Alternatives (legal and tax) for companies established in...

Alternatives (legal and tax) for companies established in Mexico to minimize the economic impact of the COVID-19 pandemic.

By:  Juan Felipe Sánchez, Legal Director

        Verónica García, Tax Director

        March 20th, 2020

I. Alternatives in the Labor Area.

In situations such as the one that is currently happening in our country and with the aim of preventing companies or establishments from stopping their operations permanently, the Federal Labor Law (“LFT” due to its initials in Spanish), grants companies certain alternatives, of which we will only mention those that we consider are relevant to a pandemic like the one of COVID-19.

    a. Reduction of salaries to the current general minimum.

The LFT provides for companies or establishments the possibility of temporarily suspending work relationships, as long as the competent authorities issue a declaration of health emergency, in accordance with the applicable provisions.

In this case, companies or establishments may temporarily suspend work relationships without the need for any approval or authorization from the corresponding labor authorities. However, employers will be obliged to pay their workers compensation equivalent to one day of the current general minimum wage, for each day the suspension lasts, without exceeding one month.

Therefore, for a company or establishment to reduce its fixed costs and/or expenses by reducing the payment of salaries, in the face of a pandemic such as the one we are currently experiencing, it is essential that the competent authorities officially declare that the country or the city where the company or workplace is located, is experiencing a health emergency.

    b. Reduction of days or implementation of technical stoppages.

The LFT also contemplates the possibility that the labor authorities may authorize the conclusion of worker-employer agreements in order to modify working conditions. That is, the possibility of reducing the working day, the workweek and/or salaries in order to achieve balance and social justice in relations between workers and employers.

Therefore, companies may agree with their employees or with their respective unions to modify working conditions in order to temporarily reduce working hours and consequently reduce their salaries.

Once these changes to the working conditions are agreed, these agreements must be brought before the labor authorities for authorization. In conclusion, in fortuitous and extraordinary situations such as the COVID-19 pandemic, companies have certain rights in order to reduce the economic impact that this could cause on them and to protect their employees and their respective jobs in the long term.

    c. Remote Work.

As previously mentioned, as long as the competent authorities issue a declaration of health emergency, in accordance with the applicable provisions, we recommend that companies take into account the following guidelines:

        i) Do not demand that employees work remotely. However, it is advisable to opt for this alternative and offer it to employees to minimize the probability of contagion by employees and protect their health;

        ii) Notify employees that if they unilaterally decide not to go to the workplace and work remotely, they may be subject to not receiving the corresponding salary;

        iii) Communicate to employees who do not have the right to refuse to continue working in the workplace without being deducted from their salary for each day they do not attend; and

        iv) Implement medical controls to minimize the spread of the virus and maintain a safe working environment.

II. Alternatives in the Contractual Area

The Supreme Court of Justice of the Nation (the “SCJN”) refers that “the parties may agree in their contract all those clauses that they deem appropriate, among which is the criminal clause, which consists of the early quantification of damages that may be caused by a breach of contract”. Likewise, it mentions that there are exceptions in the application of penalties or payment of damages, in case of breach of contractual obligations.

In addition, it also contemplates the causes in which some of the parties can be exempted from the fulfillment of their obligation and, therefore, from the conventional penalty. Being one of them the fortuitous cases or cases of force majeure.

The Federal Civil Code establishes that “the penalty may not be effective when the person obligated to it has not been able to fulfill the contract due to the creditor, acts of God or insurmountable force.”

The opinions expressed in this article are the sole responsibility of the author and do not necessarily represent the opinion of Grupo Consultor EFE™

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