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Initiative on outsourcing in Mexico presented by the Federal Executive Branch.

By: Daniela Cervantes Escamilla.

On November 12, 2020, the President, Andrés Manuel López Obrador, announced a draft decree that seeks to modify the Mexican legal system in terms of outsourcing and that will be presented for discussion before the Chamber of Deputies (hereinafter the “Initiative”).

This Initiative implies various modifications in provisions of 6 (six) laws to harmonize the legislation with the proposed changes, which are: (i) Federal Labor Law (hereinafter “LFT”), (ii) Social Security Law (hereinafter “LSS”), (iii) National Institute of Housing Fund for Workers Law (hereinafter “LINFONAVIT”), (iv) Federal Tax Code, (v) Income Tax Law, and (vi) Value-Added Tax Law. The most relevant modifications are listed below:

Regarding the LFT, the Initiative provides the express prohibition of the outsourcing of personnel as stipulated in article 13. According to the Initiative, the contractor may only provide specialized services or the execution of specialized works that do not form part of the corporate purpose or the economic activity of the beneficiary.

The foregoing will also imply the enter into a service provision agreement between the contractor and the beneficiary (hereinafter, the “Agreements”), where the content becomes an object of verification by the labor authorities and the obligation of the contractor to report it quarterly. Additionally, the contractor must request an administrative procedure before the Ministry of Labor and Social Welfare (hereinafter “STPS”), through which, he will be authorized to register in a Specialized Service Providers Registry (hereinafter the “Registry”). This authorization will prove the specialized nature of the services or the works they carry out.

A second effect of the Registry will allow to keep up to date the contractor’s fulfillment of its labor, tax, and social security obligations since he will be required to renew the authorization every 3 (three) years. With this information, the STPS may be empowered to enter into coordination agreements with various authorities (for example, with the Mexican Institute of Social Security or with the National Institute of Housing Fund for Workers) in order to carry out an exchange of information that allows the correct continuity of the proceedings and the full exercise of the acts of authority.

Additionally, it is proposed to modify the figure of intermediary, understanding this as the natural or legal person involved in the hiring of personnel, and may include the processes of recruitment, selection, training, among other aspects. However, the beneficiary of the services will always be considered the employer of the hired personnel, so in no case may the intermediary be considered as such.

A last modification to the LFT is in the matter of employer substitution, through which it is intended that the assets of the company or establishment must be transferred to the substitute employer to carry out and take effect the substitution. Additionally, LINFONAVIT establishes joint and several liabilities in such a way that the substituted employer is liable together with the substitute employer concerning the obligations arising in the period before the date of the replacement and up to the following 6 (six) months.

Regarding the LSS and the LINFONAVIT, the Initiative seeks to promote a competitive business environment through which the social security and housing rights of workers are safeguarded in the present and the future (such as in case of pensions and/or access financing for housing), eradicating the evasion of payment of fees and eliminating bad practices due to the use of outsourcing.

Likewise, it is intended to establish before the workers used in the specialized services or the execution of specialized work a joint and several liabilities between the contractor and the beneficiary for the obligations outlined in said regulations.

On the other hand, the Initiative provides various modifications to the tax provisions, among which are (i) the prohibition to give tax effects (such as deductibility and credit for value-added tax) to the payments for outsourcing personnel; and (ii) qualifying in the commission of tax fraud due to the use of simulated service provision schemes or the execution of specialized works.

The non-compliance of the provisions outlined in the Initiative will result in the imposition of penalties, such as the imposition of fines or the commission of a crime.

Finally, under the transitory articles of the Initiative, the Decree provides for two periods of entry into force, being (i) the day after its publication in the Official Gazette of the Federation; with the exception that (ii) the reforms to the tax provisions will come into effect as of January 1, 2021. However, various deadlines are also ordered to comply with the established provisions:

Within 4 (four) months following the entry into force of the Decree:

a) The STPS shall issue the general provisions to establish the procedures relating to the authorization to provide specialized services or execute specialized works.

Within the following 6 (six) months as of this publication, contractors must obtain the authorization from the STPS for such purposes and register in the Registry.

b) The National Institute of Housing Fund for Workers shall issue the rules that establish the procedures for contractors to provide the information required in article 29 Bis of the LINFONAVIT, as well as to provide every four months the Agreements.

Within 6 (six) months following the entry into force of the Decree:

a) Contractors that provide specialized services or execute specialized works must begin to provide information regarding the authorization of the STPS and the Agreements.

We warn that the spirit of the Initiative maintains the need to safeguard the rights of the people who have been affected, mainly in the workplace. However, the business sector seeks to dialogue with Congress so that the full panorama of the Initiative is considered with the interests of all parties involved in labor relations.

We will continue to report on the legislative process of this Initiative and on any changes that may arise.

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Informative Note – Changes in the organic structure of the SCT.

On November 2, 2020, the Ministry of Communications and Transportation (hereinafter, the “Ministry” or “SCT”) published in the Federal Official Gazette (hereinafter, “DOF”) a Delegation Agreement by which some powers in matters of communications and technological development, as well as in matters of the railway and multimodal development competence of the ex- Undersecretariat of Communications and Technological Development were delegated to the heads of the Undersecretariat of Transportation and Infrastructure (hereinafter, the “Agreement”).

The above responds to the presidential decree published in the DOF on April 23, 2020, through which some austerity measures were established and that must be observed by the agencies and entities of the Federal Public Administration, which include, among others, the order to cancel ten undersecretaries of State (hereinafter, the “Decree”).

As a result of the Decree, on August 10, 2020, the Ministry issued the COMMUNICATION-181-2020 through which it was reported the administrative restructuring and elimination of the Undersecretary of Communications and Technological Development, which was in charge of Ing. Salma Jalife Villalón. This measure foresaw the permanence of the ex-undersecretary within the SCT so that she could continue with the projects she was carrying out. However, at the beginning of September of this year, various media announced the resignation of Ing. Jalife from the Secretariat, information that has not been officially confirmed by the SCT to date.

Therefore, the Agreement seeks to materialize the restructuring proposed by the SCT by delegating the exercise of the powers provided in the Federal Telecommunications and Broadcasting Law and other applicable administrative provisions in matters of communications and technological development to the Head of the Undersecretariat of Transportation. In addition, the exercise of the powers provided in the Regulatory Law of the Railway Service and other applicable administrative provisions to the Head of the Undersecretariat of Infrastructure, is delegated.

Likewise, in its attempt to organize the legal sphere applicable to the Ministry, on August 27, 2020, was presented to the National Commission for Regulatory Improvement the Draft of the Internal Regulations of the Ministry of Communications and Transportation. In general terms, the proposal presented defines the competence of public servants, administrative units, decentralized administrative bodies, and coordination with the new organic structure, without creating new obligations or sanctions or restricting any right for individuals.

However, even though the Regulations were approved by the National Commissioner in September of this year, it has not been published in the DOF.

We will continue to inform you about the publication of the Regulation and any modification derived from these changes.

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