Mexico Adapts to Labor Reform

By Cadrain, Diane | HRMagazine, June 2013 | Go to article overview

Mexico Adapts to Labor Reform


Cadrain, Diane, HRMagazine


Curbs on outsourcing are among the first regulations to have an effect.

In Mexico, where labor laws enacted in 1970 just got a major overhaul, employers are facing a steep learning curve as they absorb all that the rules require. Among the new rules are:

* Curbs on outsourcing.

* Changes in laws affecting hiring and firing.

* Reduction of back-pay liability in wrongful discharge cases.

* Anti-discrimination provisions.

Outsourcing regulations are "one of the most important aspects" of the reform, notes Laura Barbieri, market director of human resources for JW Marriott Hotel Mexico City.

"Employers are taking close care in the outsourcing process in order to comply," adds Jorge Jauregui, HRMP, president of the North American HR Management Association and secretary general of the World Federation of People Management Associations.

Limits on Outsourcing

Until the reform law took effect Dec. 1, 2012, many employers outsourced operations to avoid two mandated expenses: profit-sharing payments of 10 percent of the company's taxable income and social security contributions covering disability insurance, health care and retirement. They would set up an outsourcing company to employ workers and another corporate entity to make profits. Now, the law prohibits outsourcing contracts that are created in an effort to avoid labor obligations or payment of benefits. It bars such arrangements unless three conditions are met:

* An outsourcing arrangement cannot cover the totality of the company's activities.

* It cannot include tasks equal or similar to the ones carried out by company workers.

* It must be justified by the specialized nature of the jobs, such as work that requires a company to bring in a specialist only once in a while.

Companies using outsourcing arrangements to avoid labor obligations could face major fines.

"We've already started making adjustments," says Barbieri, whose company outsources some hotel operations- waiting tables, cleaning and laundry, for example-when facilities are at 100 percent occupancy.

"We are reviewing the outsourcing contracts we have and are planning to insource some of the workers we had outsourced," she adds. "Now we are more responsible than before" the reform.

"The question is whether employers still need an outsourcing company-and to pay it a 10 percent fee," she continues. "Many companies are reducing the number of outsourced employees and making them employees of the company. They're eliminating the administration fee and hiring the people."

Some experts, though, raise questions about the three conditions outsourcing operations must meet. They're asking, for example, whether such arrangements must satisfy all three conditions or whether adherence to one or two would be adequate. "That issue will be decided in the court system," Jauregui says.

The former HR corporate director at Bristol-Myers Squibb Mexico and past president of the Mexican Association of HR Directors notes that "There are no economic incentives for employers to follow the new rules." Jauregui contends that economic incentives would make it easier for employers to bring formerly outsourced employees into a company's workforce. For example, employers might be offered a break in social security contributions for the first one or two years of employment, he suggests, and such a plan could be enacted as an amendment to the reform measure.

Hiring and Firing

Until now, Mexico's labor law made it difficult to discharge poor performers or lay offworkers in a downturn. The reform makes it easier to bring in new faces and part ways with workers if employment relationships don't pan out. By making it easier to hire and fire, the reform is expected to bring more workers out of a shadow economy, where as many as 30 percent of the nation's labor force has worked without benefits.

Previously, it was difficult to fire an employee once he or she was on the job, says Melanie Khamis, professor of economics and Latin American studies at Wesleyan University in Middletown, Conn. …

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