Navigating employment termination in Mexico requires a thorough understanding of the Federal Labor Law (Ley Federal del Trabajo). Unlike some jurisdictions, Mexican law provides significant protections for employees, and strict adherence to specific procedures and entitlements is mandatory for employers. Failure to comply can result in costly legal disputes and penalties.
Properly managing the termination process is crucial for businesses operating in Mexico. This involves correctly identifying valid grounds for dismissal, calculating and paying the appropriate severance and final settlement amounts, and following the legally mandated notification procedures. Understanding these requirements helps mitigate risks and ensures a compliant separation process.
Notice Period Requirements
In Mexico, the concept of a formal notice period where an employee continues to work after being informed of termination is not the standard practice, particularly in cases of termination with just cause. Instead, the law requires the employer to provide a written notice of termination (aviso de rescisión) to the employee at the moment of termination or within five working days thereafter. This notice must clearly state the specific cause(s) for termination and the factual circumstances supporting it.
If the employer fails to deliver this written notice directly to the employee, they must file it with the relevant Labor Board or Labor Courts within the same five-day period, providing the employee's last known address. The purpose of this notice is to inform the employee of the reasons for their dismissal, not to provide a period for them to work before the employment ends.
There are specific situations where a form of notice period might be relevant, such as in collective dismissals or for certain types of temporary contracts, but for individual terminations based on just cause, the focus is on the immediate written notice of the reasons.
Severance Pay Calculations and Entitlements
Mexican law distinguishes between termination with just cause (justified dismissal) and termination without just cause (unjustified dismissal). The type of termination dictates the employee's entitlement to severance pay, known as "indemnización constitucional."
If an employee is terminated without just cause, or if an employee resigns with just cause attributable to the employer, the employee is entitled to the full constitutional severance package. This package includes:
- Three months of integrated salary.
- Twenty days of integrated salary for each year of service (or fraction thereof).
- A seniority premium equivalent to 12 days of salary (capped at twice the minimum wage) for each year of service, payable after 15 years of service.
Integrated salary includes not only the base wage but also proportional parts of benefits like the Christmas bonus (Aguinaldo), vacation premium, and potentially other regular payments.
If an employee is terminated with just cause as defined by the Federal Labor Law, they are generally not entitled to the three months' salary or the 20 days' salary per year components of the constitutional severance. However, they are still entitled to their finiquito, which includes payment for accrued but unpaid wages, proportional Christmas bonus, proportional vacation and vacation premium, and potentially profit sharing (PTU). The seniority premium (12 days per year after 15 years) is also typically payable upon any termination, including justified dismissal, provided the employee meets the seniority requirement.
Here is a summary of common payments upon termination:
| Payment Type | Applies To | Calculation Basis | Notes |
|---|---|---|---|
| Constitutional Severance | Due for unjustified dismissal or justified resignation by employee. | ||
| 3 Months' Salary | Unjustified dismissal / Justified resignation by employee | 3 x Integrated Monthly Salary | |
| 20 Days' Salary per Year | Unjustified dismissal / Justified resignation by employee | 20 x Integrated Daily Salary x Years of Service | |
| Seniority Premium | All terminations (after 15 years of service) | 12 x Daily Salary (capped at 2x minimum wage) x Years of Service | Payable after 15 years of service, regardless of termination reason. |
| Finiquito | All terminations (including justified dismissal or voluntary resignation) | Payment of accrued benefits. | |
| Accrued Wages | All terminations | Wages earned but not yet paid up to the termination date. | |
| Proportional Christmas Bonus | All terminations | Proportional part of annual bonus based on time worked in the year. | Minimum 15 days' salary per year. |
| Proportional Vacation | All terminations | Proportional part of annual vacation entitlement based on time worked in the year. | Minimum days increase with seniority. |
| Proportional Vacation Premium | All terminations | 25% premium on proportional vacation pay. | |
| Profit Sharing (PTU) | All terminations (if applicable) | Proportional share of company profits for the previous year, if distributed. | Paid during the annual distribution period (May/June). |
Grounds for Termination With and Without Cause
The Federal Labor Law explicitly lists the grounds for termination with just cause (rescisión de la relación de trabajo sin responsabilidad para el patrón) in Article 47. These grounds are based on serious misconduct or failures by the employee that make the continuation of the employment relationship untenable. Examples include:
- Dishonesty, acts of violence, threats, or mistreatment against the employer, colleagues, or customers.
