Mexico: A Changing Labor Landscape

Hello. I’m Alan Wild and welcome to the Wild side podcast Managing employee relations in global and millennial times … 10 minutes at a time. Today is the first of our episodes containing country cameos.  The cameo series are not intended to offer a complete guide to the framework for and practice of employee relations in the country and are certainly not aimed at the country specialist.  They try to offer insights that enable the international practitioner to know enough to assess areas of risk and ask the right questions.  It helps to understand that Brazil is the most litigious country in the world when it comes to employment issues; that individual complaints per thousand employees are highest in India; and how France can have very low trade union membership but close to 100% employee coverage by collective bargaining agreements. I’m not going to talk about any of those countries right now but will start with Mexico.  A strange choice?  Not really. Before May of 2023 more than 90% of Mexico’s industrial companies were covered by collective bargaining agreements. By June 1^st this had dropped to less than 20%. According to Reuters, some 139,000 CBAs dissolved in the month of May. Listen on and we’ll talk about how that happened and what companies should be thinking about.

More of that in a moment  …   … as you know, I’m Alan Wild, senior adviser on global employee relations for the HR policy Association … the leading voice of CHRO’s today.

Let’s start with some basic data …
Mexico was one of the world’s first advanced civilizations, including the Mayans and Aztecs, but was conquered and then ruled by Spain in the early 16^th century.  Independence from Spain was achieved in 1820. The country has the tenth largest population in the world with close to 130 million citizens. A quarter live close to Mexico City and other major population centres are Guadalajara, Monterrey, Puebla and Tijuana. The country has 32 States.  Economically Mexico has extremely strong ties to the United States and is the US second largest trading partner after Canada.  The US is by far Mexico’s biggest trading partner taking more than 60% of its exports. Second is China with something around 13%. Agriculture produces 3.6% of GDP but employs 13,4% of the population; Industry is much more productive producing 31.9% of GDP with 24.1% of the workforce. Services make up 64.5% of the economy and occupy a similar proportion of the workforce. It is important to understand the Maquiladora operations primarily clustered on the border with the United States.  The Maquiladora factories enjoy the ability to import production equipment, components and materials duty free from the United States and export their produce to the US at lower tariffs. More on the employee relations impact of this later.  Finally, Mexico is famous for a different kind of economy, as the source and transit for illicit drugs destined primarily for the United States. The Maquiladora and drug cartels operate in the very same border regions.

The current President is Andres Manuel Lopez Obrador  … normally referred to as AMLO … who won the election in 2018 and signed the important US-Mexico-Canada Agreement – the USMCA – in July 2020.  The employment related provisions came fully into force in May 2023 and turned Mexican employee relations on its head. Much more on that later. The next election is scheduled for July 2024.

Before we move into the meat let me say a few words about the Mexican trade unions. In truth this is quite difficult. With the new legislation the structure of Mexican unions is in flux and much of the literature and data are out of date.  The major confederation of trade union is the CTM (Confederación de Trabajadores de México). The CTM has been the face of the most moderate trade unions in Mexico and played an integral role in the labour landscape that existed prior to new labor laws in 2020.  The most active trade unions in Mexico, the so called “red unions” are to be found in the motor industry (SITIMM), metalworking (STIMACH), electrical (SME), Tires (SNTGTM) and expanding from a base  in extractive industries  the SNTMMSSRM … not surprisingly, more normally referred to as Los Mineros.  These unions are members of the Global Union Federation IndustriALL.

As I said earlier, some 139,000 CBAs primarily with CTM member unions were dissolved in May 2023. On the surface the CTM has much to lose, and the red unions have the opportunity to secure significant gains. The evidence is that most Mexican workers do not care much about trade unions, the CTM unions are not organized or resourced to conduct massive organizing campaigns and the red unions are largely unpopular and associated with workplace disruption. Meanwhile new and independent unions, like SNITIS formed by the lawyer, activist, congresswoman, and star of the Matamoros 20/32 victory Susana Prieto Terrazas are taking ground away from the CTM unions.

Let’s take a quick look at the Mexican Labour code.  Federal employment regulations are comprehensive covering working hours, overtime, rest days, maternity, minimum wages, wage payment, profit share, training, health and safety, termination, trade unions and collective bargaining.  In employee relations terms two issues are worth mention. First, there are two minimum wage levels, one for the country and another, higher one, for the border regions. Second, profit share. There is a mandatory annual bonus of 15 days pay and profit sharing (the PTU). The PTU, of 10% of taxable income is generally paid in April or May and is now capped at 3 months’ pay. The profit share calculations must be made available to employees and can be challenged by a representative trade union or a majority of employees. More later.   Specific employment terns are governed by regulations, employment contracts, internal work rules and registered collective agreements.

