Mexico: A legislative reform to ban labor subcontracting has been laid before parliament

Mexico - 19 / 11 / 2020

Mexico Labor Alert

On November 11, 2020, the Mexican President laid before parliament an initiative to reform a number of federal laws to ban labor subcontracting, so as to protect workers’ rights and prevent tax evasion.

The preamble to the initiative mentions that the subcontracting of personnel has been misused (it is a legal relationship under which a company hires the performance of certain processes from another company, engaged in providing various services or projects under a contract), because unfair or sham contracting practices have emerged that are harmful to workers’ rights.

It has therefore been proposed to ban labor subcontracting and to establish precise rules that allow only the provision of specialized services or the performance of specialized projects (meaning those falling outside the corporate purpose or core business activity of recipients), as long as the contractor has been authorized by the Work and Social Welfare Secretary for those purposes.

Additionally, formalities and additional requirements have been designed for hiring the provision of specialized services or the performance of specialized projects, such as entering into a contract specifying the subject-matter of the services to be provided or the projects to be performed, and the number of workers that will take part to complete them.

The companies providing the specialized services or performing the specialized projects will also have to meet certain requirements, such has being authorized by the Work and Social Welfare Secretary, after it has been checked that they are fully in compliance with their labor, tax and social security obligations. As a result, the initiative specifies the creation of a register of specialized service providers, which will enable these companies to be identified and regulated.

To achieve this aim, the initiative proposes amending the following laws:

(a) Federal Law on Work

(b) Social Security Law

(c) Law on the National Workers’ Housing Fund Institute

(d) Federal Tax Code

(e) Income Tax Law

(f) Value Added Tax Law

The discussed initiative has been sent for review by the various parliamentary legislative committees, although it is expected to be debated at a plenary session before the end of 2020.

In future alerts we will brief you on any advances and changes regarding this initiative and on the amendments or adjustments that our clients may need if it is ultimately approved.