Letting an employee go in Mexico: what U.S. owners get wrong

Owners of restaurants, rental operations and small companies on the Riviera Maya often manage staff the way they would at home. Mexican labor law works very differently, and the most expensive mistakes happen on the day an employee is let go.

There is no at-will employment

In Mexico an employer can end an employment relationship without liability only for a justified cause listed in the Federal Labor Law (Ley Federal del Trabajo), such as dishonesty, violence, serious misconduct, or more than three unjustified absences within thirty days. Restructuring, poor fit or "we no longer need the position" are not justified causes. You can still let the employee go, but the law treats it as an unjustified dismissal with a cost.

The written dismissal notice

When you dismiss an employee for cause, you must give a written notice stating the conduct and the date. The notice can be delivered personally or, within five business days after the dismissal, through the labor court. If you skip this step, the dismissal is presumed unjustified, even when the cause was real.

What an unjustified dismissal can cost

An employee dismissed without justified cause can demand reinstatement or a constitutional severance of three months' salary. On top of that, they can claim:

• Back wages from the dismissal date while the case runs, generally capped at twelve months, plus interest after that period if the case continues.
• A seniority premium of twelve days of salary per year worked, calculated on a capped daily salary.
• Accrued benefits: the proportional year-end bonus (aguinaldo), vacation days and vacation premium.
• In certain cases, an additional twenty days of salary per year worked.

Every month a claim stays open can add to the exposure, which is why a well-documented, early settlement is often the cheapest outcome.

Every claim starts with conciliation

Since the 2019 labor reform, an employee must first go to a Conciliation Center before suing. You will receive a summons to a conciliation hearing. Treat it seriously: it is the first and often best chance to settle, and what is said and offered there matters if the case goes to court.

The burden of proof is on you

In labor cases the employer usually has to prove the key facts: the start date, the salary, the working hours, that vacations and benefits were paid, and the reason for the dismissal. That is why paperwork decides most cases:

• A written individual employment contract for every employee.
• Registration with the social security institute (IMSS) on the real salary.
• Electronic payroll receipts (CFDI de nómina) for every payment.
• Attendance records and signed receipts for vacations and bonuses.
• Internal work rules, when your business needs them.

Resignation letters signed in blank or in advance are a common practice and a common source of trouble. They rarely hold up.

Close it properly

When you agree on a separation, document it in a settlement agreement (convenio) and have it ratified before the Conciliation Center or the labor court. A private agreement that has not been ratified leaves the door open to a later claim.

This guide is general information about Mexican law, current as of its publication date. It is not legal advice for your situation, and reading it does not create an attorney-client relationship.