Trading in Mexico: the reforms you need to know.

For the last decade the United Mexican States (Mexico) has been seen as a country to invest par excellence, due to foreign trade programs and tax incentives, which jointly allow for businesses to lower the costs of their supply chain and operation of subsidiaries in Mexico. From 2016 to 2021, Mexican legislation has been subject to various enactments and reforms that directly impact companies established in Mexico. The following is an executive summary of the content of such enactments and reforms.

Anti-corruption reform

In 2016, the most important public policy in the fight against corruption in Mexico was undertaken: the National Anticorruption System (SNA, from its Spanish acronym). As part of the SNA, the General Law of Administrative Liabilities was enacted, which makes reference to the obligations imposed on companies established in Mexico in anti-corruption matters.

The SNA included constitutional reforms, created new laws, amended existing laws, and created specialised prosecutors and judges to address the matter.

The SNA caused high impact in the private sector, due to the obligations it imposes regarding: (1) Compliance & Anti-bribery; (2) Anti-Corruption; and (3) establishment of new behaviours that can be administratively and criminally sanctioned.

The applicable sanctions include fines of up to 35 million pesos; payment of indemnifications to the government; disqualification to conduct business with the government at its three levels; suspension to carry out the economic activity of the company for up to three years; legal dissolution of the company; and detention for up to 14 years for public officers, businessmen, employees, managers, and individuals who provide services to all types of persons.

“The Government of Mexico approved and ratified the right to unionise and collective bargaining Convention of 1949.”

Legitimisation of colletive bargaining agreements

As consequence of NAFTA, on November 23, 2018, the Government of Mexico approved and ratified the right to unionise and collective bargaining Convention of 1949, better known as “Convention No. 98”. As consequence, in 2019, several provisions of the Federal Labor Law were amended regarding labour justice, freedom of association, and collective bargaining.

Such amendments included the obligation to legitimise collective bargaining agreements in accordance with the applicable regulations before May 2, 2022 to ensure that employees are aware of their collective bargaining agreement and are represented by their union(s).

The legitimisation process consists of 4 steps: (1) filing of a consultation notice; (2) election day, where certain formalities are required; (3) filing of notice of results; and (4) obtainment of legitimacy certificate issued by labour authorities.

In the event of non-compliance with the obligation to legitimise the collective bargaining agreement within the established term, the collective bargaining agreement will cease to have legal effect and the union or unions that obtain the minimum required representation of the company’s employees may claim title of such collective bargaining agreement.

Telework reform

On January 11, 2021, a Decree was published in the Federal Official Gazette, amending and adding several provisions to the Federal Labor Law to regulate labour relations under the telework modality, some which became effective as of January 12, 2021.

Telework is a type of employment relationship consisting of the personal performance of paid activities in places other than the employer’s establishments primarily using information and communication technologies.

In case of opting for this modality, the change from in-office work to teleworking must be voluntary and agreed in writing, except in cases of force majeure. It is possible to agree to return to the in-office modality. In addition to what was already established by law, the corresponding contracts for this modality must indicate the conditions agreed by the parties, including, among others, the indication of the materials delivered by the employer to the employee and the contact and supervision mechanisms.

Special obligations for the employer are established, which may be supervised by Labor Inspectors and include to provide, install, maintain, and keep a record of the materials delivered for teleworking.

Subcontracting prohibition

In 2021 the Federal Government issued a Decree by which the Federal Labor Law was amended, prohibiting subcontracting of personnel. The reform prohibits personnel subcontracting, which is understood as providing or making one’s employees available for the benefit of a third party.

“The change from in-office work to teleworking must be voluntary and agreed in writing.”

The reform allows: 1) subcontracting of specialised services or execution of specialised works that are not part of the corporate purpose or the main economic activity of the beneficiary of such services; and 2) subcontracting of specialised services between companies of the same corporate group, provided that such services or works are complementary or shared between such companies and that they are not part of the corporate purpose or the main economic activity of the beneficiary.

It also imposes several obligations regarding subcontracting of specialised services or execution of specialised works, including the registration of contractors before the Ministry of Labor and Social Welfare and the formalisation of the services provision through a written contract, indicating, among others, the approximate number of employees that will participate in the performance of such contract.

The consequences for non-compliance include joint and several liability with respect to the employees used and fines applicable to both parties.

This prohibition does not eliminate the legal figure of provision of independent services, so the obligations imposed by the reform are only applicable in those cases in which, for the purpose of providing a service, the company’s employees are under the instructions of a third party for the performance of the latter’s own activities.