EOR and PEO — 13 min
When things don’t work out, how do you terminate an employee in Mexico?
In our guide on hiring employees in Mexico, we briefly covered employee terminations and severance pay in Mexico. Here, we will take a closer look at requirements for termination, types of contracts, and differences in severance packages.
Although Mexican labor laws generally favor workers, you do not have to give advance notice to terminate an employee in Mexico. For employees on indefinite contracts, you do have to provide a severance package, though. These packages can be substantial depending on the nature of the termination.
To terminate an employee on a definite or time-limited contract before the original term of the contract ends, you only need to consult the terms of the agreement. These contracts should have specific clauses that outline what to do in the event of an early termination. A decision by Mexico’s Supreme Court outlawed the practice of companies putting employees on multiple definite employment contracts to avoid paying benefits.
If the employee works for a union, your collective bargaining agreement may outline additional restrictions on terminations. Unions in Mexico have the power to act in an employee’s interest even without the cooperation of the employee. Never attempt to operate outside the scope of a collective bargaining agreement, even if the employee harbors no ill will about the termination.
No. You do not need to point to a specific reason or event to fire an employee in Mexico, provided the employer and employee agree to part ways via mutual agreement. However, employers must tread carefully to avoid paying hefty fines or getting drawn into costly legal battles.
Employees in Mexico who dispute their termination have a right to a fast and transparent hearing. If you choose to fire an employee with cause, make sure you have plenty of documentation to back up that decision. The difference between firing with cause and firing without cause greatly affects severance packages. Poor performance is not an acceptable reason for dismissal in Mexico.
In most cases, termination with cause only occurs for employees who violate workplace policies, become incapacitated, or commit a crime. Companies closing down their operations may also terminate employees with cause. If you choose to fire an employee and claim to have cause, come prepared with consistently documented evidence the employee violated workplace rules.
Technically, Mexico does allow employers to use 30-day probationary periods to evaluate employees before bringing them on as full-time workers. Companies should not treat probationary periods as guaranteed legal immunity, however. The implementation of laws regarding probationary periods in Mexico remains uncertain. If you terminate an employment contract within the first 30 days, be prepared to provide documentation to help you case.
Any employee in Mexico who works for a company for a period lasting longer than one month is considered to be an indefinite employee in the eyes of the law, even without a formalized contract. Indefinite employees are entitled to benefits during employment and severance pay upon termination.
Benefits for Mexican employees typically end at the time of their termination unless otherwise stated by an employment contract or severance agreement. Because the Mexican government provides healthcare to its citizens, employees do not lose all health coverage after being fired. Public coverage tends to be much poorer than private coverage, however, which is why employers often offer private health insurance to attract top talent in Mexico.
All employees below director level in Mexico are entitled to a share in the company’s profits, capped at 10% for all employees, and a Christmas bonus of at least 15 days’ salary. Employees who have worked long enough to be eligible for benefits receive a portion of benefits such as profit sharing and their Christmas bonus paid out proportionately at the time of dismissal.
All employees on indefinite contracts (which covers most full-time employees in Mexico) are entitled to severance pay when they leave. This includes employees who quit on their own, employees who are fired without cause, and employees who are fired with cause.
Severance packages in Mexico differ depending on whether an employee quits, is fired with cause, or is fired without cause.
Employees who voluntarily leave their positions receive severance packages including:
Employees fired with cause typically receive larger severance packages than employees who quit on their own. For this reason, companies terminating employees with cause must be prepared to defend that cause to the Mexican government. These packages include:
Employees fired without cause receive substantial severance pay in Mexico. These packages are typically offered to employees who leave via mutual agreement and include:
Parting ways with an employee is never easy, especially under international laws. Remote makes it easy for businesses of all sizes to employ and manage workers in countries all over the world. Whether you’re ready to hire your first employee in Mexico or need assistance managing payroll, benefits, taxes, and compliance for your entire Mexico team, Remote’s employer of record solutions can help.
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