Mexico

    1.1 In what circumstances does the employee transfer law apply?

    An automatic transfer of employees occurs by operation of law whenever there is an asset transfer. Effectively, the employees follow the assets. All of the employees will transfer if the entire business is transferred, or a portion will transfer if only part is transferred.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    1.2 Does the employee transfer law apply to (a) a sale of a business or (b) outsourcing?

    (a) Sale of a business

    If a sale involves the transfer of assets, the transferee becomes the substitute employer. This implies that the transferee must honour the existing terms and conditions of employment agreed between the transferor and the employees.

    (b) Outsourcing

    There is no automatic transfer of employees following the outsourcing of services, but if any of the following occurs, the employees providing the outsourced services could be considered as direct employees of the beneficiary of the services:

    • if the entire activities of a company are outsourced;
    • if the outsourced activities are similar to activities already being performed by the company’s own employees;
    • if the reason for the outsourcing is not justified by the nature of the activities (given that companies cannot outsource core business activities).

    The intention of the law is to avoid the subcontracting, supply or outsourcing of personnel, as only specialised services can lawfully be outsourced, not personnel.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    1.3 In outline, what are the implications of the employee transfer law?

    Where there is an automatic transfer of employees by means of a substitution of the employer, the new employer must honour the existing terms of employment as agreed between the transferor and the employees, including full acknowledgement of length of service.

    The transferee must give written notice to the affected employees and the trade union (if any). The transferee must also confirm that their existing terms and conditions will be fully honoured. The notice is not a request for consent or approval. The employees and trade union have no say in whether the transfer takes place, as long as the existing terms and conditions and any acquired rights are respected. The notice can be given on the date set of the transfer, in which case its effects would be immediate.

    There is a six-month joint liability period between the transferor and transferee. Once this has elapsed, the transferee will be solely liable for all matters.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    2.1 Who transfers?

    Upon transfer of the whole of a business, all employees and related liability automatically transfers. If only part of the business is transferred, only those employees who are considered to be attached to transferring assets will transfer as a matter of law. Effectively, the employees follow the assets.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    2.2 Can employees object to transferring?

    Employees may not refuse to transfer provided all terms and conditions of employment, including full acknowledgement of length of service are honoured. If they are, but an employee refuses to be transferred, this would be deemed as a resignation If they are not, it may be considered to be constructive dismissal.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    2.3 What happens to terms of employment contracts?

    The terms and conditions set out in employment contracts must remain unchanged after transfer. The transferee may grant improved benefits, but never lesser ones.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    2.4 What about other employee benefits?

    All existing terms and conditions of employment, including contractual and acquired benefits must be fully honoured, as originally agreed with the transferor. If any given benefit is hard to transfer, such as a pension scheme, the new employer must provide a scheme that is equivalent to that provided by the transferor and no favourable to employees.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    2.5 What happens to pension rights?

    As a matter of law, all employees must be enrolled in the Mexican social security system. One of the benefits of this is a state pension. Employers must enrol their employees and pay their share. This covers not only the pension plan, but also medical insurance for enrolled employees and their dependants. Transferred employees must be enrolled as employees of the transferee.

    Even though there is no legal obligation to offer an additional private pension, if the transferor did provide one, this should be fully honoured by the transferee. Special attention should be given to due diligence by the transferee as, in some cases, pensions schemes are either partially or wholly unfunded – and the transferee becomes solely liable for all obligations from six months following the transfer.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

     

    2.6 What liabilities transfer?

    All labour and employment-related liabilities transfer. However, the transferor continues to be jointly liable with the transferee for six months for all labour, employment and social security obligations. Once the six-month period has passed, the transferee will assume sole responsibility for all labour and social security obligations, even if they occurred prior to the transfer.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    2.7 Do collective agreements transfer?

    Collective agreements must be transferred and honoured in the same way as other terms and conditions. Existing collective agreements that apply to the transferred employees should be honoured and cannot be changed after the transfer, as this could give rise claims for constructive dismissal.

    Note that the trade union must be advised in writing of the change of employer, the employees’ salaries, benefits and length of service, and that all other conditions of employment will be fully honoured.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    2.8 How does the transferee obtain information on transferring employees?

    The law does not specify what information the transferor should give to the transferee. Note that all employers are required by law to issue a privacy notice to their employees, explaining how their data will be treated. The transferee should agree to treat all information confidentially and only for the purposes of the transaction.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    3.1 Can employers make changes to employment contracts?

    The transferee must honour the conditions of employment, plus any acquired rights enjoyed by the transferring employees. Any change that is detrimental to employees may give rise to a claim for constructive dismissal. Therefore, any changes contemplated by employers should be favourable to the employees. Provided this is the case, changes can be made to harmonise with existing employees at the transferee.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    3.2 When can employers safely dismiss employees before or after a transfer?

    An employee in Mexico may be dismissed at any time, even without just cause, by paying the full severance package. Employees may be dismissed before the transfer and the cost would be borne the transferor. If employees are dismissed after the transfer, the cost will be borne by the transferee.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    4.1 Who must employers consult?

    There is no obligation to consult, which means that negotiations between the transferor and transferee can be undertaken freely. A letter of intent, or even an agreement, can be executed without any prior consultation with employees. However, it is advisable to let the trade union know of the transaction and to be able assure the union that the employees will be treated fairly.

    Employers must notify the Mexican Institute of Social Security about the change of employer within five days of the transfer.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    4.2	What information must they provide?

    There is no obligation to provide information.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    4.3	What does consultation involve?

    There is no obligation to consult.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    4.4	How long does consultation last?

    There is no obligation to consult.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    4.5	What happens if an employer fails properly to inform or consult?

    There is no obligation to consult. Note however, that notice does need to be given and without it, the transfer could be considered to have no effect. Notice would then need to be served to make it effective.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    5.1	Identify up to three issues in this country of which employers should be aware?

    In an asset-only deal, an automatic transfer of employees takes place when the employer gives notice. Note that the notice is not a request for consent or approval.

    We recommend the transferee should undertake a thorough due diligence, as all liabilities will transfer to it, along with the employees. Underfunded pension plans and special arrangements such as compensation for dismissal as a result of the transfer, retention agreements and stock-options, can all cause trouble for the transferee later on.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    5.2	Would the employee transfer law apply on a cross-border transfer into or out of this country?

    The automatic transfer of employees applies as a matter of law even if there is a transfer out of Mexico. However, in some cases, the transferee may not wish to retain the employees, in which case, full statutory severance must be paid to them instead, for not transferring.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

    6.1	What are the main national laws protecting employees upon transfers of businesses?

    The main laws regulating the transfer of employees are the Federal Labour Law and the Social Security Law.

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    Author: Basham, Ringe y Correa S.C.

    Date: March 2017

     

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