Treatment of expatriated employees by the labor and social security legislation


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Treatment of expatriated employees by the labor and social security legislation

  1. 1. Treatment of expatriated employees by the labor and social security legislationMexico City, Mexico, November 1st, 2011. Global activities of the Corporations worldwide, createsthe necessity to move employees from all over the world; for such movements the guarantee of anemployment stability, pension benefits, seniority and social security assistance are, among others,the most important issues to be considered by employer and employee (hereinafter “the Expat”).There are a lot of strategies to document the employment of an Expat (i.e. Shadow Payrollschemes, Secondment agreements, etc.), however, such figures are not regulated by the MexicanLabor and Social Security Legislation; therefore, the Mexican entity that will be in charge of theemployment in Mexico must be very careful documenting the assignment of the Expat in order toreduce labor and social security liabilities that could involve entities abroad.This article intends to provide an over view about the contingencies related to the wrongdocumentation of an Expat employment in Mexico and how to reduce such exposure since thebeginning of the assignment until its termination and/or from the conclusion of the employment.It is a fact that Mexican Federal Labor Law urgently needs a reform; however, nevertheless, theefforts of the Ministry of Labor and Social Welfare to modify the legislation mentioned before, fromthe attitude of Mexican legislators and some Union leaders, we do not consider that such urgentand important reform will be placed shortly.Consequently, Mexican Labor and Employment attorneys are forced to work with the elementsprovided by a Law created in 1970, when the economic, financial, social and cultural conditions ofthis country were totally different than those that govern the employment worldwide.It is important to mention that the right of work is stated by Mexican Constitution as a human rightthat any individual, for the fact to render services in Mexican territory, is able to be protected bythe “umbrella” of the Constitution and International Agreements enforceable in Mexico as principallaws and by the Mexican Federal Labor Law and Social Security Law as regulation laws.I do not want to say that we have a bad Labor legislation that imped the development of businessin Mexico, my intention is to explain how to play with it; normally, people mention that it isimpossible to hire an employee paying salary per hour or that nobody in Mexico could terminate anemployment without the payment of a severance, that is completely false. If an employer inMexico, with a correct advise, accept and comply the considerations and obligations stated by thecurrent law, I am pretty sure that will create a sane employment relationship and the employeesunder its orders will remain a productive and profitable employees for the benefit of both parties.That is the case of the Expats.In my experience, subsidiaries or affiliated of international corporations in Mexico receive as part ofit personnel employees from other parts of the world, recognizing benefits, seniority, position, etc.Another common practice is that foreign companies execute employment agreements abroad,stating that the services of the employee will be rendered in Mexico; however, there is always afight regarding who is the entity that should be in charge of the payment of salary and benefits ofthe Expat, here is when the accounting firms develop all those kind of schemes to create the mostfavorable position for the entities involved and to receive the Expat as a royalty member (thanksthat accounting firms create those kind of schemes, labor lawyer generate thousands of billinghours trying to insert the same under Mexican and Labor Social Security Legislation). Barrera, Siqueiros y Torres Landa –
  2. 2. The fact to recognize all benefits to an Expat in Mexico has as a consequence, in case of litigation,that the Mexican entity will be liable for the payment of all the cost related and, the employerabroad who, during the assignment, keep the Expat under pension plan programs, provide stockoptions plans and maintain such individual registered before the local social security institutions,paid all those benefits and, probably, will be required for others due that two employments couldbe determined during the conflict.Moreover, if the original employer during the assignment of the Expat in Mexico provides him/herwith documentation related to new bonuses, pension opportunities or any other benefit that isgranted to its personnel, is quite simple to evidence before the Mexican Labor Courts the existenceof two employments and, therefore, resolutions against the interest of both entities shall be issuedby the Court (remember that Mexican labor Courts are obligated to resolve in favor of the employeein case of a doubt during the process, therefore, employers have the burden of the prove in almostany labor case1).Regarding social security, Mexico has executed international cooperation agreements with Canadaand Spain2 (same that had been ratified by Mexican Congress and, therefore, shall be considered aspart of our legislation), such agreements allow Canadian and Spaniard employees their continuityas active members of the corresponding social security systems during their assignment in Mexicoas well as for Mexicans when their services were rendered in Spain or Canada.Furthermore, Mexico as member of the International Work Organization, for the benefit of theforeign employees that render services for employers all over the Mexican territory, has signedinternational agreements related to the equal treatment for National and foreign employees inconcepts like work accidents and social security benefits3.1 Articles 18, 