Mexico’s President Proposes Draft Bill to Ban Job Subcontracting

November 17, 2020

This past week, Mexican President Andrés Manuel Lopez Obrador unveiled a draft bill banning the common practice of subcontracting jobs in Mexico. Going forward, companies would only be allowed to subcontract roles which provide “specialized services or carry out specialized projects that are not part of a company’s line of business” coupled with specific government approval.

In Mexico, the outsourcing of certain roles or seasonal hiring through temporary agencies is a relatively common practice. In these situations, the worker remains the employee of the agency, which helps reduce the labor cost for employers.  This would change if the draft bill is passed.  For example, a medical device maker could subcontract with a caterer, but not workers who perform manufacturing work alongside full-time employees.  In addition, a list of “specialized service” providers will be made public by the Secretary of Labor (STPS).
In comments in support of the draft bill as reported by the Associated Press, Mexican Labor Secretary Maria Alcalde cited 2018 estimates which put the number of subcontracted workers in Mexico at 4.6 million and growing, up from around 1 million in 2003.  The Mexican Government stated the bill will prevent abuse of the outsourcing practice which it alleges functions as a loophole to allows employers to avoid paying benefits mandated by Mexican Law.  Ms. Alcade cited the case of a Cancun resort which had 802 workers, but only two were registered as employees.  However, the draft bill could significantly limit the nation’s labor market flexibility, which will eventually compromise its intention of providing more benefits to the workers if companies decide to hold back their hiring.
Pursuant to the draft bill, companies which illegally subcontract employees would face steep fines up to $212,000.  Further, companies benefiting from subcontracted services would be jointly and severally liable for required labor and social security obligations.  Failure to comply with this provision would mean additional tax penalties. 

Outlook:  The changes in the proposed bill would be significant if it is passed.  Companies doing business in Mexico should be prepared.  HR Policy Global will continue to work with our Latin American network of experts to monitor these important developments.