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Hiring and firing workers in Mexico: Labor market flexibility

Hiring and firing workers in Mexico: Labor market flexibility

Tecma expert, Abraham Medina, explains the process involved in the hiring and firing of workers in Mexico, with specific emphasis of the steps to take in a downsizing situation.

Tecma expert, Abraham Medina, explains the process involved in the hiring and firing of workers in Mexico, with specific emphasis of the steps to take in a downsizing situation.

The process of hiring and firing workers in Mexico is different than that of the United States.

Tecma Group of Companies:

Hello. Welcome to another edition of Tecma Talk Podcasts. If you have listened in on these discussions before, they have to do with issues that are related to manufacturing in Mexico, as well as other things that are relevant as to what goes on in industry south of the border. Today we have one of Tecma’s internal experts with us. This person has quite a bit of experience with several different companies over almost, I believe, two decades in the area of human resources. His name is Abraham Medina. Abraham, how are you doing today?

Abraham Medina:

I’m doing fine. Thank you.

 

Tecma Group of Companies:

If you could please give the listeners a little bit of information on your professional background, I believe that that would help to orient them to todays topic, which is hiring and firing workers in Mexico.

Abraham Medina:

My name is Abraham Medina. I have been an HR professional for twenty-five years. I have worked for companies such as General Electric, Emerson Electric, Avon Automotive, Enlight Corporation and Canam Manac Le Group. Several companies right here in Ciudad Juarez that are international operations. At present I am an HR director, and for the last fifteen years I have been an HR manager. This is my background.

Tecma Group of Companies:

You have a wide range of experience. You will be able to draw from that experience to answer the questions that we will pose to you today to give great answers that will be of value to people that are researching the possibility of making manufacturing investments in Mexico so that they can proceed. We are going to look at the issue of the flexibility of the workforce in Mexico as to the ability of businesses to hire and fire workers in Mexico, or, stated differently, to let go or downsize the workforce when either there aren’t as many orders as may be the case during other times, when you have seasonal work, perhaps. We’ll examine the whole issue of how Mexico is in terms of rules and regulations that govern the hiring and firing of workers in Mexico, and determine flexibility in its labor market.

Let’s use Tecma client company’s as an example. If one of the general or plant managers came to you and, because of some circumstances that individual had to reduce the size of his or her workforce, what kind of advice would you give to that person before proceeding with that action?

Abraham Medina:

Working in Mexico is different for foreign investors. I would strongly recommend to plant managers to first review the company business plan. There is a need to keep a focus on long-term considerations. Let’s make sure that we uncover ways to cut manufacturing costs in the short term. We should examine operations with an eye toward reducing costs any other way before talkig about reducing the workforce, because, in the end, we will be losing talent. Another suggestion that I would make to a plant manager in Mexico would be to make sure that we have a “lean machine.”

We need to be able to weather the recession, if we are in one. Let’s make our team aware about and involved in making those painful decisions before affecting their paychecks. If the team is involved, they are going to be creative, they will be participative and they will offer good ideas. Another suggestion would be to reassign employees to areas in which they may still be useful to the company. Keep your most valuable people and greatest assests in order to be ready when sales reestablish themselves. You have to make sure that you will have the ability to resume growth once a recession is over. Another action to take is to identify and cut unnecessary employees from the payroll. Before doing this, however, let’s check the costs related to hiring and firing workers in Mexico. We have to consider severance costs, employee morale and productivity. This is what I would suggest to a plant manager in this case.

Tecma Group of Companies:

That is a really good list of recommendations to make. It takes time and money to train a worker that is able to do quality things for a company. To discard some of those folks without going through the steps and recommendations that you just mentioned might not be such a good idea, because ones workers are gone they may be hard to get back, I would imagine.

You used the term “severance pay.” In America we have unemployment insurance, which is something that all U.S. employees pay into. They system is different in Mexico. Maybe you can explain that, and also give us an idea as to what are the rules with respect to how laid off Mexican workers must be compensated?

Abraham Medina:

When we terminate, or have a downsizing or reduce workforce, under Mexican law that favors the employees, we must pay a severance that includes vacation pay, Christmas bonus, a seniority premium and other accrued benefits. This is constitutionally and Mexican labor law defined. This can be expensive, when done as the law mandates.

Tecma Group of Companies:

So, again, this is another reason to give some very deep thought to the process of hiring and firing workers in Mexico. This has to be done in a way that protects talent for future use, and, also, in a way that will lessen the negative financial impact on the company.

In terms of the things that you menitioned, you have to pay vacation pay? What were the other items?

Abraham Medina:

Again, vacation premium, and, in essence, constitutionally defined indemnification. To begin with, we are talking a minimum of 90 days of the salary of an employee. If the employee has years of seniority in addition to those ninety days, we will have to pay twenty days of salary for each year of service that the employee put in with the company. Yes, that sounds kind of expensive, but that is what must be paid by law when we reduce the workforce.

Tecma Group of Companies:

If you are laying off people with a lot of seniority, it could be particularly expensive, correct?

Abraham Medina:

That’s correct.

Tecma Group of Companies:

As far as being able to hire and fire workers in Mexico is concerned, if there is a need to do the latter, can you tell us about what your experience with the process has been?

Abraham Medina:

Is your question regarding reducing the workforce?

Tecma Group of Companies:

Yes. That’s correct.

Abraham Medina:

OK. It’s not easy to do because, to begin with, it always has an impact on the morale of your team. It always affects productivity. There are times when you lose talent. This is from the persepctive of the company. From the perspective of the employee, in our culture, the employee expects the company to be there to protect him. At times, the employee expects the company to develop his skills and abilities. The employee expects and wants to grow within the company. So, when a layoff happens, the employee feels left to his or her own resources, he or she feels that he or she is being put into a hard or stressful situation.

