Potential major overhaul of Mexican employment structures

Potential major overhaul of Mexican employment structures

November 18, 2020 | By Hernán González Estrada and Dante Trevedan in Mexico City

Mexican President Andres Manuel López Obrador sent the country’s House of Representatives a proposed set of amendments that, if approved, would require changes in corporate employment structures widely used by Mexican companies.

The amendments would make a major overhaul of the employment subcontracting regulations in Mexico.

The amendments would also make substantial changes in six Mexican statutes: the Federal Labor Law, the Social Security Law, the National Workers Housing Fund Institute Law, the Federal Tax Code, the Income Tax Law and the Value Added Tax Law.

The government said the main goal of the amendments is to counter tax evasion and what the President has called “abusive structures implemented to the detriment of employees.”

The amendments would prohibit employment subcontracting.  Employment subcontracting is where a company outsources its workforce to independent contractors.

However, the amendments would allow a company to outsource certain activities that are outside the scope of its corporate purpose to specialized services providers.  Specialized services providers would have to be registered -- and periodically renew their registrations – with the Ministry of Labor.

Transactions involving specialized services structures would have to deal with extensive new regulatory, tax and reporting obligations.  An example of a specialized service structure is where a Mexican electricity generator outsources specialized tasks, like hiring a security company to guard a solar power plant.

The government said, when introducing the amendments, that companies that have been using outlawed structures face potential criminal charges, but only if the structures were illegal under the government regulations in effect at the time.   

Employment subcontracting has been widely used by Mexican companies.  It is not unusual for a Mexican electricity generator, for example, to subcontract certain specific services such as operation and maintenance to specialized services providers.  The issue going forward is whether such tasks are considered outside the electricity generator’s corporate purpose.  If not, then they cannot be outsourced.

The amendments must be approved by the Mexican Congress.  This is the third time that a bill of similar scope has been submitted to Congress.  While is hard to tell whether this bill will be approved because the governing party does not control either house of Congress and will need broader support for the proposals, this time the bill was submitted by the President and the expectation is that the government will make a major effort to have it approved 

The amendments are the latest in a series of rewrites of the labor and employment regulations in Mexico under the López Obrador administration that have included revisions in the laws governing labor justice, employment protection, right to unionize and union transparency and the adoption of ILO C098. More information about earlier actions can be found at these links: