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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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Proposal for amendments in the matter of housing lease agreements

As per the requests of associations and individuals promoters of the right to housing, on July 8, 2020, two deputies of the MORENA Parliamentary Group presented to the Mexico City Congress the “Initiative with the Draft Decree Amending and Adding Various Provisions of the Civil Code for the Federal District, in the Matter of Leasing to Ensure the Right to Housing in the Context of the Pandemic” (the “Initiative”).

The Initiative, according to its Statement of Reasons, is supported by the following:

(i) The health crisis resulting from the COVID-19 virus has caused the failure of housing tenants to comply with their obligations to pay rent, as a consequence of economic and social difficulties such as loss of employment, reduction in wages, and commercial inactivity.

(ii) Non-payment of rent can lead to (a) displacement of families with roots in neighborhoods, villages and colonies, (b) evictions, and (c) several people in a homeless condition.

(iii) The civil legislation of Mexico City in the matter of real estate leases does not provide tenants with the appropriate judicial guarantees, as it contravenes the principles of affordability, bearable costs, and legal security of tenure, all components of the human right to housing.

(iv) It is necessary to balance the relationship between the parties of a lease agreement in order to guarantee the right to adequate housing, which is foreseen in Article 4 of the Federal Constitution and Article 9 of the Political Constitution of Mexico City.

The Statement of Reasons of the Initiative refers to the Guidelines on the implementation of the right to adequate housing, issued during April 2020 by the former United Nations Special Rapporteur, which mention the need to take measures to guarantee the right to housing of individuals, such as (i) the cancellation, reduction and/or deferment of rents, and (ii) the implementation of supports and soft loans for homeowners.

In addition, the Initiative highlights the figure of mediation provided in the Alternative Justice Act of the Federal District Superior Court of Justice, as an effective instrument for resolving disputes arising from housing leases.

Specifically, the Initiative proposes to modify the Civil Code for Mexico City, in accordance with the following

  • Amendment to Article 2398.
  1. The housing lease is defined as “that which contributes to the fulfillment of the human right to housing of the lessee in exchange for a certain price in favor of the lessor“.
  2. The housing lease agreement must be subject to a mandatory term of three years, except as provided by the lessee.
  • Addition of two paragraphs to Article 2406.
  1. The vacancy legal proceeding shall be inappropriate if the landlord does not submit a written lease of housing agreement, even if the proceeding is based on failure to pay rent.
  2. The landlord will lose the right to keep the deposit in case of anticipated termination of the housing lease agreement, or an equivalent amount in the case of the termination of the agreement.
  • Addition of Articles 2406 BIS, 2425 BIS, and 2431 BIS.
  1. In the absence of a written agreement, the tenancy shall be presumed to exist if it is demonstrated that a party has consented the occupation of its own property by the other party in return for the payment of a certain price.
  2. In order to exercise any action derived from the breach of the essential clauses of the agreement, it will be sufficient to make a statement under oath in the sense that a lease relationship exists, in the understanding that the parties still may prove their claims to the court.
  • The following rights are provided for tenants (a) not to request more than one month’s advance payment; (b) not to demand bail or any real estate guarantee; (c) not to be subject to “arbitrary, illegal and/or forced evictions”; (d) to notify the court order to vacate two months in advance of the date of the eviction; (e) to have staff from specialized institutions present at the eviction so that they can provide assistance to vulnerable persons such as children, women victims of violence, indigenous people, immigrants, etc; (f) access to measures to avoid leaving people homeless, such as temporary shelters and incorporation into housing programs; and (g) should fortuitous cases arise, access to mediation for the modification of the terms of the agreement.
  1. In cases of national emergency, natural disasters, declarations of environmental, natural or health emergencies, or any other situation of force majeure that paralyzes economic activities and prevents the lessee from complying with the agreement, the lessee may request the temporary or definitive renegotiation of the lease agreement, in accordance with the provisions of Article 1796 of the Civil Code.

The Initiative has been strongly criticized for considering that, if approved in its terms, it would violate contractual freedom, allow housing tenants to stop paying rent, and violate the rights of landlords, such as the right to property, thus discouraging investment in the real estate sector. Activists involved in the drafting of the Initiative, for their part, have stressed out the need to encourage written leases to provide legal certainty for tenants.

We hope that the discussion of the Initiative in the Mexico City Congress will be carried out through a deep, measured, and unbiased debate. Furthermore, that it contemplates the participation of litigants and judges and other sectors, in order to avoid deficiencies that could negatively impact the effective implementation of the legal provisions. Finally, we propose to be incorporated into the discussion, the feasibility of implementing supports such as those referred to by the United Nations Special Rapporteur, both for homeowners and tenants.

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News

Legislative proposal to create INMECOB

By: Mauricio Arciniega

Last Wednesday, June 10th of this year, Senator Ricardo Monreal, member and leader of the Morena Parliamentary Group, presented before the Permanent Commission of the Congress of the Union a legislative proposal to amend articles 27 and 28 of the Political Constitution of the United Mexican States. With this proposal it is envisaged to create the National Institute of Markets and Competition for Well-Being “INMECOB” by its initials in Spanish, as an autonomous constitutional body with legal personality, technical, operational and management autonomy. The legislative proposal aims to reduce public expenditure.

With the creation of the INMECOB, the Federal Telecommunications Institute (“IFT”), the Federal Anti-Trust Commission (“COFECE”) and the Energy Regulatory Commission (“CRE”) would become extinct, with the aspiration of integrating these regulatory bodies and thus establishing the only one in the area of Anti-Trust and in the Telecommunications, Broadcasting and Energy sectors, without the CRE’s hydrocarbon faculties becoming part of the INMECOB.

However, Senator Monreal announced last Sunday on social media that he will postpone the legislative process of this proposal in order to start a process of evaluation and discussion of it. It is important to point out that, if the Legislative proposal is approved in the current terms, there would be a budget and personnel reduction, affecting the technical and specialized functions developed by the IFT, the COFECE and the CRE, natural monopolies indispensable to the economy. Furthermore, it would not be in line with the Chapter 18 requirement of the USMCA, which is to have an independent telecommunications regulatory body, so, among other reasons, the Legislative proposal could be expected to have a direct impact on investment in our country.

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