A guide to employee termination and severance pay in Mexico

April 25, 2023

Terminating an employee in Mexico

An unfortunate reality of running a successful business is that you’ll eventually have to fire an employee. When that happens, you must do so in accordance with local and federal labor laws.

In Mexico, labor laws generally favor employees over employers when it comes to terminations, so it’s important to fully understand the requirements and have an iron-clad termination plan in place prior to making firing decisions.

Here’s a guide on terminating an employee in Mexico and the considerations for severance pay.

Understanding Mexican labor laws when terminating an employee

Mexico does not operate within at-will employment. At-will employment, common in places such as the United States, means that an employer can dismiss an employee for any reason, barring illegal causes or an established employment contract (such as an indefinite contract or a fixed-term contract).

In Mexico, at-will clauses are only applicable for an employee who wishes to terminate the working relationship, not the other way around. To terminate an employee in Mexico, there must be a just cause. And even then, many protections may prevent a termination—or at least an immediate one.

Grounds and protocols for termination are delineated by Mexican labor law and its constitution, specifically Article 123 of the Mexican Constitution. Over the years, there have then been three additional laws that regulate the employer-employee relationship:

  1. Federal Labor Laws of 1970
  2. National Workers Housing Fund Institutes Law of 1972
  3. Social Security Law of 1997

Learn more about hiring in Mexico.

Termination procedures in Mexico

If, as an employer, you’ve deemed it necessary to fire an employee, then you should follow these steps:

1. Confirm that there are grounds for termination

Since Mexico is not an at-will employment country, employers must establish and justify the reasons for termination, particularly if the business doesn’t wish to provide a severance payment. Mexican labor laws stipulate that workers are expected to demonstrate “integrity at work,” which includes:

  • Work diligently
  • Be careful and attentive in their duties
  • Be on time to work
  • Perform the duties assigned to them

Mexico has what is known as the job security principle. This means that employees are given protection from dismissal unless they have explicitly violated the wrongdoings outlined in Article 47 of the FLL or performed illegal actions. This includes:

  • Misrepresentation of qualifications for a job
  • Dishonesty at work
  • Threats or acts of violence at work
  • Causing intentional damage to an employer’s property
  • Causing serious damage to an employer’s property through negligence
  • Compromising the safety of the workplace
  • Committing immoral acts at work
  • Revealing the employer’s trade secrets or other confidential matters
  • Being absent from work more than three times in 30 days without permission or cause
  • Insubordination
  • Failure to follow safety procedures
  • Coming to work drunk or under the influence of nonprescription drugs
  • Being sentenced to prison
  • Bullying and acts of sexual harassment

If an employee has violated one of the causes listed above, an employer will likely have grounds for termination. However, there are procedural requirements that must then be followed for a terminated employee. If the employer fails to follow procedure, the dismissal will be automatically voided and deemed unjustified.

Additionally, if a worker has more than 20 years of experience with an employer, they can only be unilaterally dismissed for conduct that is considered egregious or recurrent.

2. Establish records and documentation of employee behavior

Barring criminal behavior, a terminated employee has the right to challenge a dismissal. The burden of proof falls on the employer. Therefore, a business must maintain extensive records of misconduct if an employee decides to challenge a dismissal.

Anytime an employee violates one of the causes above, it should be immediately documented by the employee’s supervisor and passed on to HR. Even if there’s a first-time violation and the company doesn’t plan on firing the employee, it’s still imperative to maintain a record. In doing so, you will have a dated and documented case track record of the employee’s work history to show the courts should further violations occur.

That said, according to CCN Legal there’s a limited timeframe to act:

“In order for the employer to rescind the employment relationship with the worker or employee without any liability, it must do so within 30 days from the time that the cause occurred or from the time in which the employer had knowledge of the cause for termination or of the failure or omission by the worker or employee.”

3. File a notice of termination

Unless the parties come to a mutual agreement to terminate the working relationship or execute an employment termination and release agreement, the employer must notify the applicable labor board of the firing.

When this occurs, the labor board doesn’t review the notice. They simply notify the employee of the impending termination.

4. Notify the worker in writing 

An employer is also expected to send the employee a written letter of dismissal, listing the causes of termination. If the employer does not send a written notice, the dismissal will be legally considered unjustified.

5. Present evidence (if the employee seeks to challenge “wrongful termination”)

If an employee believes that they have been mistakenly or wrongfully fired, they have the right to file a complaint with the Conciliation and Arbitration Labor Board. Depending on their situation, this may result in:

  1. Getting back their same position, plus back wages 
  2. Receiving their constitutional severance package, which consists of three months of salary

For employers, your record-keeping could be the difference-maker. The more evidence you can provide, the better.

Mexico severance pay requirements

Whether an employee is entitled to severance pay and how much that figure amounts to depends on the circumstances of the employment termination. Barring illegal activities, employees will be provided a severance payment in most cases. This may include some or all the following types of payments:

  1. A proportional amount of the end-of-year bonus
  2. Vacation pay due for the last year of employment
  3. Vacation bonus pay due for the last year of employment
  4. Wages due up to the date of termination
  5. Seniority bonus pay (12 days’ salary for each year of employment) 
  6. Any other benefits that have been agreed upon and have not been paid as of the date of termination of the employment relationship

Types of dismissal

It should be noted that termination payment will vary depending on the reason for termination and the types of dismissal.

Collective dismissal

If there are to be mass layoffs—at least 20 employees—there must be a legally permitted cause for termination and viable economic reasoning. In this case, severance pay is determined by the cause.

If you have unionized workers or confidential employees, then the termination must then be negotiated with the union. To calculate the amount of severance to be paid, the following formula is used: the aggregate of the base salary; benefits of cash or in kind, such as life insurance or year-end bonuses; and any other benefits provided for services rendered. Additionally, employees are expected to receive a seniority premium of 12 days’ salary for each year served.

There may also be a necessary four-month indemnity payment in addition to 20 days of daily salary for each year worked.

Individual dismissal

In individual cases, severance pay depends on the cause of employee termination:

  • Voluntary resignation: If an employee voluntarily ends their employment contract, they are entitled to full severance. In such cases, an employer is expected to pay all benefits including:
    • Sales incentives
    • Seniority premium of 12 days’ salary for each year of service
  • Termination with cause: If an employer has just cause for the termination and the employee hasn’t performed an illegal activity as the cause, the employer is still required to pay all benefits and commissions until the date of termination. This also includes the seniority premium of 12 days’ salary for each year of service. 
  • Termination without cause: If an employee is terminated without cause, they are then entitled to:
    • Three months of employee daily aggregate salary
    • 20 days of employee aggregate salary for each year of service
    • Seniority premium
    • Due benefits

Avoid terminating employees incorrectly and protect your business 

Terminating an employee is never easy. But when it must be done, it’s important that all local labor laws are followed to avoid penalties, legal suits and reputational damage.

If you’re hiring workers in Mexico, one way to protect your organization from potential missteps in the event of termination is to partner with an employment services provider, such as GEO. A reputable Mexico employer of record has in-country HR experts whose job it is to help guide companies like yours through all labor and payroll requirements, including compliant termination. Learn more about how an outsourced employment partner can help your company stay compliant in Mexico by speaking with a global solutions advisor today.

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