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Severance pay for workers in Mexico

Daniel G. Little

In Canada and the United States, it is fairly straightforward to downsize our employee base during a downturn in the economy. We have both short term layoffs and terminations to help us to right size, and the employees have unemployment insurance to cushion the change.

In Mexico, however, things are very different.

In Mexico, the law protects the worker

During a short term layoff, you - the employer - are required to pay full wages and benefits. This means that there would be no benefit in reducing the work force to allow for variance in customer demand. When the market is fairly stable and you are only dealing with the normal swings in demand, this should be managed by staffing to the lowest expected production level and using overtime to manage the peaks.

But in an economic downturn, the swings are not predictable and there are times when the strategies above will not work. A termination in Mexico requires an automatic three-month severance pay package as well as additional amounts based on seniority. If an employee works for you for one week, he would get three month's severance pay on termination. If permanent reductions are required, then the severance rules are clear.

The severance for salaried staff can sometimes be negotiated at the time of termination to as much as 50%. Some companies do this as a normal course of action, and others pay the full severance in every case. Keep in mind that it is almost impossible to terminate for cause in Mexico.

But what about a temporary reduction?

In the past, I have been successful in negotiating with the union to have a one or two week layoff during which no wages are paid but the job benefits continue. This is exceptional and I have only been able to do this when the entire plant has been shut down for a week or two.

Most companies can get the union to accept short term layoffs on an on-going basis with 50-60% of the normal wage and full benefits being paid.

The above observations are based on my personal experiences in Mexico but you should consult with your company's labour lawyer before taking any action.

Published or Updated on: May 14, 2009 by Daniel G. Little © 2009
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