USMCA Generates Unionization Challenges for Mexican Companies

The USMCA introduced the Rapid Response Labor Mechanism that aims to solve dispute settlements regarding free association employees, independent unions and collective bargaining. This mechanism has already been activated for the fifth time for companies in Mexico. This raises an important question: Are Mexican companies struggling to adapt to the new labor obligations that the USMCA created? Experts point out that many companies are simply unaware of what they need to do, whereas others have already made significant steps to improve their policies.

Evolution of the Federal Labor Law, from NAFTA to USMCA

In Mexico, the Federal Labor Law (LFT) was first signed in 1970. In 2019, the LFT was reformed with the modification of more than 550 articles, as Congress aimed to create a major transition from the almost 50-year-old legislation and open union competition.

“Private companies know that the 2019 Labor Reform pressures them to keep investing in training union representatives about the reform's changes,” said Pedro David Martínez, Labor Relations and HR Manager, Cemex. This reform was greatly influenced by the North American Free Trade Agreement (NAFTA, as it complies with its main demands. 

In 2020, the renegotiation of NAFTA created the USMCA and since then, Mexico has seen trade grow. Nevertheless, issues between Mexico and two of the most important economies around the world the US and Canada, have become both prominent and commonplace.

Companies Confront the Rapid Response Labor Mechanism 

Pedro Martínez said that only about 0.33 percent of the companies in Mexico can be tied to the mechanism, as the great majority of companies in the country do not have dedicated unions. He highlighted that many of these businesses fail to comply with the requirements. “Regarding company intervention, vague bargaining agreements, dismissals of union activity and lacking company support for the incumbent union trigger the activation mechanism."

Companies must prioritize alliances, knowledge and communication. When the objectives of unions, companies and workers stand aligned, the mechanism will likely remain redundant. Martínez emphasized that continuous communication between workers, the company and its union, as well as full compliance in the payment of benefits, are critical. Following these tenets would solve at least 80 percent of the potential problems between the parties. 

Businesses that do see the Rapid Response Labor Mechanism getting activated have 45 days to formulate a solution with the local government and later with the labor committee of the USMCA. However, if one of these steps fails to meet compliance, or if no agreement is reached, significant penalties, fees and tariffs will be levied on the company and the country.  

Companies that already had active unions will have it easier, according to Martínez. Nevertheless, companies must ask themselves what they need to do to address these processes and achieve freedom of association. “The answer sounds simple but the wider picture is complicated and the solution takes time,” he said. 

Many Mexican companies are still unfamiliar with the USMCA’s new labor obligations. However, some are already transforming their culture and business model as they seek to comply with these commitments. “There is an important group of companies that have made efforts to transform their labor processes and respect freedom of association and collective bargaining, despite the adverse results from unions that have been in place for years,” said Martínez.