Mexican union obtains favorable amparo ruling against employee profit sharing limitation
On September 9, 2022, the Eighth District Judge in Administrative Matters in Mexico City granted an injunction to a union of mining sector workers that challenged the constitutionality of the profit sharing limitation established in Mexico’s Subcontracting Reform, which became effective in 2021. The resolution was published on August 3, 2023.
In this alert, we take a concise look at the ruling and provide key takeaways.
Background
On April 23, 2021, a decree was published amending, adding and repealing several provisions of the Federal Labor Law; Social Security Law; Law of the National Workers' Housing Fund Institute; Federal Tax Code; Income Tax Law; Value Added Tax Law; Federal Law of Workers in the Service of the State, Regulatory of Section B) of Article 123 of the Constitution; and Regulatory Law of Section XIII Bis of Section B of Article 123 of the Political Constitution of the United Mexican States, in matters of Labor Outsourcing, by virtue of which it was established, among other aspects, that the amount of profit sharing would have as a maximum limit the highest amount between (i) three months of the employee's salary and (ii) the average of the profit sharing received in the last three years.
As a result, some employers could pay an amount smaller than the equivalent of 10 percent of their tax profit, based on the provisions of Article 123 of the Mexican Constitution and the decision of the National Commission for the Participation of Workers in the Profits of Companies. A union within the mining sector, on behalf of its affiliated workers, challenged the constitutionality of such limitation through an amparo proceeding.
In her ruling, the Eighth District Judge considered that the stated amount to be received by the workers serves only as a general parameter, without distinctions. In addition, she noted that the fundamental purpose of the Subcontracting Reform was to protect the labor rights of the workers. With this, the Judge stated that the reform did not fulfill a constitutionally valid purpose, as the workers’ rights are directly affected by a legal reform. She then granted the amparo to the union and its workers.
Going forward
This resolution may be challenged by authorities that are party to the lawsuit, and companies are encouraged to remain attentive to the outcome. If the resolution becomes final, it will only be applicable to the plaintiff who filed the amparo lawsuit and not to the remaining workers.
For more information, please contact the authors.
