CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

The reasons for regular termination as set out in the Labour Act are as follows:

  • if the need for work ceases to exist for economic, technical or organisational reasons (‘notice due to business reasons’); or
  • the employee is incapable of fulfilling his employment-related duties due to certain personal characteristics or qualifications (‘notice due to personal reasons’); or
  • the employee intentionally breaches a contractual obligation (‘notice due to misconduct’); or
  • if the employee did not satisfy the employer’s requirements during the probationary period.

At-will employment does not exist in Mexico, and termination at-will clauses are only applicable in favor of the employee, therefore employers may not terminate employment relationships without just cause, i.e. unfair dismissal.

There is a closed list of causes in the Mexican Federal Labor Law and a set procedure to terminate employees at any time without incurring in liability, which includes, inter alia:

  • false statements about work qualifications;
  • breach to the disobedience or honesty principles;
  • vandalism;
  • sexual harassment;
  • alcoholism in the workplace;
  • revealing company secrets;
  • refusing to comply with safety procedures; and
  • four unexcused absences in a 30-day period.

If there is no substantial motive or evidence, labour relationships can be terminated via a voluntary agreement where the employee is entitled to statutory benefits and possibly some form of compensation (each case must be treated individually through human resources).

If in any case there is no termination with just cause or a negotiated exit for an employee, the employee is entitled to claim for wrongful termination and sue either for substantial statutory benefits, lost salaries and the severance package, or reinstatement to the job.

Employees must claim within 60 days following alleged wrongful termination.

Before the employee is entitled to sue for either substantial statutory benefits or the job reinstatement, the employee and the employer will be subject to a "conciliation hearing", which shall not last more than 45 calendar days. If the conciliation is not successful, then the employee will be entitled to proceed with his/her claims against the employer.

1.2 Form

Written form, including reasons for termination. Decision is to be delivered to the employee.

If an employer has just cause to terminate an employment relationship, there is an obligation to give personal notice to the employee or, where not possible, to the competent Labour Board, and to prove the cause for dismissal. If the notice is not delivered, the termination will be deemed to be without cause.

1.3 Notice period

Regular termination: notice period ranges from two weeks to three months, dependent on the employee’s length of service with the same employer.

The three-month period is extended by an additional two weeks / one month for 50 / 55-year-old employees who have 20 or more years’ continuous service with the same employer.

Extraordinary termination (summary dismissal): no notice period. Termination during probationary period: notice period of at least seven days.

Termination by employee: notice period cannot be longer than one month if the employee has a good reason.

If the employment is terminated because the employee  breaches his contractual obligations, notice periods are halved.

There is no obligation to serve a notice in advance to the employee in case of dismissal but only upon the dismissal moment. The notice shall contain the just causes for dismissal, and the date of their occurrence.

If not possible to deliver the notice to the employee, the employer shall serve the notice to the competent Labour Board and provide it with the last known domicile of the dismissed employee.

Failure to deliver the notice to the employee or to the Labour Board will be deemed as a dismissal without just cause.

1.4 Involvement of works council

The works council must be informed of the employer’s intention to dismiss. The works council‘s consent is required for dismissal of the following employees:

  • members of the works council; and
  • candidates running for works council positions and members of the election committee for a period of three months following the announcement of the results of the election to the works council; and
  • employee representatives in a body of the employer; and
  • employees with diminished ability to work and employees in immediate danger of physical disability; and
  • employees over 60 years of age.

There are no works councils in Mexico.

1.5 Involvement of a union

If there is no works council, consent is given by the union commissioner (the union representative employed with the respective employer). The union‘s consent is required for the dismissal of a union commissioner during their period of office and for six months thereafter.

The involvement of a union in the dismissal will be tied to the actual rights and obligations assumed under the corresponding Collective Bargaining Agreement, which may provide for the right for the union to be present during the act of providing notice for the dismissal.

1.6 Approval of state authorities necessary

If the works council or union commissioner do not consent, consent can be substituted by a judicial or an arbitral decision.

Not necessary.

1.7 Collective redundancies

Employer who expects to terminate at least 20 employees, five of which due to business related reasons, all within a 90-days’ period, is obliged  to duly consult the works council / union commissioner in order to possibly reach an agreement to save the employees and / or limit the number of terminations. The employer is obliged to provide the works council / union commissioner with written information concerning the reasons for termination, total number of employees, number, professions and positions of employees who are supposed to be terminated, election criteria for such employees, amounts and way of calculating their severance payments and measures undertaken to prevent such terminations. Employer is obligated to consider and explain all possibilities and suggestions that may lead to avoidance of terminations. Also, the Croatian Employment Agency needs to be informed about the previously mentioned points and consultations with the works council / union commissioner.

