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Decree of Amendment to the Federal Labor Law regarding outsourcing

On November 12, 2020, Mexico’s President, Andrés Manuel López Obrador, filed before the Congress a decree in order to amend, addition and eliminate several provisions of the Federal Labor Law (“FLL”), the Social Security Law, the Institute of the National Fund for Employees’ Housing Law, as well as several tax provisions (“Amendment Decree”).

In this regard, the Amendment Decree filed by the Federal Executive considers, amongst other aspects, the following changes to the subcontracting/outsourcing regime:

  1. Personnel outsourcing through which an individual or legal entity make available their own employees for the benefit of another individual or legal entity is forbidden.
  2. The distinction between “personnel outsourcing” and the “rendering of specialized services or the execution of specialized works”, the latter being such focused on the rendering of services that are not comprised within the beneficiary’s corporate purpose or its core business.
  3. Establishes the way in which the rendering of specialized services or the execution of specialized works must be formalized between the parties, as well as the requirements to be fulfilled for such purposes.
  4. Joint liability is established between the provider of specialized services or works and the individual or legal entity that fails to comply with its employment, social security, and tax obligations.
  5. Establishes the creation of a registry of specialized service providers, to identify and regulate the companies that render specialized services or perform specialized works, of which the Ministry of Labor and Social Welfare (“STPS”) will be in charge. For such purposes, the STPS will grant authorizations for those individuals or legal entities that carry out the aforementioned activities and that evidence the specialization thereof. The aforementioned authorization shall be renewed every three years and the STPS may revoke the authorization in the event the individual or legal entity fails to comply with the above referred obligations.
  6. Broadens the definition of intermediation.
  7. Eliminates provisions 15-A, 15-B, 15-C and 15-D of the FLL regarding the subcontracting regime.
  8. For an employer substitution to be valid and enforceable, a transfer of assets to the substitute employer shall be carried out.
  9. Establishes economic fines that may range between MXN$173,760 and MXN$4,344,000, that might be imposed in case of hiring services or execution of works without the corresponding authorization granted by the STPS, for each employee. Likewise, such fines may also be imposed to those individuals or legal entities that benefit from the subcontracting of personnel, breaching the provisions established in the FLL.
  10. Tax incentives are eliminated for those individuals or legal entities carrying out personnel outsourcing that do not comply with the new requirements set forth by the FLL.

Since this is an amendment decree, it must pass throughout the corresponding legislative process; therefore, it is possible that the Amendment Decree suffers modifications during the legislative process or that such is dismissed.

In the event the Amendment Decree is accepted under its current terms, the insourcing structures (service providers that belong to the same corporate group) and outsourcing structures (service providers that are not part of the same corporate group) that several companies have implemented, will have to be reviewed and modified, as the specific case may require.

In view of the foregoing, we will follow closely the legislative process of the Amendment Decree to inform about the changes and developments regarding subcontracting/outsourcing matters.

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