Mexico – The COVID Crisis, Arrest of a Leading Labor Lawyer, and the Labor Code Turned on its Head

6/12/20

One of the most turbulent countries in the world today in terms of the current employee relations climate is Mexico.   

COVID is spreading rapidly and the government is switching from aggressive lockdown to opening the economy at a time when infection growth is at its highest. Susana Prieto, the national labor heroine of the 2019 Matamoros strike has been arrested for “crimes committed against public servants, rioting, threats and coercion of individuals”.  In a move typical of Prieto, she put a video of her arrest supported by her own commentary on Facebook. With radical labor law reforms half implemented, and the US setting up audit machinery to make sure the country stands by its Treaty promises under the USMCA, Mexico is a mess.  The battlegrounds on which each of these issues are being fought are the Maquiladora companies operating on the US border … many of them US owned and with most of their manufacturing critical to the US market. 

Our conference call last week featured major companies talking about how they are managing with COVID.    A leading Mexican labor lawyer, Monica Shiffiano of Littler, talked about the broader issues being faced.  This podcast and blog give you the background necessary to make sense of what is going on and to plan your future. Read it below or listen here;
 
 
By the middle of 2023 we may see a new normal in Mexico.  In the meantime, Mexico’s unique and long standing version of trade union recognition and collective bargaining has turned on its head.  The process of change started in 2019 and we are set for four years of massive change.  Some say employee relations in Mexico will be changed forever … others suggest that Mexican vested interests will reconstruct the future in a way that nothing changes in practice and they will rebuild the past … but in compliance with the new law.  The truth may be somewhere in between  … BUT understanding both what is happening and what is at stake is key for companies seeking to make sound decisions and to avoid pitfalls. 

We have already seen the broader change play a role in the biggest and most damaging strike in the world to date organized on social networks … involving 90,000 workers in 90 companies in the border city of Matamoros The strike secured a massive pay rise … and led to the formation of a brand new industrial trade union in Mexico … we will see where that one goes.  So here is what I’ll call an “interim” country profile of Mexico … and it deals with immediate and important decisions that almost every company in Mexico needs to make.

The Mexican labour code has been long criticized for its failure to comply with ILO Convention 98 on the Right to Organize and Collective Bargaining passed in 1949.  Unlike many countries, Mexico is a ratifier of ILO conventions having ratified 80 Conventions, and including the sister convention on trade union rights Convention 87 as early as 1950.  The country resisted ratifying Convention 98 for 68 years until the country relented in 2018 and, as a result, committed itself to massive changes in employee relations practice.  

Along with Vietnam, Mexico was obliged to ratify ILO Conventions on trade union rights and introduce labour reforms in order to conclude trade agreements with the United States … In Mexico’s case the USMCA.   As in many issues in employee relations you can only get to grips with the present and look to the future by understanding the past.  Let me try to make a complicated history simple ... and my apologies to purists. The old Mexican labor code allowed a trade union to claim recognition in a company even if it had no members. The trade union would call a strike on the company and blockade the site, typically using supporters not employed by the company to close the site down.   The familiar red and black flags would appear and these are generally only attempted to be breached by people prepared to take physical risks. There are plenty of you tube videos to check out and witness that  the police have not seen strikes as something they should get engaged in.    

Once a union had recognition it could negotiate for the whole plant and its recognition could not be contested by another trade union.   In response to this a number a companies signed so called protection contracts with ghost or white unions, where the union fees were paid by the company, the union met with the company simply to sign the required collective agreement that typically mirrored minimum legal requirements only.   The agreement simply existed to “protect” the company from aggressive organization attempts … and often employees were unaware that they were union members or that there were collective agreements in place.   It is estimated that this arrangement applied in 95% of companies operating in Mexico.  There were of course inter union conflicts and these were often violent …   but the law actually strengthened unions in a polarized way … strengthening unions in traditional industries like the mines and keeping meaningful unions out of most of Mexicos industry and services. 

New Mexican laws – passed in May 2019 and to be implemented in a phased way up to June 2023 – sought to undo the domination of the old guard trade union confederations – on the “red” and “white” sides … and create the free market for workers organisations required in Convention 98.  They also set rules that require ratification of collective agreements by workers.

Given that less than 2% of Mexican workers are paying members of an independent trade union, and only 1% are covered by an authentic collective bargaining agreement reviewed and ratified by workers, the reforms have a long road to travel.