- Damage to company property caused intentionally or through gross negligence.
- Insubordination or refusal to follow instructions related to the job.
- More than three unexcused absences within a 30-day period.
- Revealing manufacturing secrets or confidential information.
- Committing immoral acts at the workplace.
- Reporting to work under the influence of alcohol or non-prescription drugs.
- Lack of required documentation or certifications that invalidate the contract.
Termination without just cause (despido injustificado) occurs when an employer terminates the employment relationship for reasons not listed in Article 47, or when the employer alleges just cause but fails to prove it before the Labor Board or Labor Courts. Unjustified dismissal triggers the employer's obligation to pay the full constitutional severance package.
Procedural Requirements for Lawful Termination
Strict adherence to procedural requirements is paramount for a lawful termination with just cause. Failure to follow the correct procedure, even if a valid cause exists, can render the dismissal unjustified. The key procedural step is the delivery of the written notice of termination (aviso de rescisión).
| Step | Requirement | Timing | Pitfalls |
|---|---|---|---|
| Identify Just Cause | Ensure the reason for termination is one of the specific grounds listed in Article 47 of the Federal Labor Law. | Before initiating termination. | Terminating for reasons not explicitly listed or not sufficiently serious. |
| Gather Evidence | Collect documentation, witness statements, or other proof supporting the alleged just cause. | Before preparing the notice. | Insufficient or weak evidence to support the stated cause. |
| Prepare Written Notice | Draft the "aviso de rescisión" detailing the specific cause(s) and the factual circumstances (dates, times, actions). | Before or at the moment of termination. | Vague or generic descriptions of the cause; failing to mention specific facts. |
| Deliver Notice to Employee | Personally deliver the written notice to the employee. Ideally, have them sign an acknowledgment of receipt. | At the moment the employment relationship is terminated. | Failing to deliver the notice; employee refuses to sign acknowledgment. |
| File Notice with Labor Authority | If personal delivery is not possible or the employee refuses to receive/sign, file the notice with the relevant Labor Board or Labor Courts. | Within 5 working days following the termination date. | Missing the 5-day deadline; filing with the wrong authority; incomplete filing. |
| Pay Final Settlement (Finiquito) | Calculate and pay all accrued benefits (wages, vacation, bonus, etc.) regardless of the termination reason. | Typically paid at the time of termination or shortly thereafter. | Incorrect calculation of accrued benefits; delaying payment. |
| Pay Severance (if applicable) | If the termination is without just cause, calculate and pay the full constitutional severance package. | Typically paid at the time of termination or shortly thereafter, often formalized in a settlement agreement. | Incorrect calculation of severance components; failing to pay when required. |
A common pitfall is failing to deliver the written notice correctly or within the strict timeframe. This procedural error alone can invalidate an otherwise justified dismissal, leading to it being deemed unjustified.
Employee Protections Against Wrongful Dismissal
Mexican law provides robust protections against wrongful dismissal (despido injustificado). If an employee believes they have been terminated without just cause or without the correct procedure being followed, they have the right to challenge the dismissal before the Labor Board or Labor Courts.
In such a legal challenge, the burden of proof is on the employer to demonstrate that the termination was for a just cause and that the correct legal procedure, including the timely delivery or filing of the written notice, was strictly followed.
If the employer fails to prove just cause or procedural compliance, the dismissal will be declared unjustified. In this case, the employee has two primary options:
- Reinstatement: The employee can demand to be reinstated to their position under the same terms and conditions, with payment of back wages (salarios caídos) from the date of dismissal up to the date of reinstatement, capped at 12 months, plus interest.
- Severance Pay: The employee can opt to receive the full constitutional severance package (3 months' salary + 20 days' salary per year + seniority premium), in addition to their accrued benefits (finiquito) and potentially back wages (capped).
Most cases of unjustified dismissal are resolved through a settlement agreement reached during a mandatory conciliation phase before litigation. This settlement typically involves the employer paying the employee an amount equivalent to or negotiated based on the constitutional severance package and accrued benefits, in exchange for the employee waiving their right to reinstatement and further legal action.
Understanding these protections is vital, as any misstep in the termination process can lead to significant financial liability for the employer.
