Termination of Employment

Learn about the different ways to terminate an employment contract…

Termination of employees is closely regulated and falls into one of three categories: termination with fair cause, termination without fair cause, and by mutual agreement. In most instances a severance payment will be owed to the employee based on the employee’s daily wage (including benefits, bonuses, commissions and salary).

Termination with Fair Cause

Fair cause refers to significant violations by employees of employment terms to the detriment of the employer. Termination with fair cause may be justified if the employee:

  • falsifies credentials or lacks legal ability to perform his or her job
  • engages in work-place violence, dishonesty, abusive treatment, sexual harassment, or slander against fellow employees, managers, employers, clients, suppliers or administrative personnel or their families
  • intentionally or negligently produces material damages in the work place
  • compromises the security of the working place or personnel through negligence
  • performs immoral acts in the work place, including reporting for work under the influence of drugs or alcohol
  • reveals manufacturing secrets, or publishes reserved matters, causing damage to the employer
  • disobeys the employer without just cause on a work-related matter
  • becomes incarcerated

In case of “employees of trust” (i.e. employees responsible for inspection, security, investigation or personnel) the employer may terminate with fair cause if there is reasonable cause to have lost confidence in the employee.

Termination without Fair Cause

In the event of dismissal without fair cause, the terminated employee may demand reinstatement; the exception to this is “employees of trust” who may only demand certain payments. Employees who are not reinstated are entitled to a severance package based on three months salary, 20 days of salary for each year of employment, a seniority premium of 12 days per year of employment, a pro-rated share of vacation pay, Christmas bonus and profit sharing and any salary accrued between the date of termination and the payment of the severance amount. In cases where the terminated employee must bring a claim for wrongful dismissal, a finding against the employer will entitle the employee to an additional payment of three months salary and up to a year’s wages to compensate for the time it took to resolve the labor proceeding.

Termination by Mutual Agreement

In some cases, particularly with respect to “employees of trust” it may be preferable to dissolve the labor relationship without allegation of fault or breach of obligations by either of the parties. In this case, the employee will be entitled to receive a severance payment based on a minimum of six vacation days, a Christmas bonus, the profit-sharing amount, and a seniority premium equal to 12 days salary for each year worked over 15 years. Mutual agreements to terminate should be ratified by the local Labor Arbitration Board to prevent the employee from later arguing that that the termination was not for fair cause. Employees may request additional payments in order to give their consent to a mutual termination, but additional payments will be less than what would be owned in the case of a termination without fair cause.

Labor Unions and Collective Bargaining Agreements

According to Mexican labor law, unions may ‘take over’ the relationship between companies and their employees and establish their own terms, or force the company into a collective bargaining or strike situation. This can happen independently of the will of the employees. For this reason, it may be advisable to consider establishing a relationship with a friendly union that insulates the company against ‘take overs’ by aggressive unions.

In such cases, a “soft” or “sweetheart” agreement maybe arranged whereby the union agrees not to disturb the company and simply collects an annual fee based on the number of employees in the company. The fee in this instance will usually be less than would be charged by an unfriendly union.

Employees who are not member of a union can seek the protection of a union at any time, and can require that the company enter into an agreement with union.

Jorge G. Santistevan of Santistevan Abogados, S.C. Tel: (55) 5557 1515 / (55) 5557 1775 Website Email The information on this page is not intended to provide a comprehensive treatment of the subject matter; readers should seek legal advice before taking any action with respect to the matters discussed herein.