Despite the relatively sophisticated, labor code, Mexico is what I have described as an immature employee relations system, and this is particularly true in the border region. Two examples show how this immaturity has manifest itself.  The auto components supplier Johnson Controls was targeted for recognition by the militant miners union, Los Mineros. Despite the fact that the company had an existing and legitimate CBA under the prevailing legislation, and there was no indication that employees had any interest in Los Mineros, the union blockaded a factory in Puebla to prevent workers entering the factory and effectively shut down production. This was not an unusual “organizing” tactic under prior laws.   In the town of Matamoros, the lawyer and labour activist Susana Prieto used her strong social media presence to bring 90,000 employees on strike in 90 companies, and against an agreement on minimum wages that had been struck with the union.  This resulted in the famous 20/32 settlement … a 20% pay rise and 32,000 pesos bonus to all workers.

Let’s turn now to where we started … trade union recognition and collective bargaining.  To understand the current labour code it is important to understand the history. Very briefly, trade union law in Mexico made it difficult for a union to organize if a company already had a bargaining agreement with another union.  In the face of militant left-wing unions, companies entered so called protection agreements with employer friendly unions to keep the militants out. The company paid union dues to the union and very often the employees were unaware of the exitance of a union or an agreement. In 2020 it was estimated that 95% of Mexican companies had protection agreements. In 2018 Mexico ratified the ILO Convention 98 and followed that with the USMCA in 2020 that guaranteed labour rights in the trade agreement.
New laws were passed in May 2020 and came fully into force in May 2023.  The objectives of the law were twofold. First, to make it easier for representative trade unions to gain bargaining rights. Second, to make illegal the widespread violent union organizing tactics described at Jonson Controls. The laws outlawed employer supported unions and gave companies three years either to have the so- called protection agreements legitimized with employee support or become invalid. Over the three years, whilst some companies have formally recognized unions, the vast majority have not … and are therefore union-free.  This allows trade unions the right to openly campaign for membership and bargaining rights free from employer interference.  The new laws are not only policed by new Mexican regulations, but the USMCA provides for a unique in the world “facility-specific rapid response mechanism” that allows US or Canadian bodies, including trade unions, to complain about employer anti-union behaviour in Mexico and to investigate claims.  The current US administration and US unions see this as essential to reduce the cost advantages associated with Mexican exports to the US.  The penalties can include trade sanctions on the company involved. As I speak there have been some 16 cases, mostly in the Auto sector.  These cases are setting out the new ground for trade union recognition and bargaining in the country.  Importantly they, together with Mexican courts, are defining what is meant by employer inference as opposed to the legal right of employers to seek to influence employee decisions.  These rules, as they emerge, are unlikely to be as permissive as NLRB decisions in the United States and may go so far as to require complete employer neutrality.

So, what should companies be doing?  let’s simplify it by describing three circumstances. First, and least common, are the companies that have long standing CBAs with established Mexican so called “red unions”. These are typical in the extractive and parts of the motor industry. For them life does not change much and remains as tough as it ever was.  More positively the laws will make certain common aggressive union tactics illegal.  Second, those companies that have legitimized their agreement with a “white union” with employee support.  Life will become more difficult as the union now must act in a transparent way. Any agreement they reach with the company is no longer a closely guarded secret but must be voted on by the workforce.  This means the unions will have to become more representative of worker views rather than act as “rent collectors” from employers.  Third, and the current majority, is those companies that are currently union-free and are no longer protected from organizing campaigns through a pre-existing agreement. For these companies, continuous work on employee engagement is the rule. They should pay particular attention to the campaign focus on gender equality, profit share, safety and wages and hours practices. For them, listening and responding to employee voice is crucial, as is keeping close to what is happening in other employers in close geographic proximity.  As we saw in Matamoros, in immature systems protest actions can be contagious and escalate quickly.

Let me leave you with a final and more strategic thought.  For many companies Mexico has regionally formed a part of LATAM, managed along with Argentina, Brazil, Chile, etc. The characteristics of Mexico and its protection contracts have never really fitted with the LATAM model … neither did they fit with the US.  Today Mexican laws, at least on paper, look very much like the US and the relationship between Mexican and US unions is becoming ever closer.  It may be wise to reconsider Mexico as a North American country, along with Canada, rather than belonging to Central and `South America.

I’ve given a short insight in managing employee relations in Mexico … and it is likely that we will review this as the new `Mexican reality emerges.  But let me stress, a little knowledge can be a dangerous thing and don’t hesitate to look for support if the climate in your company changes.  I’m Alan Wild and you have been listening to a walk on the wild side.