Mexico’s Labor Law Reform: A Win for Businesses and Workers
Authored By: Oscar de la Vega, Monica Schiaffino, Eduardo Arrocha and Liliana Hernandez
On November 30, 2012, Mexico passed a labor law reform that significantly improves the legal landscape for Mexico’s businesses and workforce. While not solving all of the existing challenges in the labor market; the reform likely will create a more competitive and inclusive environment for both of these groups.
Historically, Mexico’s workforce has been split between the “formal” and “informal” workforce, the latter representing approximately 54% of the total workforce. Those holding “formal” jobs are entered in a company’s payroll and are protected under the Federal Labor Law (FLL). The FLL provides employees with statutory benefits including Christmas bonus, vacation days and vacation premium, severance pay for unjust dismissals, profit-sharing, and benefits under the pension and social security regimes, among other benefits. In contrast, those holding “informal” jobs – for example workers hired by companies but paid “off the books” – are not registered in the government’s tax or social security system and, therefore, are typically substantially underpaid and receive no protection under the labor laws.
In seeking to bridge this gap, the labor law reform allows employers to hire on a seasonal basis or for purposes of training, to incentivize the hiring of people with little or no experience into the formal workforce. This measure significantly helps women and young people, two large demographic groups that historically have had difficulty entering the formal workforce. The reform also formalizes hourly salary arrangements, allowing employers the flexibility of creating home-office arrangements that will benefit many employees, especially working mothers. Additional provisions allow for favorable maternity and paternity leaves, and seek to foster a productive working environment by prohibiting bullying and sexual harassment in the workplace.
The labor law reform also benefits businesses. For example, the previous law did not place a ceiling on the amount of “back wages” as damages that employees suing for unjust dismissals could receive. These damages continued accruing from the date of the dismissal until the final resolution of the case, which could extend for several years. Under the new law, back wages are capped at 12 months and compounded to applicable interests. A cap on back pay damages protects businesses from significant financial losses and incentivizes the plaintiff’s bar to settle.
Although, the labor law reform introduced new measures heightening the regulation over outsourcing and fell short of forbidding unions to engage in various corrupt practices – including calling a strike to compel the execution of a collective bargaining agreement, even when the union has failed to establish that it represents the subject employees – the new law did establish other provisions favoring employers. For example, the reform compels union transparency and accountability by requiring unions to provide a full and detailed report of their administration, as well as make public union registration information, collective bargaining agreements, and internal labor regulations.
While not perfect, the labor law reform represents progress for businesses and the workforce. This new law likely will enhance productivity and competition, especially for small and medium-sized companies, as well as help historically disadvantaged groups transition into the formal economy.
Author’s Bio: Oscar De la Vega is Office Managing Shareholder of Littler, De la Vega y Conde, Littler’s offices located in Mexico City and Monterrey. Monica Schiaffino is a Shareholder, Eduardo Arrocha is Of Counsel, and Liliana Hernández is an Associate, all from Littler’s Mexico City Office. Special thanks to Littler’s Knowledge Management Counsel Geida D. Sanlate for her contribution to this article. These attorneys can be contacted at firstname.lastname@example.org; email@example.com; firstname.lastname@example.org; email@example.com; and firstname.lastname@example.org, respectively.
Littler Mendelson is the world's largest labor and employment firm exclusively devoted to representing management. With over 950 attorneys and 57 offices throughout the U.S. and globally, Littler has extensive resources to address the needs of U.S.-based and multinational clients, from navigating domestic and international employment laws and labor relations issues to applying corporate policies worldwide. Established in 1942, the firm has litigated, mediated and negotiated some of the most influential employment law cases and labor contracts on record. www.littler.com
Mexican Manufacturing Revival
Authored by: Raymond A. Perez, Senior Managing Director
After trailing China in attracting U.S. companies for outsource manufacturing and production for over the last decade, Mexico is making a comeback principally driven by a changing global landscape and soaring Chinese wages.
China burst onto the world economic scene in the early part of the 21st century, joining the World Trade Organization (WTO) in 2001 after a long 15-year negotiation. China’s growth as a leading outsource location was fueled by a difficult economic period in the United States where anemic revenue growth forced managers to turn to cost reduction efforts as a way to increase margins and boost the bottom line. For this, China offered a seemingly endless supply of low cost labor, modest transportation costs (with oil hovering under 35$/barrel at the beginning of the decade) and a world class logistics and infrastructure network capable of supporting both large and small operations looking for a competitive edge. China had the perfect economic recipe that would enable it to become a world leader in manufacturing exports.
