How to Hire Employees in Mexico, a Quick Glance at Labor Contracts

When navigating the complexities of a new legal system it is vital to maintain focus on certain principles as to avoid law suits and more importantly, to avoid wasting time, resources and energy in unproductive hiring strategies.

When understanding employment regulations in Mexico it is important to take into account that Mexican Federal Labor Law provides many statutes that are not available under U.S, European or British Law.  Provisions such like: inability to terminate without just cause (no employment at will), severance pay, vacation premiums, profit sharing and collective (union) securities may be construed as restrictive and costly for foreigners looking in. Nonetheless, it is ironic to find out that despite heavy employee legal protection, the economic burden of employees and legal exposure can be considered low in Mexico when compared to international standards due to penalties, costs, insurance, compensation packages and economical wage levels in other nations. Thereafter, it is essential to understand and manage this trade-off with effective HR management policies that must always begin with the correct strategy upon hiring employees.

In the U.S for example, as in Mexico there is a distinction between employment contracts and other contracts for service. Nonetheless, Unlike in the U.S (Fair standards labor act) Mexico does not admit the distinction between exempt and non-exempt employees due to the fact that ALL employees are guaranteed at least all of the statutory benefits in accordance with the principle of workplace stability.

In regards with types of contracts, per law in Mexico there are only 3 types of employees (that match the available types of contracts):

a) Employees hired for an indefinite amount of time.     

a.1) subject to a probationary period

a.2) subject to an initial training period                                                                                 

b) Employees hired for a construction period.

c) Employees hired for a previously determined amount of time.

The norm or the general rule of thumb is that all labor relations and contracts are for an undetermined/indefinite period of time (no indication of when and why it could end).

When dealing with these open-ended labor contracts, since 2012 congress gave employers the alternative to hire employees using 2 NEW different varieties of said contract. The new law clearly states that when an employee enters into an agreement which is open ended (as is the rule of law) contracts may be subject either to a) a probationary period or else, b) an initial training period. 

1. Indefinite contracts subject to probationary period.: When an indefinite contract is entered into, contract may be subject to a probationary period of 30 days. When dealing with significant positions (directors, administrators, managers or highly technical positions) probationary period may last up to 6 months.
2. Indefinite contracts subject to an initial training period.: When an employee is required to acquire certain knowledge or expertise under guidance and supervision of employer, an indefinite labor contract may be subject to an initial training period of 3 months or up to 6 months in the case of directors, administrators, managers or highly technical positions.

The rules that apply to these contractual relations are:

1.- A contract may only be subject to ONE period whether it be for initial training or for probation. An employer can never employ a probationary period and training period in a contract subsequently (or vice versa).

2.- All employees subject to a probationary or training period shall have all the rights that social security and housing laws proscribe.

3.- If the relation lasts for one day beyond set probationary or training period, the relation is considered by all means as indefinite or open ended.

Opposite open ended agreements and as an exception to the rule of law, are labor contracts that may be subject to temporary restraints and that may be used carefully and only in the following cases:

A construction period (contrato por obra) which more than a temporary restraint is subject to the conclusion of a determined job within a structure or construction site.

A temporary labor agreement (Contrato por tiempo determinado) which starts and ends at previously stipulated dates, and may only be applied if:

1) the nature of the job to be performed requires such a determination

2) if the agreement is for the sole purpose of temporarily substituting an employee.

Other than the abovementioned contracts there are no further covenants set forth by Labor Law. As things go in the workplace, being successful in employment relationships relies on 3 simple and inalienable truths that begin with hiring: A) Engaging correctly and transparently which is setting the foundation and core of a stable and mutual beneficial relationship. B) Honoring agreements whilst creating a healthy and respectful workplace, and C) Terminating relationships fairly in respects with the law and with the dignity that any employee deserves.