Note on the proposal to cap employee profit sharing at three months.

The Department of Labor has published a bill for the reform of Article 127 of the Federal Labor Law, with the objective of including a Section VII, to establish the following:

“Article 127.- The right of workers to participate in profit sharing will be subject to the following norms:

VII.- The amount of participation in profit sharing will have, as an upper limit, three months of the worker’s salary or the average of the participation received in the last three years; the amount that is most favorable to the worker will apply.”

Regardless of the fact that it is a measure that could have a positive effect in alleviating the cumbersome and anticompetitive effect of applying a 10%, out of the percentage on companies’ profits, a percentage that was established over 35 years ago, and which was ratified by the Sixth National Commission for employee participation in company profits without taking the current situation of the national economy into consideration, the establishment of a cap does not solve the structural problem posed by the high percentage set for profit sharing.

In effect, small and medium companies cannot pay profits on the basis of three months of salary forced on them by the percentage of 10% which, in turn, is anti-competitive for large companies.  A situation that has given rise, in great part, to personnel subcontracting, a practice that, being prohibited according to the reform bill proposed by the Executive Power, will further worsen the already severe economic crisis that the country is going through and, thus, unemployment.

What should be solved is the underlying problem, calling the National Commission again in order to revise the percentage of participation in terms of Article 123 of the Constitution, in its Section IX, which in its paragraphs b and c establishes:

“The Commission will conduct the necessary and appropriate studies to acquire knowledge of the general conditions of the national economy. It will also take into consideration the need to promote the national development of the Country, the reasonable interest that capital should receive and the necessary reinvestment of capital;

b) The same Commission may review the defined percentage when there are studies and research that justify this;”

Additionally, the National Commission must set the percentage in accordance with the provisions of Article 118 of the Federal Labor Law.

“Article 118, In order to determine the percentage that the previous article refers to, the National Commission will conduct research and perform the necessary and appropriate studies to acquire knowledge of the general conditions of the national economy and will take into consideration the need to promote the industrial development of the country, the right of capital to obtain a reasonable interest and the necessary reinvestment of capital.

The decision reached by the Representative Council of the Sixth National Commission for Employee Participation in Company Profits was published in the Official Gazette of the Federation on September 18, 2020 and, in accordance with Article 589, will have a validity of at least 10 years, that is, until the year 2030.

This 10-year term applies only to the requests for review made by unions, workers’ and employers’ federations and confederations, but not for the Department of Labor which, in accordance with Section I of article 587 may call the Commission whenever there are studies that justify this, which is the case at this time, and establish a reasonable percentage that is in accordance with the current economic reality, also taking into account the need to protect our companies in a context of globalized competition.

Therefore, while not ceasing to consider that the three month salary cap on company profit sharing helps in some way, it is still a palliative and not a substantive solution to the problem deriving from the decisions made by the Sixth National Commission on profit sharing and, therefore, the Department of Labor should consider calling the National Commission and solving the underlying problem by establishing a profit sharing percentage in accordance with the constitutional mandate and the economic reality of the country and its companies.