Labor Agreements In Mexico: Five Types

Labor Relationship In Mexico

Let’s start by defining a labor relationship in the eyes of the Mexican Federal Labor Law.

Article 20 of the LFT discusses what an employment relationship is. Here’s the essential part:

[…] whatever the act that gives rise to it, the rendering of subordinate personal work to a person, through the payment of a salary.

Let’s analyze what this article is saying. Three things must exist for a relationship to be deemed as employment:

1.  One person must render the services provided, and another may not represent this person.
2. There must be subordination in the relationship. This means one person commands, and the other one obeys.
3. In exchange for the services this person renders, he/she gets a salary.

According to the Mexican courts’ criterion, the most important element is subordination. This means that the employee must obey the employer’s orders. Although this may seem obvious, it distinguishes a contractor from an employee.

A very recurrent question our clients ask is if they can hire contractors through their Mexican company. And the answer is yes, of course, you can hire contractors. However, as soon as we begin to inquire about the nature of the relationship, 99% of the time, they talk about a subordinated relationship, which means they automatically become employees.

Labor Agreements In Mexico

Article 20 also briefly discusses what an employment contract is in Mexico. Here is what it says about that.

An individual employment contract, regardless of its form or denomination, is a contract by virtue of which a person undertakes to provide subordinate personal work to another person, in exchange for the payment of a salary.

The provision of work referred to in the first paragraph [about the labor relationship] and the contract concluded have the same effects.

Here are some key points:

• Mexican labor agreements don’t have a strict form. Although they must include some important information, which we will look in a moment, they are flexible.
• It doesn’t matter how you call it. If it says “freelancing contract,” but it describes a labor relationship, it is a labor contract.
• A verbal agreement can be a labor contract. This is why the employer should seek to sign a written agreement. The employer always has the burden of proof, so good luck proving in court that your employee verbally agreed to something.
• The labor contract is presumed (according to Article 21 of the LFT). This means that if the relationship exists and there’s no written contract, it is automatically assumed that it was a verbal agreement.

Signing A Labor Agreement In Mexico

Mexico’s legal system is a little behind in digital signing. Although workers have an e-signature (as part of their RFC), the reality is up to 2024, that it is best to sign labor agreements in Mexico with a wet signature. This means the legal representative and the employee use pen and paper to sign it with their own handwriting. The reason is that this could prove twice as hard to demonstrate in the case of a lawsuit. Another reason is that, in case of a labor inspection, the inspectors will request to see a signed document. If you show them something signed in DocuSign, you will have a problem.

General Requirements Of Labor Agreements In Mexico

Article 25 of the LFT tells us the general information a Mexican labor agreement must have. Let us take a look at each of its fractions.

Fraction I tells us the personal information we must include in the labor agreement. Here’s the list:

1. Name
2. Nationality
3. Age
4. Gender
5. Marital status
6. Unique Population Registry Code (CURP)
7. Federal Taxpayers Registry (RFC)
8. Address of the worker and the employer

Gathering this information for an employment contract in Mexico is essential. Most of these things don’t change, except for the worker’s address. Therefore, updating your employees’ addresses throughout the labor relationship is important. This will be particularly important if you decide to terminate the employment contract.

Fraction II . Whether the employment relationship is for a specific work or time, seasonal, initial training or indefinite period and, if applicable, whether it is subject to a probationary period;

This part explains the different labor modalities. A different type of labor contract applies depending on the type of work. We will examine each in a moment.

Fraction III . The service or services to be rendered, which shall be determined as precisely as possible;

It is important to detail the scope of your employee’s services in a Mexican labor contract. If you wish to avoid paying severance in Mexico, one reason for the rescission of the labor contract, which means the employer has no liability, is if the employee disobeys an order of the employer. However, if that order requires doing something not included in the scope of the employee’s job, it would not work.

Fraction IV. The place or places where the work is to be performed;

The labor contract must include where the employee will render his/her services. It is also important to add that this location could change.

Fraction V. The length of the workday.

Workdays and work weeks in Mexico vary depending on the type of shift. The following are the maximum workday lengths according to shift. Anything above that is overtime and must be paid accordingly.

• Day Shift: Between 6:00 am and 8:00 pm. Maximum of eight hours per day and 48 hours per week.
• Night Shift: Between 8:00 pm and 6 am. Maximum of 7 hours per day and 42 hours per week.
• Mixed Shift: This can include up to three and a half hours of the night shift. Maximum of seven and a half hours per day and 42 hours per week

It is also essential to include whether the workday will be continuous or discontinuous and the relevant breaks the employee will have. A continuous shift means he has a break of half an hour, and a discontinuous shift means he has at least one hour of break during the shift.