Mexico’s origin as an outsourcing hub began in the late 1970’s due to high U.S. interest rates and a resulting strong dollar; all but guaranteeing Mexico a competitive advantage to U.S. based manufacturing. Economic turmoil and increased global competition in the early 1980’s sped up the process, culminating with the passing of NAFTA in 1993. One leader in outsourcing was the U.S. auto industry, making high profile closures in Michigan, while opening new factories south of the border. Of course, Mexico has always benefited from its strategic location bordering the U.S. Initially, U.S. managers were more comfortable with keeping the outsourcing near by, but as the outsourcing matured, by the 2000’s managers were not afraid to send production half way around the world, especially given cost benefits.
The shift toward Asia-centric outsourcing took its toll on Mexico. According to Barclays, China cut 60 basis points of growth from the economy in Mexico each year between 2002- 2006. However, it seems the tide has turned back to favor Mexico; the once business friendly labor force in China is shifting toward unrest, with workers demanding more benefits and increasingly resorting to strikes. As a result, wages have skyrocketed. According to the Boston Consulting Group, wages in China increased 10 percent annually from 2000-2005 and 19 percent annually from 2005-2010. Similarly, Reuters reported that average hourly wages in Mexico are now 20% lower than in China, compared to 10 years ago they were approximately 188% more expensive.
Also playing a significant role in Mexico’s revival is the current price of oil, which has been in the $75-$100/barrel range over last few years, significantly increasing the cost of doing business abroad. Mexico’s proximity to the world’s largest importer allows for cheaper transportation costs and quicker delivery of goods to the American market. The average transit time for shipment from China to the U.S. is 30 days; from Mexico the delivery time can range from a few hours to a few days. This flexibility gives Mexico a distinct edge in goods produced to supply the U.S. consumer market.
The culmination of all these market changes has seriously eroded the benefit of Asia-centric outsourcing and has led some managers to increasingly opt to “reshore” jobs to the U.S. and Mexico, given benefits of simpler supply chains, less inventory in transit, and flexibility in production schedules. These benefits and market conditions are ideal for Mexico to take back the global manufacturing stage, which it once stood atop, and give the nation an edge over China.
Author’s Bio: Raymond A. Perez is a Senior Managing Director at Frontera Capital Advisors, LLC. He has more than 25 years of experience advising clients on cross-border transactions and restructuring activities throughout the United States, Latin America and the Caribbean region.
Mr. Perez has advised governments, numerous Fortune 500 companies, prominent private equity groups, hedge funds and other financial institutions on complex acquisitions, covering a range of sectors. His technical expertise includes buy-side and sell-side financial due diligence, strategic business evaluations, turnarounds, financial restructurings and divestitures, valuations and deal structuring.
Prior to joining Frontera, Mr. Perez served as a Senior Managing Director at a publicly traded, multinational consulting firm, where he lead the corporate finance Latin America practice. He has significant experience advising clients on target acquisition strategies, privatizations, regional consolidations and roll-ups as well as divestitures and corporate spin-offs.
Mr. Perez holds a B.A. in economics from Columbia University.
Investors: “Checking In” on the EB-5 Program
Authored by: Michael Wildes
As America’s markets struggle to regain their footing, many corridors of commerce such as the hospitality industry have seen a spike in profits and economic growth. This refreshing change of pace is largely attributed to the steady stream of international tourism that has kept many hotels, restaurants and other tourist attractions thriving despite current economic conditions. Hotel owners have taken notice of this dichotomy, and are now seeking ways to perpetuate their surge in profits. Fortunately, Congress has created provisions within our American immigration laws that would help keep the hotel business booming, while simultaneously infusing money into our economy and creating more job opportunities as well.
The EB-5 visa program was incorporated into the Immigration and Nationality Act to encourage foreign businesspersons to invest their resources in American markets. The preferential treatment and limitless renewals that E-visa holders would enjoy upon approval encourages foreign investors to participate in U.S. businesses. Since its inception, the amount of EB-5 programs has exponentially increased, accounting for over a billion dollars of revenue, especially in tourist friendly regions with international acclaim.
First enacted in 1992, Congress enacted the EB-5 visa program to encourage foreigners to participate in new commercial enterprises. To qualify, the investor must either have established the business, or, re-established an existing one. The projects can be any kind of “commercial enterprise” such as hotels, resorts, and any of its wholly owned subsidiaries that add to the business’s profits.
