Profit Sharing – Maximum payment limit validation.

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Mexico City April 4th, 2024.

The Second Chamber of the Mexican Supreme Court of Justice validated the constitutionality of the maximum limit of 3 months of the employee’s salary or the average of profits received in the past 3 years, whichever is more favorable to the employee, as payment for profit sharing (hereinafter «PTU»), resolving the uncertainty caused to employers by recent district court judgments that had ruled that such limits were contrary to our Constitution.

This payment limit was incorporated as section VIII of article 127 of the Federal Labor Law in the 2021 reform on outsourcing provisions. The limit or cap was an important negotiating point, allowing consensus with the business sector for the reform to progress.

Upon the entry into force of the reform, several employees and their unions filed constitutional appeals (amparos) arguing the unconstitutionality of the limits. In this regard, some district courts issued judgments declaring the limitation of employees right to PTU payments unconstitutional, as the Federal Constitution establishes the right of employees to receive PTU according to the percentage set by the National Commission, but does not establish a cap.

On April 3, 2024, the Second Chamber of the Supreme Court of Justice resolved a revision recourse of a constitutional appeal with case No. 633/2023 regarding this cap. The resolution aimed to determine the constitutionality of this by concluding that the three-month cap is not absolute since it allows for the consideration of the average profits received in the past 3 years for the category or position of the employee, based on the Guide to comply with profit-sharing obligations issued by the Ministry of Labor and Social Welfare on March 25, 2022.

In addition to the above, the Supreme Court of Justice also declared the cap as constitutional, as it determined that Congress has the authority to legislate on labor matters, including profit-sharing.

It will be important that in the upcoming profit-sharing distribution for the 2023 tax year, employers strictly follow the instructions outlined in the guides issued by the Ministry of Labor and Social Welfare in recent years, as while they are not binding instruments, they were taken into account to issue the resolution discussed herein.

This note was prepared with the support of Regina Torres Septién Beltrán del Río.

The attorneys of the labor and employment practice of Basham, Ringe y Correa, S.C., remain at your service in case you have any questions or comments.

Sincerely,

Jorge G. de Presno Arizpe

jorgedepresno@basham.com.mx

David Puente Tostado

dpuente@basham.com.mx

Luis Álvarez Cervantes

lalvarez@basham.com.mx