kind of agreement.
A Few Rotten Apples?
Needless to say, outsourcing agreements have been abused, in many cases, to the detriment of workers. However, in many other instances, outsourcing agreements have respected worker’s rights and have proven to be a very useful instrument for companies, such as maquiladoras or the Automotive industry.
Will the Government set the example?
Interestingly, when the presidential initiative was publicly announced, a State Owned Company, Banco del Bienestar, issued a tender to hire a significant number of workers through outsourcing! The government and its companies have many of their workers in outsourcing, around 25.5% to 27.7%.
What will happen to labor outsourcing in Mexico?
The government may want to apply the old saying: may it be god’s will, but in my compadres oxen. In other words, the outsourcing reform could only apply to the private sector, and additional regulation on worker’s rights on profit-sharing will be developed. The initiative is on hold at Congress because workers’ profit-sharing rights are currently being discussed between the private sector, representatives, and government officials.
In sum, there have been many changes to the labor legislation in the last two years, the labor reform is being implemented, and it will be necessary to follow up on what happens in the next congress session on the outsourcing issue. Companies have to prepared for 2021 on labor issues, without a doubt.