Mexico Delays Decision on Controversial Proposal to Ban Outsourcing

December 11, 2020

Following protests from the business community, a legislative decision on a controversial HR Policy-opposed bill banning outsourcing in Mexico has been delayed until February 2021 to allow time for negotiations.

The decision comes less than a month after Mexican President Andrés Manuel López Obrador introduced a bill to ban the practice of outsourcing in the country, consistent with a campaign promise.  The practice, though commonplace, has drawn heavy criticism from Obrador and others who claim companies use it to avoid paying taxes and benefits to workers.  President Obrador pressed to pass the bill within two weeks of its introduction. 

Business community pushback:  Both the bill and the speed with which it was moving immediately drew heavy condemnation from business groups within Mexico and abroad.  Carlos Salazar, head of the influential CCE business group, told newspapers the impact of the bill would be “devastating” to the Mexican economy.  Mr. Salazar noted CCE has now signed an accord with the Mexican government to negotiate. 

Profit share rules to be center of negotiation:  HR Policy Global has previously detailed the debate over outsourcing in Mexico for multi-national companies and urged members with operations in Mexico to raise their concerns with the Mexican government.  Adding further complexity, under current Mexican law, all companies—even multinational ones not headquartered in Mexico—must distribute 10% of profits to workers.  To reduce the tax liability, many multi-national companies either outsource jobs to agencies (outsourcing) or create a second entity in Mexico which serves as the payroll service and employer of the Mexican workforce (insourcing).  How the profit sharing rules work will be a central discussion point for the upcoming negotiations. 

HR Policy Global will continue to engage on the issue and work with its international coalition to monitor these important developments in Mexico.