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August 29, 2023

Mexico: District Court Rules that Cap on Profit Sharing in 2021 Labor Reform is Unconstitutional

Francisco Udave Treviño

On August 3rd, 2023, the Judge from the Eighth District Court in Labor Matters in Mexico City, granted an Amparo to a group of workers belonging to the Section 120 of the Ciénega, in Santiago Papasquiaro, Durango, which forms part of the union named Sindicato Nacional Minero Metalúrgico “Frente”, in connection with the “Decree by which several provisions on labor subcontracting were reformed, added or derogated”, enacted on April 23rd, 2021, in the Official Federal Gazette (the “Decree”), in terms of which a new section VIII was included in Article 127 of the Federal Labor Law, to establish a maximum limit on the profit sharing for workers (“PTU” per its acronym in Spanish), equal to 3 months of the employee´s salary or the average received during past 3 years, whichever is more beneficial for the worker.

In terms of the resolution, considering the first time the Decree was applied when paying the PTU from fiscal year 2021, limited pursuant the average of past 3 years, and covered in April 2022, the workers who appealed the Decree, indeed proved an affectation derived from the aforementioned rule, since “the Constitution orders that profit sharing within a company shall be paid in full to the workers” and moreover “the right to receive profit sharing is established in Article 123 of the Constitution, on which, the law shall not establish any cap, in view that the Mexican Constitution does not include any limitation”. In order to reach this determination, the Judge also considered the rationale supporting the subcontracting reform of 2021.

In this sense, the protection granted to the relevant workers regarding the Decree, was issued exclusively in favor of those workers who signed the Amparo and evidenced the payment of PTU with such cap, so that:

“The Section VIII, of Article 127 of the Federal Labor Law, which was added in the Decree, is not observed within the legal sphere of the listed workers, as same limits the payment of profit sharing.”

It is important to note that this resolution only is applicable for the group of workers who received such favorable Amparo, thus being as of this moment, merely an isolated precedent.

Likewise, it is relevant to consider that this resolution has already been challenged through a Revision recourse by the Congress which should be resolved by the Supreme Court of Justice, in the understanding that this is a constitutionality issue.

In the light of the relevance of this criterion, we recommend closely following-up on the related procedural repercussions, since the same could eventually generate a definitive and binding precedent on the constitutionality aspect of the above descried PTU cap.

Francisco Udave Treviño

Partner, Santamarina and Steta Mexico City, Mexico

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