On March 11, 2020, the World Health Organization (“WHO”) issued a pandemic declaration as a result of the virus SARS-COV2 (which causes the disease known as COVID-19). In Mexico, there are currently 251 confirmed cases, and counting.

According with estimates of the International Labour Organization, this pandemic will increase global unemployment by 5.3 million (under a “prudent” hypothesis) or by 24.7 million (under an “extreme” hypothesis). In comparison, the global financial crisis of 2008-2009 increased global unemployment by 22 million.

Up to this date, the competent health authorities in Mexico (i.e. the President, the General Health Council, the Ministry of Health and State/Mexico City governments) have not issued a formal declaration of health contingency in regards with COVID-19. However, a few of those authorities and the civil society in general have promoted and applied recommendations aligned with those issued by the WHO to prevent the propagation and contagion of the virus, specially “Social Distancing” measures.

Specifically, last Friday March 20 the Ministry of Labor and Social Welfare (“STPS”), in coordination with the Ministry of Health, issued an “Action Guide for the Workplace against COVID-19” (“Guide”), in which among other things the STPS considered the possibility for employers to implement several “temporary policies” (as further described below). We recommend reading the full Guide in the following link:

https://www.gob.mx/stps/documentos/guia-de- accion-para-los-centros-de-trabajo-ante-el- covid-19

The COVID-19 pandemic has certainly affected the productive and economic activities in Mexico, situation which has been aggravated due to additional macroeconomic factors that converge simultaneously in the rest of the world.

As a consequence, concerns naturally arise regarding the labor implications for employers, and the available alternatives to mitigate its effects.

What can I do BEFORE a health contingency is formally issued?

The Federal Labor Law (“FLL”) sets forth certain cases and specific mechanisms to collectively suspend employment relationships before a health contingency is issued. The effect of such a measure would temporarily suspend the obligation of the workers to render their services, as well as the obligation of employers to pay salaries.

However, such measure requires for employers to inform and request the approval of the competent labor authority, which is unlikely to happen considering that, paradoxically, most Conciliation and Arbitration Boards in Mexico have suspended activities due to the pandemic.

Notwithstanding, there are additional alternatives to reduce labor costs for companies during the COVID-19 pandemic and avoid permanent closings and loss of jobs in the country.

Such alternatives include “work stoppages” (“paros técnicos”), work shift reduction, flexible work shifts, remote work or “Home Office”, anticipated use of vacation time, etc.

Please note that the applicability and effectiveness of each of the foregoing alternatives depend on the nature of the productive activities of the employer and the specific characteristics and duties of each position and, thus, it is advisable to conduct a proper evaluation before its implementation.

Likewise, considering that in Mexico employers cannot unilaterally modify work conditions of its workers, any preventive measure of this nature should be (i) expressly convened with the workers; and (ii) formalized in writing. In these cases, the practical and logistical aspects when preparing and delivering the message to the workers are of extreme importance and, hence, should be carefully and adequately planned.

Some of the foregoing alternatives have been confirmed by the STPS in the Guide, particularly in Section 5.5.

Once the suspension of work due to a health contingency has been formally declared…

Section VII of Article 427 of the FLL states that the declaration of a health contingency by the competent health authorities is a legal cause for temporary suspension of employment relationships in Mexico.

For such a purpose, employers are not required to obtain the approval or authorization of the authority. However, according with section IV of Article 429 of the FLL, employers are obliged to pay to their workers an indemnification equivalent to one daily minimum wage for each day of suspension, without exceeding of 1 month.

The daily minimum wage in force is equivalent to $185.16 Mexican Pesos in the Free Zone of the Northern Border, and to $123.22 Mexican Pesos in the rest of the country.

Please note that the FLL does not contemplate what would happen in case the suspension of work due to a health contingency lasts for more than one month.

However, in our view, the payment of the indemnification of 1 daily minimum wage for each day of suspension constitutes a temporary exception to the general rule applicable to suspensions of employment relationships, consisting of suspending the obligations to render services, and to pay the salaries. Thus, once the term of the exception is over (1 month), the foregoing general rule should prevail and, thus, employers should not be obliged to continue paying the indemnification, or the salaries of its workers.

If you wish to obtain additional information, we would be delighted to assist you.