Even with USMCA, Labor Law Revamp, Challenges Persist in Mexico

October 23, 2020

A mine closure in Cosalá, Mexico underlines the potential risks of operating in the country as it struggles to implement updates to its labor laws.

The seven-month lockdown—resulting in the closure of the mine, 327 layoffs, and over $20M in losses for the handcuffed mining company Americas Gold and Silver—stemmed from a battle between rival unions which spun out of control without effective government intervention.

Mexican labor law updates not fully implemented:  In conjunction with the sweeping changes from the USMCA, in 2019 the Mexican government introduced major updates to the nation’s labor laws.  The changes address fundamental labor law components, including union formation and collective bargaining agreements.  However, many of the laws have yet to be fully implemented—a problem further slowed by the COVID pandemic—resulting in potential confusion for companies trying to navigate Mexican operations.

Union tactics complicate picture:  In the Cosalá case, the union, Los Mineros, led by Mexican Senator Napoleón Gómez Urrutia, was challenged by the rival FRENTE union over representation of the facility.  Reports stated Los Mineros intimidated the company, employees, and institutions through non-legitimate means, like extortion and blockades, to win the eventual union election.  The union’s activities here are not new or surprising.  In Mexico, unions often have strong political ties, and can operate free from government intervention.

Mexican governmental bodies not always able—or willing—to support:  Reports state the company filed several complaints with the regional Mexican prosecutor’s office for various violations but received no assistance.  Further, the FRENTE union claimed the Mexican Federal Board of Conciliation and Arbitration threatened workers intending to vote for them with imprisonment.  Without governmental support, the company was left with a choice—give in or give up—resulting in the eventual mine closure.

Key takeaway and outlook:  The new labor laws in Mexico may take years to achieve their full impact.  Subsequent enforcement of those laws will also take time due to having to navigate significant cultural implications.  Companies with operations in Mexico will continue facing a constantly changing landscape in terms of labor relations and likely increased business costs as Mexico updates its labor provisions with an eye towards complying with the USMCA.

For more information on Mexico and other international markets, join our upcoming virtual Global sessions, HR Policy Global – International Developments for CHROs, on October 27 and 29.