MEXICO Law and Practice Contributed by: Carlo Cannizzo, Marco Cannizzo, Stefano Amato, Enrique García and Paloma Iglesias, Cannizzo
In terms of the provisions of the Social Security Law ( Ley del Seguro Social ), it is considered that there is a substitution of employer when there is a transfer, by any title, between the substituted employer and the new employer of the essential assets related to the operation, with the intention of continuing with it, and when the partners or shareholders of the substituted employer are, for the most part, the same as those of the new employer and it is the same line of busi - ness. For the employer substitution to take effect in accordance with the Federal Labour Law ( Ley Federal del Trabajo or LFT) and criteria issued by Mexico’s judiciary branch, the transfer of assets must also take place. In the event of employer substitution, the substituted employer will be considered jointly and severally liable with the new employer for labour obligations to the employees that originated prior to the date on which the Mexican Social Security Institute ( Instituto Mexi - cano del Seguro Social or IMSS) was notified of the substitution, for up to six months, at the end of which time all liabilities are attributable to the new employer. In terms of the LFT, the six-month term starts on the date on which notice of the substitution was given to the union or to the employees. However, employer substitution can be overcome in the event that the original employer terminates the labour relations in legal terms and that, subsequently, the acquirer enters into new employment relations with the employees and, if applicable, with the respec - tive labour union. It is also important to consider from a labour perspec - tive, when the transaction is structured as a merger between two or more entities, that they will probably have different unions even when it is the same indus - try, and it is therefore important to negotiate with the unions before the transaction is closed. Upcoming Reforms There are certain upcoming key reforms to be consid - ered from a labour standpoint in M&A transactions, such as the reduction of the current maximum weekly work shift from 48 to 40 hours, which may lead into operational complexities especially for manufacturing industries with regard to the payment of overtime or
implementing additional shifts through the hiring of extra personnel to cover up operational needs. The changes to employment conditions through recent reforms, such as yearly substantial increases to mini - mum wages since 2019, the increase in the amount of holidays and now the reduction of work shifts, represent an improvement to employees throughout Mexico; however, these changes within short periods of time trigger uncertainty for employers and material increases in operational costs, mainly for industries where a certain workforce is required. 2.6 National Security Review In Mexico, there are no national security review pro - cesses that need to be cleared for transactions to be completed, as is the case for example in the USA with FIRRMA or in the European Union. As mentioned in 2.3 Restrictions on Foreign Investments , Mexico’s market is generally open to foreign investment. How - ever, due to Mexico’s proximity to the USA, its close relationship and market integration resulting from the United States–Mexico–Canada Agreement (USMCA), which will be completely renegotiated this year, it is probable that in the case of certain industries similar to those protected in the USA, there will be the need to obtain a national security authorisation for a trans - action to be authorised.
3. Recent Legal Developments 3.1 Significant Court Decisions or Legal
Developments Judicial Reform
Recent judicial reforms in Mexico have introduced uncertainties affecting the investment climate. Chang - es perceived as politicising the judiciary have raised concerns among foreign investors regarding the impartiality and predictability of legal proceedings. Foreign investors have raised concerns about legal certainty, particularly in government procedures such as tax issues or concessions. In some cases, busi - nesses have encountered delays in court proceed - ings, inconsistent application of laws, and perceived government influence in judicial matters. These devel - opments have led investors to re-evaluate their legal strategies when entering the Mexican market and
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