To ensure that the investment will expand past its initial phases, the EB-5 visa also carries a “job requirement” mechanism within its terms. The investor has to create or preserve at least 10 full-time jobs for qualifying U.S. workers within approximately two years of the immigrant investor’s presumed admission to the United States as a Conditional Permanent Resident. Given the manpower it takes to run virtually all avenues of the hospitality business, recruiting 10 employees to work in destination hot spots makes this process much less strenuous on the employer. For the more adventurous entrepreneur, the minimum cost of investing either within a high unemployment, or rural area in the United States is $500,000—rather than the $1,000,000 markup to get the more popular real estate.
As American banks continue to freeze out investors on account of insufficient resources, the EB-5 program picks up the slack left behind, connecting creative investment ideas to the deep pockets of foreign investors. Our immigration laws are designed to facilitate their connection, shifting the burdens of national economic recovery onto international shoulders. All that is needed to perpetuate this new and exciting phase of success is the confidence, initiative and ingenuity from the American entrepreneur to get involved with their preferred regional center—which history will show is of no shortage in a nation that, despite its recent shortcomings, is still deemed the “Land of Opportunity”.
The full length article can be found here: http://www.wildeslaw.com/images/pdf/hotelownersandinvestors.pdf
Author’s Bio: Michael Wildes is a Managing Partner with the leading immigration law firm of Wildes and Weinberg PC in New York City and New Jersey. He serves as immigration Counsel to Lincoln Center, and two international corporate law firms. A former Federal Prosecutor with the United States Attorney’s Office in Brooklyn (1989-1993), he has testified on Capitol Hill in connection with anti-terrorism legislation and is internationally renowned for his successful representation of distinguished individuals and corporate clients. Having represented the United States government in immigration proceedings, Mr. Wildes is a frequent participant on professional panels and commentator on network television and radio with regard to corporate immigration law, employer sanction work and compliance. His boutique law firm has offices in New York City, New Jersey, and Miami and serves a distinguished domestic and international clientele, covering all areas of U.S. immigration law. Mr. Wildes is an Adjunct professor of Business Immigration Law at Cardozo Law School and also served two terms as the Mayor of Englewood, New Jersey.
Mexico Tourism Board
Nowadays, Mexico City is without a doubt one of the most interesting, innovative and versatile cities in the world, and is considered the most important tourist destination in Mexico. With more than 12 million visitors a year, Mexico City caters to all types of travelers, from business executives to leisure guests. Tourists can easily find luxury hotels, deals on accommodations, shopping and dining. Mexico City also offers the opportunity to experience a rich history, multifaceted culture, traditions, arts and entertainment. Currently, the city is one of Latin America’s major financial, educational and stock hubs.
City of Innovation
As an avant-garde city founded nearly 700 years ago, Mexico’s capital has maintained its past architecture and history that includes a mix of pre-Hispanic and colonial art, while also reinventing itself as a modern urban center. Faithful to its progressive commitment, Mexico City has developed major initiatives such as the ambitious Green Plan, a project to restore various areas and beautifying squares and monuments. These efforts will help establish Mexico City as one of the largest ecologically sustainable cities in the world.
Mexico City exudes a vibrant culture that visitors can experience through a busy calendar of international events that reflect the city’s rich cultural life and is offered by the many spectacular venues available. Visitors from around the world can delight themselves in the cultural mosaic that the main areas of the city provide where archaeological sites, colonial & contemporary buildings, cultural centers, museums and parks all share the same space.
Top Business Destination
Home to thousands of conventions, events, international trade meetings and summits throughout the year, Mexico City is ranked 39 as an international congress and conventions destination according to International Congress and Convention Association (ICCA). Mexico City ranks higher than major cities throughout the world, including Washington, Tokyo, Las Vegas, Montreal and New York. Mexico City distinguishes itself by offering the most modern spaces, first class infrastructure and services that rival the best in the world. Getting to and from Mexico City is very convenient thanks to a high volume of flight connections available. Mexico City is also an excellent choice for event organizers due to favorable tax policies that make it more affordable to host events in the destination.
Perhaps one of the most striking aspects of Mexico City is its sophisticated lifestyle and glamor. The city has an abundance of luxurious hotels ranging from international brands to original and elegant boutique hotels. However, Mexico City stands out above all for its varied cuisine and fine restaurants that offer international dishes and the best in Mexican cuisine, which is on the UNESCO List of Intangible Cultural Heritage of Humanity.
A Destination for All
With its extensive and varied activities, the city is a destination that offers the best options for all visitors. From couples looking for high-end tourism with restaurants, spas, nightlife, entertainment and world-class art, to travelers that visit the city to find the best medical care, to business travelers that require specific spaces, services and activities. The city also welcomes and encourages new programs for LGBT tourism and is proud to be a gay-friendly destination.