We will need to be sure who needs to leave, when this will happen and what the process will be to advise the employees as regards what is happening. We need to have a plan in mind. Obviously, this plan is going to be based on production requirements. If we have sales, we have to have a clear idea in mind of how the required production will happen. I would ask the plant manager to make sure that he has a sense of how long the duration of a downturn in sales will be. Once he has an idea of what the time period, I will advise him to make the necessary cuts. This will be a different story if he anticipates a temporary reduction in sales. If layoffs are necessary because of a long downturn in sales, we will need to have assistance from an attorney at law, an HR professional and we need to be able to prepare legal documentation. We will need to meet with the employees. We will need inform the whole operation before this happens. We will then negotiate
employee exists from the company, and, after doing this, we will need to meet with the team to inform them that to layoff workers is not easy, but has been done as a business decision and a need.   We must also explain that everyone’s effort is will be needed to keep working hard to be prepared for the time when sales and growth resumes.

Tecma Group of Companies:

That is a situation where people are definitively laid off, but their are industries that are seasonal in nature. Since these industries have high production requirements during certain months of the year, and, obviously, lesser production requirements during other months of the year, are there any mechanisms that can be used by people that are managing maquiladoras in Mexico to reduce their workforce to accommodate the seasonality of the product that they sell in the marketplace?

Abraham Medina:

Yes, that’s correct. If the plant manager tells me that he is dealing with a temporary or seasonal situation, we have mechanisms that enable companies to hire and fire workers in Mexico on a temporary basis. For instance, in Mexico we have the ability to negotiate work schedule reductions with the employees. We can send people home one or two days a week during some months. We can also send people home during the following months. We have done this in the past. There is always a need to negotiate with employees to offer at least fifty percent of their base salary with some bonus for them to be at home during days and weeks that there is no work to be done. They will be willing to do this, because this will give them to that they can use to spend with their family.
They might use the time to do somethings that they would otherwise not have the time to do in the past. So, it can be a win-win situation.

We can also ask these people to be present at the company every Friday. They can come and sign their pay stubs to be available for us to let them know whether or not they have to come back the next Monday to work. Yes we have this alternative, but when we talk in specifics about a seasonal job the law gives us the opportunity to hire employees under these circumstances. Yes, we can offer them a temporary contract, if we can justify that this is a seasonal job. We can have this done, and we can always have the company protected under these circumstances.

Tecma Group of Companies:

Typically how long are temporary contracts, and can you have temporary labor contracts for consecutive periods? How does a temporary contract work?

Abraham Medina:

There are no temporary contracts just because someone requests to have a temporary labor contract. What I can tell you is that they come in two types:

1. One temporary contract is given for thirty days for the employer to observe whether or not the new employee has the skills and abilities for the job that he or she was hired to do. This is the time period during which a company has to decide whether it will keep the new hire, or not.

2. There is provision for a temporary contract given for a specified piece of work, and a temporary labor contract for a specified duration. For instance, if we hire a woman for a three month period, but, within a month, she will give birth, and she will be on sick leave the contract will be just to cover her absence. Once she is back, her job is done. This is a specific situation that justifies the temporary nature of these particular circumstances related to the hiring and firing of workers in Mexico.

Tecma Group of Companies:

I understand that. What would be another way of establishing temporary labor contracts with workers in Mexico?

Abraham Medina:

The other way to hire a worker for a specified period of time. An hypothetical example would be to hire someone only for summer because the company is involved in selling ice. The only time that ice is sold is during the summer. Once the summer ends, the job is over. There must be a specific, justified condition for the issuance of a temporary labor contract. That is what the law requires with respect to hiring and firing Mexican workers.

Tecma Group of Companies:

If we were to summarize the conversation, we would say that first of all that, in general terms, Mexican law, with respect to these issues, has a tendency to favor the employee. Your recommendation was that someone who is going to go through the process of hiring and firing Mexican workers have a plan, and, before discarding talent, you would advise plant managers to try to cut cost other ways just in case those employees are needed when sales start to occur at a normal pace again. Also, you did mention that an HR professional should be used. That is where I guess one of the things that we could say that, as a company that does provide HR services under a shelter program in Mexico, at least folks that are involved in shelter plan situations can consult with folks like you to be able to get the job done. Is there any other advice that you would give to someone who is in the position of hiring and firing workers in Mexico? Also, there are folks that listen to these podcasts, and, as a result, have questions. In addition to giving a last bit of advice, would you accept either an email or a phone call form people with questions? If so, how would they contact you?

Abraham Medina:

Yes, I will accept any question related to hiring and firing workers in Mexico. For those seeking information, I will be available to provide support as required. My phone number is 915-726- 5051. That is my direct line.

The last bit of advice that I will give as regards this subject would be to a message to the company regarding any layoffs that will occur to avoid miscommunication, as this could affect productivity and morale. The next step would be to get the Mexican Labor Board involved and participating in the process. This will show the employees that you are taking action within the law. Also, let’s define who will be terminated, and when and how are you going to negotiate this to happen. It is also important to make sure that all the appropriate legal documentation is in place. Then, it is important to meet the employees and be cognizant of their feelings. It is a hard moment for them. Remember some of those that have been laid off may be their friends and family, so let’s be respectful of that. The day that the laid off individuals leave, get the team together and share a message. Let them know that you are thankful for their contribution to the company, but the action had to be taken as a result in a downturn in production. This is the advice that I would recommend.

Photo Credit: Jim Pennucci

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