Labor Law Revolution In Mexico: New Labor Laws Enforced By The U.S. Government Against U.S. Companies

Vinson & Elkins LLP

Vinson & Elkins LLP

Within the last few months, U.S. employers doing business in Mexico have felt the effects of the enforcement mechanisms of the “U.S.-Mexico-Canada Agreement” (“USMCA”). It is perhaps counterintuitive to many employers that the USMCA would result in labor enforcement actions against U.S. companies under Mexican law. But it is.

Most readers — especially in Texas, whose largest trade partner is Mexico — will be aware that the USMCA (i) went into effect on July 1, 2020, (ii) is the result of President Trump’s renegotiation of NAFTA, and (iii) has a goal of enforcing the stronger labor laws that Mexico was required to enact as part of the USMCA.

While the history of enforcement of labor laws in Mexico might lead some U.S. companies operating there to assume the same level of enforcement in the future, the USMCA also established an Interagency Labor Committee, which has the power to refer complaints of denials of labor rights in Mexican facilities to the U.S. Trade Representative, who, in turn, may take enforcement action.

The first two such enforcement actions have been related to U.S. companies. This may be unsurprising — it makes sense that the U.S. Trade Representative has particularly good enforcement mechanisms with respect to U.S. companies that have facilities in Mexico. As a result of the first petition under the USMCA’s “Rapid Response Labor Mechanism,” General Motors entered into a comprehensive plan to address labor practices at its Silao, Mexico facility last month. This month, the Mexican based subsidiary of an American company, Cardone Industries, with operations in Matamoros, Mexico, entered into an action plan and agreed to pay damages, including backpay, to Mexican workers. The action plan was the result of a petition filed by the AFL-CIO and other unions.

These action plans are agreements with the U.S. government and give the U.S. government power to enforce them. In effect, a U.S. government agency can now enforce Mexican labor law against the companies in these agreements. These first instances of success unions have had under the Rapid Response Labor Mechanism of the USMCA mean it is likely there will be more of these types of actions.

Not only is the greater enforcement of Mexican labor laws important for U.S. companies to note, but also, as companies with cross border operations develop Environmental, Social and Governance (“ESG”) programs, they need to note how USMCA actions can impact the “S,” or social aspect, of their ESG disclosures. Due to the focus on ESG by investors and the Securities and Exchange Commission (as the V&E ESG Taskforce has written continuously over the last few years), now is the time for companies to evaluate compliance with Mexican labor standards, with respect to both their subsidiaries in Mexico and the companies in their supply chains.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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