Clearly big financial interests are in play.  The so-called white unions have become accustomed to a major income stream without taking on serious representational duties and with no supporting infrastructure.  They are unlikely to walk away and say “that was good whilst it lasted”.  They have engaged in securing worker and company support  to shift their status to  compliance largely by fear.  Fear in the eyes of workers that they will become involved in the strikes and militancy typical of “red union” behavior.  Fear in the eyes of companies who they dissuade from pursuing a non-union route by not supporting the white union and opening themselves to organization by a militant union.  Here is the rub … in either case employees who have not paid union dues in the past will have to start doing so into the future.  And of course if they start to pay fees they will expect some return on their investment from the new union.  So we see red unions moving to the middle, white unions attempting build representative credentials in the ground they hold today and new unions emerging in the middle promising a fresh start.

An interesting character In the centre is a lawyer by the name of Susanna Prieto.  She put together the massive and successful strike in Matamoros in January and February 2019.  In January 2019 President Andrés Manuel López Obrador … commonly referred to as AMLO … fulfilled an election promise by increasing the minimum wage in the border regions – the Maquiladoras – by a staggering 19%.  Of course for most firms the vast majority of employees were paid above the minimum wage and the impact of the law was limited. In Matamoros however  the collective agreements struck over the years had awarded all employees the increase in the minimum wage as a percentage of current wage.  Until the 19% settlement, that had been a bargain.  In the face of the 19% increase the white unions agreed with companies that the clause should not apply.   Enter the lawyer, Susana Prieto. Prieto used social media extensively. She organized speeches and rallies at company gates and live-streamed noisy speeches on Facebook.  She managed to close down 90 companies employing 90,000 people.  The strike was at first ignored but as it went on,  an agreement was brokered with Prieto that spread across most of the 90 companies in the so called 20/32 settlement.  20% was the increase in base wage …. and 32 was the 32 thousand pesos bonus for coming back to work.  32,000 pesos is by the way around 6 months wages.  Susana Prieto has now broken new ground by setting up her brand new manufacturing union in her home town of Tijuana.  The union has a typically long Mexican title but in shorthand it is the 20/32 union.

The labour code reforms set new rules but also scrap controversial mechanisms of labour administration and provide for the establishment of a new bureaucracy to oversee all aspects of the employment relationship, including a Federal Center for Conciliation and Labor Registration, local Labor Courts and State Conciliation Centers. This means that new laws have been put in place … but with a void in governance framework until mid 2023 at the earliest.  The project may well not be completed before the end of the mandate of President AMLO.

So the dilemma here is that many border companies have operations North of the border in the United States that are non-union in the USA … and for the reasons explained in these podcasts many times … the “night and day” syndrome …  they covet that position.   In Mexico they typically have protection contracts … but in the face of free trade union choice, would probably also be non union in Mexico.  Other companies, with tough CBAs in the US have agreements in Mexico either with White or Red unions … they would like to keep the white deals even at the risk of them going a shade of pink.  On the other side - white unions will want to preserve their income streams and red unions will be determined hold what they have or grow.   There is a lot at stake on both sides … and Matamoros suggests that the transition will likely not be entirely peaceful.

Let me jump quickly to the three issues in Mexico that have a long term history in the country … ans that companies will need to get right if they are to end out union free or with good relationships with a moderate representative union. 

First, profit share … make sure arrangements are fair and transparent … especially in cost centers that allegedly make no profit to share;

Two, working time … sort out your wages and hours to make sure they are recorded and paid appropriately.

Three, gender equality … this has long been an issue in Mexico and companies should take note of the protests on violence against women at work the “Day without women” protest on 9th March 2020.

Now my usual country profiles paint a picture of employee relations against a stable background or predictably future.  This one is quite specific to the years from 2019 to 2024.  Then maybe we’ll do another one …. 

That said … this is the world of Mexico you have to live with today … and you will have to live with the decisions you make for a long time.   My suggestion is to have a very clear objective at the end of the day.  Stick to it, but watch how things develop in other organizations in your region and industry … and watch the social media … and be prepared to be flexible.  But bear in mind your Mexican team have been brought up in a system that makes sense to them and may well want to keep things as they are …. With those cosy and friendly relations with sweetheart unions who are today promising nothing will change.     Well, dear  readers and listeners, that is not going to happen.