Also, the LFT proposes that Sunday be the resting day, but it’s possible to agree with the employee on a different day if you pay a premium of 25% for that day. If the rest of the day is on a different day, it is a good idea to specify this in the employment contract.

Fraction VI.         The form and amount of the salary;

Fraction VII.         The day and place of payment of the salary;

In addition to a mandatory minimum wage in Mexico, there are other rules regarding salary. Article 88 of the LFT, for example, states that workers must be paid weekly if they are performing material work or fortnightly for other workers. Therefore, you cannot state in a Mexican labor agreement that you will pay at the end of each month. In practice, you can pay one fortnight in advance; this way, you pay once per month, which gives you less administrative burden. However, you would always be paying one fortnight in advance.

You must also state the form—cash, check, or transfer—and the amount you will pay your employee. According to Article 101 of the LFT, it is also important to state that you will deliver the printed receipts, known as CFDI (Digital Tax Receipts by Internet).

Fraction VIII. The indication that the worker will be trained in the terms of the plans and programs established or to be established in the company, in accordance with the provisions of this Law;

Legally, employers must train their employees. You should include how you will do it in your Mexican employment agreement. You don’t need to go into too much depth, but it is important that you state it.

Fraction IX. Other working conditions, such as rest days, vacations, and others, are agreed upon by the employee and the employer.

We advise you to read our article on employee benefits in Mexico to understand this part better. Some benefits are mandatory, but you can give your employees other benefits on top of that. You must explicitly state any agreement reached with your employee in the Mexican employment contract. For example, a common thing amongst our clients is to give their Mexican employees some of the American public holidays.

Fraction X. The designation of beneficiaries referred to in Article 501 of this law, for the payment of salaries and benefits accrued and not collected upon the death of the workers or those generated by their death or disappearance derived from a criminal act.

You may find the way that fraction is written weird, but unfortunately, disappearing in Mexico is more common than we would like. In 2023, 21,923 persons were reported missing. Besides that scary fact, accidents happen, so someone could die while having accrued salaries.  Therefore, Mexican labor law requires you to state in the contract who would receive this in case of an accident. Remember that beneficiaries must be related to the employee (spouse, sons, daughters, etc.); they cannot just be friends.

Types Of Employment Contracts In Mexico

Now that we know the elements that must be included let’s look at the different types of employment contracts in Mexico.

1. Indefinite Period
2. Determined Period
3. Fixed-Term Work
4. Seasonal Contract
5. Initial Training

Let’s take a closer look at each.

Indefinite Period Employment Contract In Mexico

Remember that the Mexican labor law has one fundamental principle of “Work Stability,” which means the government wants Mexican employment contracts to be permanent instead of temporary. That said, if it is not otherwise specified, an employment contract in Mexico is considered to be for an indefinite period. This means the employee is permanently hired unless someone terminates the relationship.

Determined Period Employment Contract In Mexico

Before you get too excited, remember the fundamental principle of work stability. Determined-period labor contracts exist in Mexico but only under specific circumstances. Article 37 of the LFT states the circumstances under which this type of contract is allowed.

Art 37, Fraction I. When required by the nature of the work to be performed;

Several court criteria state that this type of contract is deemed indefinite if they don’t expressly state why the work activities are extinguished at the end of the contract. Again, the general rule is that Mexican labor agreements are for an indefinite period of time; if you wish to hire someone temporarily, there must be a good reason for it. It’s very important that the contract states the beginning and the end of the labor relationship.

Let’s look at a couple of examples where you could hire someone for a specific time period.

• You own a circus. The circus goes to a particular town for six months, and you need to hire local help. Since the circus will only be in town for six months, it makes sense that the work activities will be extinguished after those six months.
• There will be a concert on a specific date. Six months before the concert, you must hire a recruiting agent to cast dancers. Since once the event happens, the work activities are extinguished, it makes sense to draft a temporary agreement.

As you can tell, this is a tricky one. Only in particular cases can you prove that the nature of the work calls for a determined-period employment contract in Mexico. Let’s take a look at the second fraction.

Art 37, Fraction II. When its purpose is to temporarily replace another worker;

This one is a bit easier. One of the most common cases is to substitute a pregnant mother during Maternity leave. This makes sense; you need to hire someone to do that person’s work.

