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Mexico: Presidential initiative to ban “outsourcing” to be discussed by the Parliament

  • The reform aims at limiting outsourcing only to the provision of specialized services that are not part of the beneficiary’s main economic activity.
  • National social partners met President Lopez Obrador, who expressed the government’s openness to dialogue.
  • IOE and WEC underlined their concern and offered support to draft a future-proof labour market regulation.

The Mexican Government recently presented before the Chamber of Deputies a proposal to reform the regulations on outsourcing included in various laws (Federal Labor Law, Social Security Law, Law on the Institute of the National Housing Fund for Workers, VAT Law, Income Tax Law, and the Fiscal Code). The eventual approval by the Chamber of Deputies will be followed by the approval by the Senate before entering into force. 

The President proposal aims at preventing abusive use of triangular working relationships and securing adequate protection to workers.  It provides for the limitation of the use of outsourcing to "the provision of specialized services or the execution of specialized works that are not part of the beneficiary's scope or economic activity"). This means that any other type of outsourcing, including agency work, would be prohibited.

The specialised nature of services provided by means of outsourcing would have to be proven, and companies offering specialized services via outsourcing must register their activity with the Secretary of Labour and receive an authorization from the same public entity.

Heavy administrative fines as well as severe penalties for tax evasion and organised crime are foreseen for violation of this new regulation. Other penalties include a joint responsibility to comply with the employment obligations and submit the social security contributions.  

This draft reform is raising serious concerns for employers in the country and the region and investors globally, for various reasons:

  • Such a strict regulation would hinder the generation of formal employment.
  • Thousands of jobs are at risk.
  • Outsourcing schemes could be better regulated without having to restrict so severely their application, similar to the regulation existing in other countries.
  • Exemplary sanctions could be established.
  • Many companies currently complying with the law should close their businesses.
  • The proposal would impede private employment services to operate. However, guarantees of complying with the national law (in line with ILO Convention N.181 on Private Employment Agencies, Article 1) could be provided by the Secretary of Labour through registration and supervision.

On 24 November 2020, an employers’ delegation composed of the Presidents of the Business Coordinating Council (CCE), the Confederation of Industrial Chambers of Mexico (Concamin, an IOE Member) and the Confederation of National Chambers of Commerce, Services and Tourism (Concanaco Servytur), was received by the President of Mexico Andrés Manuel López Obrador and the Secretary of Labour Luisa Maria Alcalde to exchange opinions on the feasibility of this initiative.

The Mexican President showed openness to revise the project of law to find alternatives to safeguard the protection of workers from abusive practices without the ban of outsourcing, as requested by the employers’ federations. He reconvened the employers on the 30 November to have a comprehensive discussion on the initiative.  

Francisco Cervantes, president of the Confederation of Industrial Chambers of Mexico (Concamin) commented “We spoke with the President and the cabinet working on the initiative and he declared himself in ‘permanent session’ to reach an agreement with the goal of maintaining trust”. He also said “We have to balance the law against bad practices, see how we can move towards an initiative that gives confidence" and “We have to understand the law because there are still many gaps and above all one law with another”.

Concerns from the Mexican employer federations around this initiative were shared by the international community of employers.

In a letter dated 23 November 2020, the Secretary General of the International Organisation of Employers (IOE), Roberto Suarez Santos, together with the President of the World Employment Confederation (WEC), Bettina Schaller, addressed the President of Mexico by praising his efforts to regulate outsourcing practices that are able to improve decent work, productive employment and enhance fair recruitment practices. Moreover, IOE and WEC “recognize the tremendous opportunities the Mexican labour market features, while at the same time facing high levels of informality, and importantly: a high amount of rogue providers who distort the labour market. We believe there is opportunity to learn from global best practices and leverage them to the benefit of the Mexican People and Economy”. In order to improve decent work, the two organisations gave the following advice to the President of Mexico “Your Administration can give Mexico the unique opportunity to future-proof the Labour Code to the current and future developments of the World of Work. One key lies in providing the base for diverse forms of work in which every form of contract, from outsourcing to subcontracting to temporary agency work is defined, classified and regulated adequately. Our expertise and experience shows that clearly articulated Labour regulations attract sustainable investment; drives a Country’s competitiveness, introduces legal certainty for businesses to operate and boost formality. Indeed, where appropriately regulated, diverse forms of work, including outsourcing and temporary agency work, among others, contribute to higher levels of formal work, labour market activation, transition, and employability by means of up- and re-skilling. Often these benefits are organised through social dialogue between the relevant business organisations and representatives from workers”.

IOE and WEC conclude “we humbly call upon the Mexican Government to work with CONCAMIN and COPARMEX as the most representative employers’ organizations, with the most representative workers organizations, and with the International Organisation of Employers (IOE); with the World Employment Confederation and its Mexican member AMECH, as well as the ILO, OECD, and representatives from Mexican workers and businesses to shape the legal recognition of agency work and outsourcing as a legally recognized form work”.

In a separate message dated 20 November 2020, WEC expressed that “regulation can and must be designed appropriately, based on international standards, to benefit workers, business, labour market and society alike. A crucial element in this is the recognition of agency work contracts to provide quality agency work services in accordance with ILO Convention 181”. In order to solve the concerns of the Mexican government, “a crucial solution to this is the creation of a legal framework that recognizes and regulates agency work contracts and agency work services. This sets quality market players apart from rogue players and creates a choice based on quality for business and workers alike”.