International Society of Primerus Law Firms

Employment Law – Termination of Employment Relationships (Part Two)

Written By: Pablo Saenz

Cacheaux Cavazos & Newton

Mexico City, Mexico

Continuing with the topic of the Termination of Employment Relationships in Mexico that began in an article published last month, below is a discussion of the termination of the employment relationship and individual employment contract by: (i) the signing of a resignation and settlement by the employee, and (ii) the mutual consent of the parties, by means of entering into an agreement before the applicable Labor Board of Conciliation and Arbitration.

1.- Termination of the relationship and individual employment contract, by the signing of a resignation and settlement by the employee. This type of termination of the employment relationship is used in the following situations: (i) when a worker or an employee notifies the company that he/she desires to voluntarily terminate his/her employment relationship, or (ii) in the event the company desires to voluntarily terminate the employment relationship with an employee, and does not have sufficient cause to terminate without liability to the company. In such cases, the employer typically makes a proposal to the worker or employee to terminate the employment relationship in this manner. In order to carry out this type of termination, it is necessary for both parties to discuss and agree in advance any amount of severance to be paid to the employee. Having done this, the worker or employee must sign a resignation letter, acknowledging that the company has always paid all wages and benefits to which he/she was entitled throughout the duration of the employment relationship, and that, therefore, he/she reserves no right to exercise any action against the company, granting to the company the broadest release allowable by law. Additionally, the worker or employee should also sign a settlement and release agreement for the benefit of the company, stating the total net amount paid as a result of the voluntary termination of his/her employment relationship and individual employment contracts. It is recommended that such settlement describes in detail all of the general working conditions and specify each item to be paid (salaries, benefits, bonuses, etc.) and each item to be deducted (taxes, loans, fees social security, etc.).

2.- Termination by mutual consent of the parties by entering into an agreement before the applicable Labor Board of Conciliation and Arbitration. In order to utilize this strategy, in which there is no voluntary resignation by the worker or employee, it is also necessary for the parties to agree upon the terms of the termination in advance. In this case, the Federal Labor Law provides that in order for any agreement or settlement to be valid, it must be in writing and contain a description of the facts that lead to it, the rights that are included in it and it must be ratified before the applicable Labor Board of Conciliation and Arbitration. Such board will approve it provided that it does not contain a waiver of the worker’s or employee’s rights. As such, if the company decides to terminate the employment relationship with a worker or employee by means of an agreement, the agreement must be in writing and contain, among other things, the following: (i) the desire of both parties to terminate the relationship and individual employment contract that bound them, (ii) the breakdown of each and every amount to be paid to the worker, including applicable deductions for taxes, fees to Mexican Social Security, debts, etc., (iii) the agreement of the worker or employee to receive the net total amount to be paid and therefore, declare not to reserve any action or right to be exercised against the company, thereafter, granting the, broadest release allowable by law, and (iv) the request to the Labor Board of Conciliation and Arbitration for the approval of the agreement, attesting to and certifying the delivery and receipt of the amount due in order to terminate the relationship of the parties. Once the parties agree to the terms of the agreement, they must appear before the applicable Labor Board of Conciliation and Arbitration in order to sign the same and ratify its contents, for which the aforementioned labor authorities shall create a written record which evidences that the agreement terminated the employment relationship between the parties, attesting to the amount to be paid to the worker or employee, and ordering that the file that was opened along with the agreement be considered completely resolved. It is important to note that if the parties enter into a private agreement which is not ratified by the applicable Labor Board of Conciliation and Arbitration, such private agreement will not be enforceable. In such case, if the worker or employee files a labor lawsuit against the company, a risk exists that the company may be ordered to pay additional amounts over and above what was already been paid to the worker or employee under the private agreement.

For more information about Mr. Saenz, a partner at the Mexico City office of Cacheaux, Cavazos & Newton, please visit www.ccn-law.com or the International Society of Primerus Law Firms.

Read more articles in the CCN Mexico Report to obtain monthly updates on Mexico Business, Politics and Law

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