After jumping through the hoops to make your ideal hire, that solid employee with a global-focused mindset you are sure would catalyze your business growth. Then, amidst all these, we are certain you are not thinking about letting them go. However, when hiring employees in Mexico, it is important to know the basics of Mexican labor laws.
Mexico does not operate an at-will employment where an employee can be dismissed for no reason. Hence, to avoid getting into a legal mess, we provide an overview of what you should know about employee termination and severance pay in Mexico.
Legal Grounds for Employee Termination
Understanding severance in Mexico means being aware of the legal termination procedures in Mexico if you deem it fit to fire an employee. An unfortunate reality of doing business anywhere is that firing an employee is inevitable, but legal provisions must always be followed in Mexico.
Under Mexican Labor law, a list of grounds warrants employee termination. Some of these reasons include the following;
- Breaches in Obedience and Principles of Honesty and Good Behavior
- Sexual Harassment
- Revealing Company secrets
- False statements about work qualifications
- Refusal to comply with company safety procedures
- 4 consecutive unexcused absences in a 30 day period.
There are instances where employment might be terminated via a mutual agreement, especially if there is no substantial evidence or motive. In any case, the concerned individual is entitled to certain benefits and possibly some compensation.
Mandatory Termination Procedures
Employee termination in Mexico is a big deal because, as a business interest, you do not want to be at the mercy of labor unions, fighting lawsuits with the possibility of big financial payouts. There are steps to prevent such instances before terminating an employment relationship.
1. Be Certain There are Grounds for Termination
Mexico severance guidelines stipulate that there must always be a solid justification for termination. For an employee to be dismissed, the employer must be sure they have violated one of the many reasons we listed earlier.
2. Records and Documentation of Employee Behavior should be Established
Except in the case of criminal behavior, an employee reserves the right to challenge his employment termination or dismissal. If this were to happen, as the employer, the onus is on you to provide proper documentation. A track record of the employee’s work history, one that fully documents the employee’s misconduct, is vital.
3. File a Notice of Termination
Before making the major decision of employment termination, the importance of communication should be preserved. Unless there is a mutual agreement to terminate the working relationship between an employer and an employee, the employer must notify the labor board of the firing, informing the employee of the impending termination.
4. Notify the worker in Writing
After filing the notice of termination with the concerned labor board, the next step is to directly inform the employee with a written letter of the termination, explicitly stating the reasons for employment termination. If there is no direct written notice, the dismissal may be considered unjust by the employee.
5. Be Sure to Provide Evidence
Employees are at liberty to challenge an employment termination they find wrongful or a mistake, and they can file this complaint before the Conciliation and Arbitration Labor Board. Depending on the result of their case, they may get back their position with their wages, or they may receive their Mexican termination pay.
As an employer in Mexico, your record-keeping could be your saving grace. Because when cases get to this point, your record-keeping and attention to detail may be the difference.
Documentation and Notice Requirements
An employment termination must follow the severance pay rules in Mexico. Labor laws are duly designed to protect workers, and sometimes arguably to the extent of being unfair to the concerned companies.
Some of the critical aspects of the legal framework for employee termination in Mexico are;
- Mexican workers have a right to Social Security
- Foreign businesses must share a portion of their profits with their employees.
- End-of-service pay in Mexico is mandatory. So, if a company is to terminate an employment relationship with an employee, it must pay a severance compensation equal to three months of the employee’s salary.
Employee Communication During Termination
If you are unaware, employee termination could easily become a trap in Mexico as an employer. Hence, after following all the steps before terminating an employee, the last thing to do is to give the concerned employee adequate notice of their termination. This is just the right thing to do as an employer.
Severance Pay Obligations in Mexico
Employers in Mexico have obligations that must be duly honored, and there are different guidelines for different scenarios of employment relationship termination. Regarding Voluntary Resignation, the employer must pay the default severance package, widely known as the finiquito payment in Mexico.
A yearly seniority bonus equivalent to 12 days of salary must also be provided. This is especially true when the employee has worked with the employer for at least 15 years.
In the case of Dismissal with a just cause, the finiquito is paid, coupled with a seniority bonus. These payments constitute an employment termination. It is also important for you as an employer to enlist the services of a competent labor lawyer so you avoid ending up with a liability.
