César Millard Cárdenas
Maillard Abogados Laborales
View from the Top

Outdated Labor Law Should Reflect Private Sector Needs

Wed, 05/08/2019 - 12:55

Q: What are the main obstacles that companies face when trying to do business in Mexico and how can Maillard Abogados Laborales make this process easier for its clients? A: Companies face many fiscal obstacles. Instead of offering incentives, the government puts up entry barriers and special taxes that apply to starting and developing a business. These obstacles also relate to workforce management, despite the country’s cheap labor. The issue of profit sharing is a particular example. Mexico is the only country in the world with this scheme, which usually puts off investors that do not understand why they are required to share their profits with employees that are not stakeholders. The country is well-positioned against other business hubs, considering costs represent approximately 56 percent of the company’s revenue. The problem is that, unlike what happens in leading economies, companies tend to not see their tax contributions reflected in social security. 

Q: What challenges do you see regarding labor law in Mexico?

A: Mexico’s labor law was created in 1931 and even though it was reformed in 1970, 1980 and 2012, regulations remain practically unchanged and are now outdated. During the Peña Nieto administration it seemed there would be a positive change that would favor the private initiative but under López Obrador’s government the situation seems to be reversed. Furthermore, companies have become even more restless after the signing of Agreement C098 of the International Labor Organization. Free unionization has always existed in Mexico but now it is backed up by an international agreement. The only thing left to see is how regulation will be translated into Mexican law. 
The law is divided into public, private and social regulations. Labor is part of the social branch, mainly because workers sustain their families, which are the foundation of society. As a result, the law has always given more power to the employee rather than the employer, even though it should be considered a civil or private relationship. In Mexico, there is even an Employment Stability Theory that basically states that once someone is hired, this person and the company are together until death do them part. This is why companies cannot simply fire someone unless they are compensated according to all that is stated under articles 48 and 50 of the Federal Labor Law. 

Q: What is your view of the Labor Ministry and how will Maillard Abogados Laborales participate in shaping a new labor environment?

A: Labor Minister Luisa Alcalde has faith in her proposals and expects good implementation of those policies. Unions are a priority at the moment, supported by Mexico’s involvement in many international agreements, but we also see the possibility of workers not being forced to join a union as something positive. If workers are happy and do not wish to join a union, then these associations cannot be used as an extorsion tool against companies. That will make them focus on their true purpose of watching over the well-being of the country’s workforce. We are already participating in the drafting of a new reform but we would like the government to take more notice of the private sector in its proposals. Corporations are villainized in Mexico and even in the SME sector, it takes more resources to pay for taxes to establish a new company than what is needed for the company to ramp up its operations. 

Q: How can the country better address increments in the minimum wage and factor in the productivity component?

A: The minimum wage has nothing to do with productivity. Individual salaries should be linked to each person’s performance but not the minimum established as the national average. Mexico’s Constitution establishes that the National Commission of Minimum Wages is the only entity capable of determining minimum wage increments based on inflation rates. The new government’s proposal of increasing the current minimum wage without taking into consideration inflation will create a significant economic unbalance. The best way to move forward is to maintain things as they are, with increments managed by a commission of labor representatives, company leaders and the government.