784, 804 and 805 of the Mexican Federal Labor Law.2 . Cfr. Social Security Agreement executed between the United Mexican States and Canada (Convenio sobreSeguridad Social entre los Estados Unidos Mexicanos y Canadá), applicable on Canada to the Old AgeSecurity Act and Canada Pension Plan and on Mexico regarding the mandatory and voluntary social securitysystem established on the Social Security Law and applicable regulations for pensions of disability insurance,old-age insurance, early retirement and death. Registry number 33368 before the United Nations("UN"). Ottawa, Canada, April 27, 1995. Published on the Mexican Federal Official Gazette on September 25,1998.Cfr. Social Security Agreement executed between the United Mexican States and the Spanish Reign, as wellas the complementary agreement (Convenio de Seguridad Social entre los Estados Unidos Mexicanos y elReino de España, así como el convenio complementario), executed between the aforementioned States toestablish more cooperation regarding social security. It is applicable to national employees of both States thatprove to be currently register (or were registered) on the correspondent social security system, as well as theirfamily members recognized as beneficiaries according to the applicable legislation, on the same conditionsthan their nationals. Registry number 31854 before the UN. Madrid, Spain on April 25, 1994. Published on theMexican Federal Official Gazette on March 16, 1995 and March 18, 2004.3 Cfr. International Labor Agreement No. 102 regarding the Minimim Social Security Regulations (ConvenioInternacional del Trabajo No. 102 relativo a la Norma Minima de la Seguridad Social), General Conference ofthe International Labor Organization ("ILO") celebrated on Geneve, Switzerland on June 4, 1952, in whichseveral dispositions regarding the minimum social security regulations were created by means of theagreement dated June 28, 1952. Mexico ratified sections II, III, V, VI, and VIII-X of such agreement on October12, 1961.Cfr. International Labor Agreement No. 19 regarding Equality between Foreign and National Employees forSeverance caused by Work related accidents. (Convenio Internacional del Trabajo No. 19 relativo a laIgualdad entre los Trabajadores Extranjeros y Nacionales en materia de Indemnización por Accidentes deTrabajo), General Conference of the ILO celebrated on Geneve, Switzerland on May 19, 1925, in which Barrera, Siqueiros y Torres Landa –
  3. 3. In addition to labor and social security risks, if an employment between an Expat and a foreigncompany is declared by Mexican Courts, a Permanent Establishment figure for tax purposes couldbe determined by the Mexican Ministry of Tax.Due to the above, in order to minimize legal risks during the assignment of an Expat in Mexico, thefollowing aspects must be considered by the Corporations:  According to Mexican Federal Labor Law, employers must set forth in writing the terms and conditions of the employment. The omission of such requirement does not prevent employees/Expats from exercising their labor rights.  The Expats’ minimum statutory rights, granted by Mexican Labor and Social Security Legislation, apply notwithstanding any other agreement or arrangement executed by such employee with a Company in the foreign country.  In addition to the terms and conditions of employment, the individual employment agreement executed with expatriates should include the Expats seniority in Mexico to limit potential severance payments for the time the employee has actually rendered services in Mexico.  In case of litigation, the employment agreement is the specific document to evidence the terms and conditions of employment as well as the salary and benefits agreed between the employer and the expatriates.  During the assignment of the Expat, is advisable that the original employer will not provide written orders or paying directly benefits to the Expat in order to reduce the possibility to involve the companies in a dual employment or a jointly liability for both entities, including the benefits paid by them.  If such a dual employment relationship were found to exist, under Mexican law, both companies would be required to comply with Mexican labor law and give to the Expatriate all the benefits to which Mexican employees are entitled by Mexican Federal Labor Law, social security law, as well as the payment of severance on the Mexican scale (relating back to the hiring date with the Foreign Company), all of which could be claimed in a Mexican labor court directly against the Foreign company and/or the Mexican company.  A finding of a double employment relationship might also entail income tax implications since it might result in the Foreign Company being considered as having a permanent establishment in Mexico, by reason of having its employees here carrying out activities on behalf of it.As a conclusion, today in Mexico there is the possibility to document an employment with Expats,however is advisable that, in addition to the accounting and Human Resources advice, the entitiesin Mexico that will be involved in this kind of relationship consider the legal counsel as part of apreventive strategy for the employment.several dispositions regarding equal treatment for foreign and national employees who suffered work relatedaccidents were created. Mexico ratified the agreement on May 12, 1934. Published on the Federal OfficialGazette on August 7, 1935. Barrera, Siqueiros y Torres Landa –
  4. 4. Finally, the most important secure in Mexico to avoid labor and social security liabilities is complywith the corresponding regulation and using the same for the benefit of the business which is theprincipal element for the viability of the work center in any country of the world.Hugo Hernandez-Ojeda Alvirez.Partner of the labor, employment and social security practice of Barrera, Siqueiros y Torres Landa, Barrera, Siqueiros y Torres Landa –