Legal experts talk about the options available to companies in the face of emergency events and the workers’ situation.
The Mexican government announced today the entry into Phase 2 in the health contingency due to the Coronavirus (Covid-19) outbreak, but the impacts of the pandemic had already been felt in the workplace. During this period, by mandate of the federal government, activities are further reduced to prevent contagion, which occurs exponentially in gatherings of numerous people.
Some automakers in the country had already announced that they were going to suspend production for a few days. Ford, for 10 days; Honda for six days, Toyota, for a couple of days to analyze its situation (today is their second day) and General Motors, in San Luis Potosí, gradually. In addition, restaurant chains, such as Sonora Grill and Six Flags are examples of those who have temporarily closed their doors.
HOW LONG CAN COMPANIES KEEP PAYING SALARIES OR SHOULD THEY BE THINKING OF REDUCING SALARIES AND RETHINKING FUTURE HIRING?
The legal action framework contemplates this type of circumstance, but it was extensively limited as a result of the 2010 amendment to Article 427 of the Federal Labor Law on labor suspensions and the payment of salaries. Labor lawyers emphasize that the Federal Labor Law provides for the scenario of 30 days’ suspension of activities.
“We are faced with an unusual and difficult scenario for organizations”, states Óscar de la Vega, founding partner of De la Vega & Martínez Rojas. Several questions arise as a consequence of this situation.
UNDER WHICH CIRCUMSTANCES CAN COMPANIES SUSPEND THEIR ACTIVITY?
Article 42 of the LFT [Federal Labor Law] specifically states that there must first be a declaration of a health contingency by the competent authorities: the President of the Republic, the Department of Health, states’ governments, that require the suspension of work. Article 427 of the abovementioned law establishes the suspension of labor or work required by the competent health authority in case of a health contingency.
As of today, there is no such decree. As soon as it happens, the employer has the obligation of making a single payment to each employee for each day of the suspension, which cannot exceed one month. “It is a type of compensation, which does not mean that salaries can be reduced before those 30 days are over”, explains De la Vega.
SHOULD THE AUTHORITIES BE INFORMED ABOUT THE SUSPENSION?
The company adheres to the payment of one month on the grounds of the health contingency and, if the Government declares said health emergency, companies don’t even have to wait and request a suspension permit from the Federal Conciliation and Arbitration Board. “This is already happening, companies are closing, as a precaution”.
WHAT HAPPENS ONCE THE EMERGENCY HAS BEEN DECLARED?
If the contingency has already been declared, the minimum compensation established by the Federal Labor Law is of one minimum wage for each day of suspension, for up to 30 days. The above is established in Article 429 of the LFT (Section 7) “The employer will not require the approval or authorization by a court; it will only have the obligation of paying its workers a compensation equivalent to one day of the general minimum wage in force for each day of suspension, for a period not to exceed one month”, specifies Carlos Alberto Rojas.
Lawyers state that companies have the obligation to continue paying employer obligations, such as social security during the suspension period; nevertheless, they are also subject to other obligations, such as suspending the labor relationship, for the complete duration of the health contingency, in the case of women in the stages of gestation or lactation and for minors under 18 years, as shared through a statement issued by the Hogan Lovells Law Firm.
IS THE SITUATION THE SAME IN THE CASE OF RESTAURANTS, MOVIE THEATERS, BARS AND OTHER PLACES IN WHICH A LARGE AMOUNT OF PEOPLE GATHER?
Germán de la Garza, partner at the Mowat Firm recalls that these venues are subject, as other companies are, to the provisions of the Law in Article 427 (Section 7) on the suspension of activities in case of health contingency and, therefore, the payment of compensation for 30 days also applies.
In practice, it is possible that companies in this area of business, seriously affected due to the closing of their facilities, could be negotiating a decrease in wages or a decrease in staff. “A lot depends on the financial situation and the size of the organization”, said Óscar De la Vega. He mentions the example of companies within the tourism sector, which have reduced working hours; a temporary decrease that can be negotiated between unions, companies and employees in order to avoid layoffs and which can be resorted to as a consequence of the current situation.
Termination at this time, without compensation and with the sole purpose of decreasing costs is not endorsed by the Law and can lead to a lawsuit by the employee, states De la Vega.
WHAT HAPPENS IF THE SUSPENSION OF WORK LASTS LONGER THAN A MONTH?
Should the health contingency last longer than a month, negotiation with the workers will become necessary in order to maintain headcount, but surely together with a decrease in salary. “Unions are key in this negotiation”, recalls Germán de la Garza, partner at the Mowat Firm, with experience in the aftermath of the Type A, Subtype H1N1 Influenza pandemic.
In the opinion of Carlos Alberto Rosas, negotiation will not be easy, particularly in the case of companies that do not have unions. He foresees difficulties for the legal areas, in the area of the review of the contracts of the workers who do not agree to a decrease. And “at the core” – he says – the dilemma will focus on terminating some of the workers or assuming a zero hiring policy for the remainder of the year. “It is a fact that many companies will not be able to withstand this, the focus is on small and medium companies”, adds the specialist on labor matters from the Universidad la Salle.