Fixed-Term Employment Contract

The fixed-term work contract is similar to the determined-period contract but focuses on specific projects. The difference is that you don’t know at the beginning of the contract how long the labor relationship will last; it lasts until the project is fulfilled.

The most common industry for these types of contracts is construction. Think of a house being built. It may take one year or two, but the important thing is that the labor relationship is over once the house is fully built. There’s nothing else to do. Another case that is mentioned explicitly in the law is mining. Mines are finite. You don’t know how long it will take to deplete it initially, but there will be no more minerals to extract at some point.

Seasonal Employment Contract

First, you must know that this type of contract is not common in practice. As you will see in a moment, it’s impractical and not well-regulated, but understand that it is an option. A seasonal employment contract in Mexico is an indefinite contract with some caveats. This means employees work permanently in your company but discontinuously, i.e., seasonally. Think of retail stores at the end of the year; they have a lot more demand. These companies may hire employees under this contractual modality, asking them to work every year in November, December, and January.

It is important to note that you must pay all employee benefits, like vacations and Christmas bonuses (Aguinaldo), in a prorated way. For example, you give them proportional vacations and a Christmas bonus if they work three months a year.

Initial Training Contract

According to Article 39-B of the LFT, there is one more labor contract type in Mexico: Initial Training. An initial training employment contract can last up to three months for regular workers and up to six months for managers, directors, and specialized professional workers.  After this period, the relationship automatically turns indefinite.

Once the initial training period is over, if the employer considers that the employee didn’t demonstrate competence, he may dismiss the relationship without liability. Similar to the trial period in Mexico, when initial training is concluded, the employer should request the opinion of the Mixed Commission for Productivity & Training, if it has one.

This contract type is similar to the Mexican trial period. Here are a few rules.

• Companies cannot  extend the initial training period.
• An employee can only have one initial training period.
• After the period is concluded, the employer must either dismiss the relationship or make it indefinite.
• The employer must pay social security and all mandatory benefits.
• Initial training counts towards the employee’s antiquity.

Trial Period In Mexico

It’s hard to know if an employee is fit for the work. Therefore, Mexican labor agreements allow employers a trial period clause to assess how good the employee is. Let’s see how it works.

Trial Period Clause

Article 39-A of the LFT explains how trial periods work in Mexico. This is not a type of employment contract but a clause you include. The trial period clause applies to indefinite contracts, and temporary contracts over 180 days.  The idea behind the trial period in Mexico is that the employer gets a chance to asses if the worker has the skills and knowledge and fulfills the necessary requirements for the job. There are certain rules, though.

1. For general workers, the trial period in Mexico is 30 days
2. For workers in management positions or workers who will perform specialized technical or professional work, the trial period is up to 180 days.

It’s important to understand how the trial period in Mexico works. The employer must enroll the employees in Social Security, give them all the employee benefits, and pay them their full salary. At the end of the trial period, the employer may dismiss the relationship without liability if the employee does not fulfill the requirements. If the company has more than 50 employees, it must request the opinion of the Mixed Commission for Productivity & Training.

Dismissing An Employee After Trial Period In Mexico

It’s also important to understand how to terminate the relationship. Dismissing the worker only because you think he does not meet the requirements is not a good idea. As our regular blog readers know, in a legal dispute with an employee, the burden of proof typically falls on the company.  This means the employee’s claims are generally assumed to be true unless the company can provide evidence to the contrary. In legal jargon, we say that the company has the burden of proof. Therefore, it is a good idea to document the trial period. You can do this by drafting goals and keeping a log. I understand it may be hard, but you should try to get the employee’s signature in this log to prove he did not reach the assigned goals.

There is no formality on how to do this; you can develop your process. However, remember that you may need to prove that an employee did not meet the requirements during the trial period.

Conclusion

The law presumes Mexican labor agreements are exist. Therefore, it is in the employer’s best interest to have them in writing. Mexican lawmakers created the labor law under a fundamental principle of work stability, so it seeks to indefinite all labor relationships. A labor relationship exits when one person renders a service (to a company or individual) in a subordinate way, receiving a salary in exchange.

There are five different types of labor contracts in Mexico:

1. Indefinite Period
2. Determined Period
3. Fixed-Term Work
4. Seasonal Contract
5. Initial Training

For contracts that are longer than 180 days, employers may include a trial period clause that allows them to dismiss the relationship at the end without needing to pay severance.