The severance pay rules in Mexico stipulate the finiquito package, ninety days of salary, 20 days of salary for the year worked, and the seniority bonus is mandatory for the employer in the case of the termination of employment without a just cause. The severance pay in Mexico is common to all employment termination scenarios, so how do you calculate it as an employer?
Severance pay calculation in Mexico should only be done if the concerned employer has worked for the company for up to 15 years or more. Severance pay rules in Mexico are as follows:
Severance Pay = 90 Days Pay + 12 Days Pay Per Year Up to Twice Minimum Wage + 20 Days Pay Per Year
Compliance with Severance Pay Laws
Regarding severance compensation in Mexico, it is best to avoid legal pitfalls as an employer. The central goal here is business growth, but to avoid legal troubles, always make sure to have all agreements in writing and all the specific details such as the date of employment, the contract, location, wages, working hours, etc.
Common Challenges in Employee Termination
Addressing Legal and Practical Issues that arise from employee termination also has its challenges, such as the length of time it takes to decide a case, lengthy paperwork, evidence gathering, fees, appearances, etc. So many grey areas need to be addressed before the core employee termination process is kickstarted.
Costly litigations should be avoided as much as possible. Hence, the termination of the employment relationship should be through mutual consent, and the Mexican severance pay process should be followed.
Finally, employers in Mexico should align with Mexican labor laws and regulations to avoid legal pitfalls and run-ins with the law that might affect business growth. To prevent this from happening, Globy, by its long-standing experience and expertise in hiring top talents in the Latin America region, is an efficient strategic partner that can help emerging foreign businesses in Mexico mitigate instances of termination and severance issues through effective hiring practices.
What Are the Legal Reasons for Firing Someone in Mexico?
These reasons include endangering others in the workplace, revealing trade secrets, disobeying the employer with no just cause, sexual harassment or deviant behavior, fraud or deception, etc.
What Steps Must Employers Follow to Fire an Employee Legally?
An employer must ensure the reason for the sack is justified, ensuring proper documentation, serving the concerned employee a written notice, notifying the worker in writing, and then providing evidence.
How Do Companies Figure Out How Much Severance Pay to Give?
The severance pay for employees is calculated based on the length of stay of the employee with the company. It is a 3-month wage for the worker plus 12 days per year and up to twice the minimum wage and 20 days of wage payment per year.
Is There a Required Notice Period Before Letting an Employee Go?
Mexican Labor laws generally favor workers, but employers are not mandated to give advance notice before terminating an employee. However, a severance package must be provided in light of the termination of an employment relationship.
What Happens If a Company Doesn’t Follow Termination Rules?
Labor laws in Mexico greatly favor employees and strongly protect against dismissal without cause. Firing an employee in Mexico without following the legal stipulations can land you and your company in deep legal trouble with financial penalties.
Can Employees Challenge Their Firing in Mexico?
Employees who feel wrongly or unjustly fired in Mexico can challenge their termination. They also have the right to a fair hearing. So before firing someone, ensure you are justified and have plenty of documentation to back up the decision.
Are There Different Rules for Severance Pay Based on How Someone is Fired?
No, there are no different rules for severance payments, irrespective of how they are fired. In Mexico, all employees on indefinite contracts, which also applies to more full-time employees, are entitled to severance payments when they leave voluntarily or are fired with or without cause.
What Paperwork is Needed When an Employee is Terminated?
Proper documentation is required when an employee is terminated. A termination letter is given to the employee with information about the details of their employee benefits, final paycheck, termination date, and severance payment package format.
Do Severance Rules Change for Different Types of Jobs?
Employees on indefinite contracts are entitled to severance payments upon termination. Its calculation may differ based on the length of stay with the company, but every worker except those on definite contracts is entitled to severance packages.
Where Can Employers Get Help with Termination and Severance Procedures?
If you are planning to expand your business by hiring workers in Mexico. Then, you will need a strategic partner to help you comply with Mexico’s stringent labor laws. A partner that can help to minimize the incidence of termination and severance procedures by ensuring you get top-quality hires that will embody the ethos of your company and work in tandem with set rules and procedures.
Globy is open to partnering with its leading efforts in helping new and growing companies expand in Mexico and the Latin American region and get help with termination and severance processes. You are safe with us; we cannot wait to start with you.