Collective redundancies are only permitted in Mexico as a consequence of the closure of the company or the definitive reduction of jobs.

Such circumstances can include, inter alia, as a result of:

  • Acts of God;
  • Employer’s disability or death (where the employer is an individual) that results in the termination of work;
  • Non-profitability of the business;
  • Depletion of the product (in the extraction industries);
  • Bankruptcy, if the same results in the closure of the company y or o a definitive reduction of jobs.

The employer must obtain the authorisation of the Labour Board to implement the collective redundancies. If they are approved, the employer must pay the affected employees the statutory severance package, except for the requirement to pay 20 days of daily wage per worked.

In case of a definitive reduction of jobs, the employer shall take into consideration the seniority of the employees in order to affect primarily the workers with less seniority.

1.8 Summary dismissals

Summary termination (summary dismissal) is defined as termination without notice, and is only lawful where there has been: 

  1. a serious breach of employment obligations, or
  2. the employment relationship between the parties is no longer possible for another important reason (there are, therefore, two possible reasons: (i) breach of employment obligations; or (ii) another important fact; in either case, the employment relationship must not be possible any longer).

The employee is to be dismissed within 15 days of the day of becoming aware of the fact / reason for dismissal.

Summary dismissals are not allowed under Mexican law; failure to provide the corresponding notice to the employee will lead to the dismissal being considered as a dismissal without just cause.

1.9 Consequences if requirements are not met

If it is decided the dismissal is illegal, the employee is to be reinstated. Reinstatement is possible even before the end of the court procedure to determine the legality of the dismissal if the employee so requests. If the parties do not wish to continue with their employment relationship, the court shall at the employee‘s request determine:

  1. the date of termination of the employment contract; and
  2. compensation for damages, which ranges from three to eight times the employee’s average monthly salary over the previous three months (depending on the employee’s age, length of contract and obligations in relation to supporting family members or other dependants as defined by family law).

If the employer dismisses an employee without a just cause, or if it does not serve the notice of dismissal upon the dismissal, it will be obliged to pay the severance package and, in some cases, to reinstate the employee to his position.

1.10 Severance pay

An employee with an open-ended contract who has two years’ continuous service with the same employer (and is not being dismissed due to an intentional breach of contractual obligation) is entitled to a severance payment. The statutory minimum severance payment is calculated by multiplying one-third of the average monthly salary in the preceding three months by the number of years’ continuous service with that employer. The severance payment is capped at six times the average monthly salary, unless otherwise provided for by law, by-law, collective agreement or work contract

Employees hired for an undetermined term who are dismissed without a just cause are entitled to claim reinstatement or the payment of a mandatory severance package comprised of the amounts described below. Please note that in order to determine the “daily wage” it shall be considered the daily proportion of any employment benefits paid on a regular basis to the employee (e.g. private medical insurance; performance bonuses):

  • 20 days of daily wage for each worked year.
  • 90 days of daily wage as Constitutional Indemnification
  • 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
  • Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Employees hired for a determined term who are dismissed without a just cause are also entitled to a severance payment, but this is calculated differently, as follows:

  • If the employment relationship was for a determined term of time less than one year, an amount equal to the amount of the salaries of half the time of services rendered
  • If the employment relationship was for a determined and exceeded one year, in an amount equal to the amount of wages of 6 months of wage for the first year and 20 days of daily wage for each of the following years in which the employee had rendered the services
  • 90 days of daily wage as Constitutional Indemnification
  • 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
  • Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Where an employee is dismissed for a just cause under the Mexican Federal Labour Law, that individual will only be entitled to the payment of accrued salary and benefits, and will not be entitled to any of the other statutory severance payments outlined above.

1.11 Non-competition clauses

Post-contractual non-competition clauses must last no longer than two years from the date of termination of the contract. The employer is obliged to pay compensation (at least one-half of the average monthly salary paid in the last three months of employment). The covenant will not be valid if the employee is a minor or if the employee‘s salary amounts to less than the average national salary.

The non-competition clause does not apply if: (i) the employee terminates the contract without notice period (extraordinary termination) and does not state that he does agree that the clause applies; or (ii) if the employee is dismissed without a justified reason, unless the employer undertakes to pay the prescribed remuneration for the duration of the clause.

Non-compete arrangements on individuals are generally unenforceable under Mexican law, as they are perceived by courts to limit an individual’s constitutional rights to employment and to exercise a profession.

That said, the Mexican Supreme Court has ruled that under very limited circumstances (e.g., where there is proportionate compensation, and limitation of time and geographic scope), non-compete agreements may be enforceable. The enforceability of non-compete (and no-solicitation) arrangements in Mexico must be carefully analysed on a case-by-case basis.

1.12 Miscellaneous

Not applicable.

