Mexico: Sixth National Commission for the Employee Profit Sharing violates its Legal and Constitutional Mandate

Note published in L&E Global, in the México Section, by the Editorial Department.
Read the note in its original source

On 18 September 2020, the resolution issued by the Sixth National Commission for the Employee Profit Sharing was published in the Federal Official Gazette. The resolution established that there were not enough ‘grounds’ to review and make an informed decision as to the Employees Profit Sharing percentage rate; therefore, the Commission determined that the percentage was to be kept at 10% (established in 1985).

More than 50 years ago, during the presidency of Adolfo Lopez Mateos, the first decree to grant employees the right to receive the payment of the Employee Profit Sharing was published, on 21 November 1962. The decree stated that a Commission would set the percentage to be distributed among the workers.

In 1963, the First Commission established the percentage at 20%; this percentage has undergone some modifications by the respective Commissions that followed. However, since March 1985, the percentage has been kept at 10%; which means the percentage has not been changed in nearly 35 years, even though today’s economic conditions are very different from those which existed in 1985. Some statistics that highlight the different economic conditions, reveal that in 1985 inflation was 63.755 and the CETES return was 61.59%, while today, inflation is around 4.83% and the CETES return is 8.5%.

When the amendment initiative was presented to the Congress, the fifth recital clearly stated that the percentage was to be set, with consideration given to the need to encourage industrial development and after a thoughtful study was conducted regarding the general economic conditions. In accordance with that objective, section 123, subsection IX of the Mexican Constitution established that the percentage was not to be set in an arbitrary way, but by a National Commission, which would carry out all necessary economic studies in order to ascertain the national economic situation, while taking national developments into account, encouraging investments and recognising the reasonable interest that capital ought to receive. The corresponding provisions also established the Commission’s obligation to review the percentage when conditions exist that justify doing so.

Reinforcing what was set out in the Constitution, section 587 of the Federal Labour Law (hereinafter “FLL”) affirms the Commission’s obligation to review and determine the percentage to be paid; section 118 denotes the Commission’s duty to carry out all necessary investigations and review all relevant studies in order to identify the general conditions of the economy and take into consideration the need to encourage industrial development; the right to have a reasonable return and the appropriate reinvestment of capital, when determining the percentage to be paid. Furthermore, section 586 of the FLL, clearly states that the resolution had to express the reasons or evidence to support their Commission’s conclusions, taking into account the aforementioned objectives and findings. Finally, section 588 of the FLL provides that the Council of Representatives may deny the petition to review if the grounds are insufficient to initiate the revision procedure.

The resolution issued by the Sixth National Commission explains that on 9 September 2020, the first session of the Council of Representatives was installed, as well as the Commission itself. It further provides that during this first session, the Commission examined the proposed foundations that formed the basis necessitating the petition to review the percentage, thus (per the Commission’s contention) fulfilling all requirements, objectives and considerations asked of the Commission, as mentioned in the Constitution and the FLL, on the same day. Consequently, the Sixth National Commission determined, during that same session, to deny the revision of the percentage without any additional queries, based solely on the fact that the information given in the petition was deemed insufficient.

Now, bearing in mind the diverse statutory provisions and the aims established therein, even if there were “not enough” grounds (in the petition) to review, it is reasonable to conclude that the Commission nevertheless had a legitimate, Constitutional and legal obligation to independently conduct its research. Additionally, the Commission, acting as a state authority, was required to furnish the reasons or evidence to support the conclusions reached in the resolution. Taken together, the circumstances show that the Commission members were clearly bypassing their responsibilities, when they decided to deny the petition for review and keep the employee profit sharing percentage at 10%.

By breaching the mandate that was entrusted to it, the Commission has forced Mexico to uphold a profit sharing percentage that was set nearly thirty-five years ago, that does not accurately reflect the country’s current economic conditions, and which disproportionately burdens businesses. Preserving the status quo limits an organisation’s development and competitiveness, which makes local and foreign investments in Mexico far less attractive, while compelling companies to use schemes of insourcing or outsourcing to absorb the economic impact. Similarly, keeping the Employees Profit Sharing percentage at 10% will negatively affect employees as well, since the end result is a reduced labour market with fewer and less desirable opportunities for workers.

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