Termination and Severance in Mexico: Costs and Process
Terminating an employee in Mexico without a legal cause is expensive, and the cost keeps growing if the case goes to court. Foreign managers are often surprised that notice periods and at-will rules do not apply. This article explains the types of termination and the typical cost components.
No at-will employment
Mexican law requires a legally recognized cause for dismissal, such as dishonesty, repeated unjustified absences or serious breaches of duty (article 47 LFT), and a written notice that states the cause and date. If the employer cannot prove the cause or does not give notice, the dismissal is considered unjustified.
Types of termination
The consequences depend on how the relationship ends.
- Resignation: the employee receives the settlement (finiquito), plus a seniority premium if they have 15 or more years of service
- Mutual agreement: best formalized in a ratified settlement
- Expiry of a fixed-term contract: settlement only
- Justified dismissal: settlement, no severance
- Unjustified dismissal: settlement plus severance
What an unjustified dismissal costs
The employee may claim reinstatement or constitutional severance of three months of integrated salary. Where the employer refuses to reinstate in the cases the law allows, 20 days of salary per year of service are added, together with a seniority premium of 12 days per year (subject to a salary cap) and back wages for up to twelve months, plus interest if the case continues. Settlement items include proportional aguinaldo, vacation and vacation premium.
The conciliation step
Before going to court, most claims must go through a mandatory conciliation hearing. Many cases are resolved there. An agreement ratified before the conciliation center is binding and is the safest way to document a negotiated exit.
Time limits
Claims for unjustified dismissal must be brought within two months, while most other labor claims prescribe after one year. Conciliation filings suspend the clock.
Best practices
Document performance and discipline progressively, apply policies consistently, calculate settlements with the correct salary base, use a ratified agreement for negotiated exits, deregister the employee with IMSS within five business days and issue the corresponding payroll receipts. Involve Mexican labor counsel before any termination.
Frequently asked questions
Can I pay a standard severance and avoid litigation?
A ratified agreement before the conciliation center gives much more protection than a simple signed receipt.
Do notice periods exist?
The law does not provide a general notice period, except for specific cases. Consider contract provisions and internal policies.
Are executives treated differently?
Trust employees may be denied reinstatement but the employer still must pay the indemnity if the dismissal is unjustified.
Is a resignation letter safe?
Only if it is voluntary and signed at the time of resignation. Blank or pre-signed resignation letters are invalid.
This article is general information, not legal, tax or accounting advice. Mexican law and tax rules change often: confirm current requirements with a qualified Mexican advisor before making decisions.