Relocation of the company / Change location of the work

There are some court precedents establishing that changing the working place is a unilateral change to the labour conditions. Therefore, it will allow an employee to terminate the employment with a just cause and consequently accessing to the severance package payment.

2. Dismissal of managing directors

It should be noted that the title ‘managing director’ is not recognised under the Croatian Companies Act or other relevant applicable legislation. The Croatian Companies Act recognises only a ‘director’, who is authorised to represent the company and obliged to be registered as a member of the management board with the respective commercial court.

A managing director need not to have an employment agreement with the company, or any other type of agreement, in order to be able to represent the company.

Where a managing director has a  managing / service agreement  which falls under the regulation of Croatian obligatory law, only the provisions of the managing / service agreement apply. If aspects of the relationship are not dealt with in the managing / service agreement, the relevant provisions of the Croatian Obligations Act will apply.

Where a managing director does not have any employment or managing / service agreement with the company, he shall be treated as a member of the management board only.

The table below sets out the position under Croatian law with respect to the managing directors of a limited liability company, with and without service agreements.

2.1 Reasons for dismissal

No special reasons required (unless otherwise specified within the statute of the company or the contract itself).

Where the managing director has a service agreement, the provisions of that service agreement (and consequently the Croatian Obligations Act) will apply.

If the managing director is a member of the management board according to the statute of the company (and not only appointed by resolution of the shareholders), the company statute may set out that revocation is only possible for special reasons.

Pursuant to Mexican Law, employees who perform

  • direction, inspection, vigilance or supervision activities, when such are of a general nature (so that they apply to all the areas of a company); and / or
  • personal services for the employer (so that they are in personal / direct contact with the employer regardless of their position / activities). 

will be considered as trust-employees.

The classification of a trust employee depends on the activities performed and not on the name given to their position.

Based on this, Directors will be considered as trust-employees and therefore, some special rules will be applicable for their dismissal.

At-will employment does not exist in Mexico, and termination at-will clauses are only applicable in favor of the employee, therefore employers may not terminate employment relationships without just cause, i.e. unfair dismissal.

There is a closed list of causes in the Mexican Federal Labor Law and a set procedure to terminate employees, at any time without incurring in liability, which includes, inter alia:

  • false statements about work qualifications;
  • breach to the disobedience or honesty principles;
  • vandalism;
  • sexual harassment;
  • alcoholism in the workplace;
  • revealing company secrets;
  • refusing to comply with safety procedures; and
  • four unexcused absences in a 30-day period.

In the case of Directors, in addition to the regular causes, the employer may terminate the employment relationship with a trust-employee if there is a reasonable ground for loss of trust.

However, if the cause of dismissal of a Director is loss of trust, and if the trust-employee, i.e. the Director, was promoted from a non-trust employee position, the employer will have to switch him back to the non-trust position rather than to dismiss him.

If there is no substantial motive or evidence, labour relationships can be terminated via a voluntary agreement where the employee is entitled to statutory benefits and possibly some form of compensation (each case must be treated individually through human resources).

If in any case there is no termination with just cause or a negotiated exit for the Director, the Director is entitled to claim for wrongful termination and sue either for substantial statutory benefits, lost salaries and the severance package. Given that the Director is a trust-employee, it won´t be entitled to request reinstatement in the job position, but will be obliged to receive the statutory severance pay.

Trust-employees must claim within 60 days following alleged wrongful termination.

Before the Director is entitled to sue for either substantial statutory, the employee and the employer will be subject to a "conciliation hearing", which shall not last more than 45 calendar days. If the conciliation is not successful, then the employee will be entitled to proceed with his/her claims against the employer.

2.2 Form

Valid shareholders’ resolution on revocation of appointment as member  of the management board. Registration of this revocation with the court registry. Termination of the service agreement in the same form in which the agreement has been signed (Obligations Act provisions shall apply).

If an employer has just cause to terminate an employment relationship, there is an obligation to give personal notice to the employee or, where not possible, to the competent Labour Board, and to prove the cause for dismissal. If the notice is not delivered, the termination will be deemed to be without cause.

2.3 Notice period

According to the Croatian Companies Act, the appointment of a director of the company can be revoked at any time without notice (for no special reason). Some restrictions (not strictly defined) can be set out within the statute of the company.

If the director has a service agreement, the notice period will be as set out in the service agreement.

There is no obligation to serve a notice in advance to the employee in case of dismissal but only upon the dismissal moment. The notice shall contain the just causes for dismissal, and the date of their occurrence.

If not possible to deliver the notice to the employee, the employer shall serve the notice to the competent Labour Board and provide it with the last known domicile of the dismissed employee.

Failure to deliver the notice to the employee or to the Labour Board will de be deemed as a dismissal without just cause.

