Mexico delays ban on outsourcing as businesses negotiate details

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Luisa Maria Alcalde. Photo: Courtesy

A bill aimed at sharply limiting Mexican businesses from subcontracting labor has been kicked to 2021, according to a letter sent to lawmakers, Reuters reported.

Debate on the legislation will be postponed until February when Congress reconvenes from its winter recess, said the letter. Its authenticity was confirmed by a government official and a congressional source.

Under the draft law by President Andrés Manuel López Obrador, companies would be barred from subcontracting jobs to third-party firms, which now employ some 4.6 million workers throughout Mexico. Only in cases where workers are needed for special services beyond a company’s main business would outsourcing be allowed, with approval from the Labor Department.

Since the proposal was made public Nov. 12, business leaders and the government have held several rounds of talks to revise the proposal. Businesses said the change would further harm Mexico’s economy when it is still reeling from the effects of the coronavirus pandemic. But López Obrador had urged Congress to approve quickly.

The two sides last met Friday night and are due to continue talking this week. Earlier on Monday, Lopez Obrador said some sort of agreement would be reached this week and stressed that talks were proceeding well.

Companies have been leaning on outsourced labor more and more, which the government says allows employers to avoid paying benefits. Labor Secretary Luisa Maria Alcalde estimated the outsourced or subcontracted workforce in Mexico grew from about 1 million workers in 2003 to about 4.6 million by 2018.

Alcalde cited the case of a Cancun hotel that had 802 workers, but only two registered as its employees. Many of the other workers were kept on fictitious three-month contracts, then were rehired every three months by a different front company to prevent them from accumulating seniority, she said. She said other workers had their salaries falsely registered at the minimum wage, reducing the benefit contributions owed by the employers.

The secretary said some companies fire workers before Christmas and re-hire them in January or February to avoid paying year-end bonuses. In 2019 alone, authorities say that appeared to have happened to over 380,000 workers.

Alcalde said the bill’s provisions would be enforced by fines or tax evasion charges.

The Employers’ Federation agreed that abuse existed, but a total ban “would mean the loss of a considerable number of legitimate and properly paid jobs.”

“We oppose any legal reform that prohibits labor subcontracting that complies with all legal standards,” the group said.

While Mexico’s minimum wage is equivalent to US$5.50 a day, benefits are proportionally slightly more generous, leaving some companies a financial incentive to avoid them. Mexico requires companies to pay social security and provide annual year-end bonuses.

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