Over the last five years, Mexico’s labor and employment legal landscape has undergone dramatic changes. Through various federal labor reforms, companies located in the country or looking to do business in the country are adapting their workplace policies and employer obligations to comply with such changes while remaining competitive in a tight labor market.  

As a result of many factors, including the negotiation and implementation of the trade agreement between the United States, Mexico, and Canada (USMCA), Mexico´s labor law has undergone several modifications, most notably: (i) limitations on staffing, outsourcing and subcontracting; (ii) implementation of “labor courts”, (iii) new procedures related to collective bargaining and labor relations; and (iv) establishment of norms and guidelines for employees to render services in a remote work setting. Staffing companies with operations in Mexico or looking to do business in Mexico should keep the following labor and employment reforms top of mind in 2024:

Limitations on Staffing, Outsourcing and Subcontracting

For staffing firms, undoubtedly the most significant reform involves significant prohibitions on staffing and outsourcing.  In recent years, based on concerns about purported payroll tax schemes, Mexico has moved to generally prohibit outsourcing and staffing in the traditional sense.  Exceptions exist for “specialized services” not part of a company’s core purpose and main economic activity (such as information technology, security work, and janitorial work) and “true temporary” situations where, for example, an employee is on short-term leave and needs to be replaced for a finite period of time.  However, long-term staffing and outsourcing are generally prohibited under the recent changes to Mexican law.

As a result, many businesses in Mexico have moved to directly employ many workers who were previously retained through a staffing firm or similar third party.

While there may be future legislative changes to these staffing laws (and the potential to scale back some of these limitations), for the time being, these restrictions create challenges for operations in Mexico and highlight the need for good legal counsel to navigate this landscape.

Implementation of “Labor Courts”

Mexico has also implemented significant reforms related to how employment litigation is conducted in the country.  Whereas previously claims were mainly handled through the executive branch via Conciliation and Arbitration Boards, claims are now handled through “Labor Courts.”  Thus far, these changes have resulted in more expeditious resolution of claims – with a higher emphasis on alternative dispute resolution and a clearer and more defined path for cases that proceed to litigation.  However, these changes underscore the need for companies to have systems and good documentation in place in order have an optimal defense in individual cases.

Collective Bargaining and Labor Relations

In May of 2023, Mexico also completed final implementation of significant changes to its rules governing collective bargaining and labor relations.  Under these new rules, labor unions must demonstrate that they represent at least 30 percent of the workers at a business in order to have standing to negotiate a collective bargaining agreement.  Any negotiated contract must be approved by a majority of the workers in order to be effective.

These and other changes have resulted in fewer strikes, better negotiation outcomes, and more harmonious work environments with increased transparency in union elections and contract negotiations.

Remote Work 

In response to the emergence of decentralized workplaces, it was identified the need to regulate remote work activities. Provisions that were integrated into Federal Labor Law in 2020 were updated in 2023 to provide specific guidelines for employers to ensure the safety and health conditions in the remote work setting. This includes verifying proper ergonomic and safe working conditions for remote employees, as well as implementing mandatory policies that govern such conditions for the company and its employees. 

What’s Next?

Mexico continues to be an attractive country for investment, with its skilled labor force, a strategic geographical position for nearshoring, and now, labor and employment regulations that allow staffing companies to face the challenges of the future with greater clarity about the employer-employee relationship. However, business owners need to be well aware of the changing laws to ensure compliance within their workplaces, and with more changes anticipated in 2024, savvy employers will keep their eye on the Mexican Congress and Federal Labor Laws.