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Amendments Made To Labour Law

The Mexican Federal Labour Law (FLL) was amended on 30 November 2012 by virtue of the "Decree by which certain provisions of the Federal Labor Law are amended, added and repealed" (the Decree).

These provisions entered into force on 1 December 2012. Taxand Mexico investigates how the FLL will affect multinational corporations.

Certain provisions which were added to the FLL may affect current corporate structures of multinational groups with operations in Mexico. Specificly the FLL will affect companies which use what is commonly referred to as a "service company" to provide services to the rest of their company group, in exchange for an arm's length consideration. These provisions may also have an impact on employees profit sharing.

If a company operates under a structure which could be considered as a "subcontracting regime", under the FLL, the labour authorities could consider a subsidiary of the group as the employer for labour purposes. For instance this could be the operating company or another profit generating entity which is the recipient of such services.

Such consideration may have an impact for employees profit sharing purposes. This is because, rather than considering the profits of the service company, the profits of the subsidiary could be taken into account to determine the referred benefit for the employees.

These amendments to the FLL will likely affect the majority of the corporate structures in Mexico that use a service company.

Your Taxand contacts for further queries are:
Manuel Tamez
T. 52 (55) 5201 74 03

Luis A. Monroy
T. 52 (55) 5201 74 66

Raymundo I. Dom?nguez
T. 52 (55) 5201 74 16

Taxand's Take

Although it remains to be seen how the labour boards and courts will understand the new subcontracting legal regime and apply the existent judicial precedents to these structures, it is likely that they will be targeted by the upcoming claims alleging the breach of these new rules. Companies should review their current structure in order to assess compliance with the discussed new obligations and, in its case, begin remediatory actions prior to any possible claim.

Taxand's Take Author

Manuel Tamez