One of the best practices you can have regarding labor laws in Mexico as a company is to sign a well-drafted contract with your employees. The company is responsible for having a written labor contract that complies with all the formalities stated in the law. So let us look at these formalities, stated in Article 25 of Mexico’s Federal Labor Law.
Formal requirements for labor contracts in Mexico.
Particulars about the company and the employee, i.e., name, address, nationality, RFC, etc.
- Type of labor relationship.
- Services to be rendered.
- Work day length.
- The place where the services will be rendered.
- Salary amount.
- Payment day & place.
- Skills training.
- Others (vacations, Christmas bonus, etc.)
According to Mexico’s labor laws, every contract must include all these points to be considered valid. The second point, the labor relationship type, determines the contractual agreement to be drafted and signed. Let us see the different options companies have.
Temporary (Definite Period) Contract
This type of contract is signed by an employee for a specific time. Even though it sounds like a great option for the company, it is not as easy as just signing these types of contracts over and over with your employees. There are three situations where these contracts can be used.
- When the nature of the job is seasonal or temporary, e.g., a peak of demand at Christmas.
- When an employee will be substituted for another employee unfit to work (maternity leave, temporary disability, etc.).
- Cases like mining where the work is finished after the mine has been depleted.
Indefinite Period Contract.
This contract establishes a working relationship without a defined finish Labor laws in Mexico aim toward all labor contracts being of this type. For a labor relationship to be considered indefinite, it needs to be for longer than 180 days. However, since it would be too risky to hire someone indefinitely as soon as you meet them, the Federal labor law allows companies to establish a trial period for their employees, which would be another type of contract. This type of labor relationship also allows companies to set up a training period for the employees, which also would be another type of contract. Since it is an indefinite contract, the only ways to terminate the labor relationship are:
- Voluntary resignation of the employee.
- Justified termination by the company.
- Wrongful or unjustified termination by the company.
If a company terminates an indefinite period contract relationship without a reasonable cause, it must pay a severance equal to three months. This is a large liability for labor-intensive companies like Mexican maquiladoras (companies registered in the IMMEX program) and software development companies, because of the high wages.
Trial Period Contract
The idea behind this type of contract is for the company to be able to evaluate the employee before hiring him indefinitely. Regardless of it being a trial period, the company must grant the employee all the mandatory benefits like social security. If, at the end of this period, the company decides not to continue the labor relationship with the employee, it can terminate it without any responsibility. Which essentially means not paying the severance. The duration of this type of contract is as follows.
- Up to 30 days in most cases
- Up to 180 days in the case of directors, managers, and specialized professionals
Initial Training Contract
When an employee needs to learn a certain set of skills before being able to render the services needed, Mexico’s labor laws allow for a training period before signing an indefinite contract with your employees. This contract works well in cases where the employee has industry experience but lacks skills in the position he is applying for. Like with the trial period, at the end of the training period, the company can decide if it wants to continue the relationship with the employee and sign an indefinite contract or terminate the relationship there without any liability. The duration of this type of contract is as follows.
- Up to 90 days in most cases.
- Up to 180 days in the case of directors, managers, and specialized professionals.