2.4 Involvement of works council

No involvement.

There are no works councils in Mexico.

2.5 Involvement of a union

No involvement.

The involvement of a union in the dismissal will be tied to the actual rights and obligations assumed under the corresponding Collective Bargaining Agreement, which may provide for the right for the union to be present during the act of providing notice for the dismissal.

Pursuant to Mexican Federal Labour Law, trust-employees, such as Directors, cannot be members of the same union as of normal employees.

2.6 Approval of state authorities necessary

Respective commercial court brings a resolution on registration of the resolution in the court registry. The court’s resolution and registration are declaratory.

Not necessary.

2.7 Collective redundancies

Not applicable.

Collective redundancies are only permitted in Mexico as a consequence of the closure of the company or the definitive reduction of jobs. Such circumstances can include, inter alia, as a result of:

  • Acts of God;
  • Employer’s disability or death (where the employer is an individual) that results in the termination of work;
  • Non-profitability of the business;
  • Depletion of the product (in the extraction industries);
  • Bankruptcy, if the same results in the closure of the company or o a definitive reduction of jobs.

The employer must obtain the authorisation of the Labour Board to implement the collective redundancies. If they are approved, the employer must pay the affected employees the statutory severance package, except for the requirement to pay 20 days of daily wage per worked.

In case of a definitive reduction of jobs, the employer shall take into consideration the seniority of the employees in order to affect primarily the workers with less seniority.

2.8 Summary dismissals

Not applicable.

Summary dismissals are not allowed under Mexican law; failure to provide the corresponding notice to the employee will lead to the dismissal being considered as a dismissal without just cause.

2.9 Consequences if requirements are not met

If there is no valid shareholder resolution, the revocation will be invalid and the court will refuse to register it in the court registry. Where the managing director has a service agreement, he could claim:

  1. compensation for damages; or
  2. fulfilment of contractual obligations in accordance with the provisions of the Croatian Obligations Act.

If the employer dismisses an employee without a just cause, or if it does not serve the notice of dismissal upon the dismissal, it will be obliged to pay the severance package.

2.10 Severance pay

Severance pay may be specified in the managing director’s service agreement (this is usually a large sum).

Trust-employees such as Directors, hired for an undetermined term who are dismissed without a just cause are entitled to the payment of a mandatory severance package comprised of the amounts described below. Please note that in order to determine the “daily wage” it shall be considered the daily proportion of any employment benefits paid on a regular basis to the employee (e.g. private medical insurance; performance bonuses):

  • 20 days of daily wage for each worked year.
  • 90 days of daily wage as Constitutional Indemnification.
  • 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
  • Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Employees hired for a determined term who are dismissed without a just cause are also entitled to a severance payment, but this is calculated differently, as follows:

  • If the employment relationship was for a determined term of time less than one year, an amount equal to the amount of the salaries of half the time of services rendered.
  • If the employment relationship was for a determined and exceeded one year, in an amount equal to the amount of wages of 6 months of wage for the first year and 20 days of daily wage for each of the following years in which the employee had rendered the services.
  • 90 days of daily wage as Constitutional Indemnification.
  • 12 days of daily wage as Seniority Bonus for each year of service that the employee has worked. For purposes of this concept, the daily wage is capped at twice the amount of the minimum daily wage.
  • Any accrued salaries and pro-rata benefits (including unused vacation days plus its vacation premium, Christmas bonus and any other accrued benefit).

Where an employee is dismissed for a just cause under the Mexican Federal Labour Law, that individual will only be entitled to the payment of accrued salary and benefits, and will not be entitled to any of the other statutory severance payments outlined above.

2.11 Non-competition clauses

The managing director, as a member of the management board, is prohibited from doing the following without the approval of the supervisory board (or the shareholders, if the company does not have a supervisory board):

  1. being a member of the supervisory board or management board of another company with the same business activities; or
  2. performing business activities equal to those of the company for his or somebody else’s account; or
  3. using the company’s premises for performing business for his own or somebody else’s profit. The company is entitled to compensation for any damage caused.

Non-compete arrangements on individuals are generally unenforceable under Mexican law, as they are perceived by courts to limit an individual’s constitutional rights to employment and to exercise a profession.

That said, the Mexican Supreme Court has ruled that under very limited circumstances (e.g., where there is proportionate compensation, and limitation of time and geographic scope), non-compete agreements may be enforceable. The enforceability of non-compete (and no-solicitation) arrangements in Mexico must be carefully analysed on a case-by-case basis.

2.12 Miscellaneous

Not applicable.

Relocation of the company / Change location of the work

There are some court precedents establishing that changing the working place is a unilateral change to the labour conditions. Therefore, it will allow an employee to terminate the employment with a just cause and consequently accessing to the severance package payment.