Termination Pay in Mexico: Understanding Severance, Seniority Bonuses, and Employee Rights

In Mexico, termination pay (finiquito) includes 3 months' salary plus 20 days per year worked, plus prorated vacation and aguinaldo (Christmas bonus). Employees with 15+ years get an additional seniority premium. Mexican labor law strongly favors workers, making severance mandatory for most terminations. Clear written contracts and proper documentation are critical for both employers and employees.

When Severance Is Required

Severance pay is owed in most termination situations, with only specific exceptions. Employers must provide severance unless the termination falls into a narrow category of justified causes with proper documentation.

Severance is required for:

• Standard Dismissals: Terminations without extensive documented cause
• Property Transitions: When homes are sold or rental periods end, requiring employee relocation
• Employment Modifications: Reductions in hours or pay that force employee resignation
• Employee Death: Severance paid to the closest family member
• Retirement Situations: Most retirement arrangements trigger severance obligations

Severance Calculation (Finiquito)

Unless termination is voluntary or justified with proper documentation, severance includes multiple components:

• Three Months' Salary: Base severance regardless of tenure
• Twenty Days Per Year Worked: Additional compensation based on service length
• Prorated Vacation Pay: Unused vacation days valued at current wage rates
• Prorated Christmas Bonus (Aguinaldo): Year-end bonus calculated for the portion of year worked
• Seniority Premium: For employees with 15+ years of service only

Seniority Premium for Long-Term Employees

Employees with 15 or more years of seniority are entitled to an additional seniority premium equivalent to 12 days' salary for each year of service. However, the daily wage used for this calculation is capped at twice the amount of the minimum daily wage, protecting employers from excessive calculations based on artificially high reported salaries.

Daily Wage Calculation

The daily wage is calculated by dividing total weekly pay by 7, regardless of the actual number of days worked. This standardized calculation ensures consistency and protects workers whose schedules might vary.

Payment Obligations at Termination

Severance must be paid at the time of termination. If payment is delayed for any reason, employers owe all regular salary that would have accrued during the delay period, creating significant additional liability. To protect themselves, employers should obtain signed receipts and witnessed letters confirming employment termination and final payment.

Exceptions: When Severance Is Not Required

There are specific situations where employers may terminate without severance obligations:

• Voluntary Resignation: When employees choose to leave of their own accord
• Justified Dismissal: Termination with proper documented cause
• Time-Specified Employment: Project-based or contract work with predetermined end dates

Legal Grounds for Justified Termination

Employers may terminate without severance only if they have documented cause and follow proper procedures. Valid grounds for justified dismissal include:

• False or fraudulent job qualifications
• Dishonest or dishonorable conduct
• Violence or threats toward management or coworkers
• Missing required documentation (with two-month notice period)
• Workplace violence against clients or colleagues
• Sexual harassment or harassment of any kind
• Intentional property damage
• Negligent safety endangerment
• Immoral or unethical workplace conduct
• Revealing trade secrets or confidential information
• Unexcused absences (three or more times in a 30-day period)
• Insubordination or refusal to follow lawful instructions
• Violation of safety procedures
• Reporting to work intoxicated or impaired
• Criminal conviction preventing job performance

Procedural Requirements for Justified Termination

Even when employers have grounds for justified termination, they must follow specific legal procedures or lose the right to dismiss without severance:

• Written Notice: Provide written notice specifying dismissal grounds at the time of termination
• Witnesses Required: Deliver notice with two independent witnesses present
• Timing Requirement: Dismiss within 30 days of discovering the misconduct
• Labor Board Filing: File with the Labor Board within five days if the employee refuses to accept notice

Failure to follow these procedural requirements results in wrongful dismissal liability and full severance obligations, even if the employer had legitimate grounds for termination.

Best Practices for Employers and Employees

Both employers and employees should understand that Mexican labor law is designed to protect workers. Employers should maintain clear documentation, written contracts, and proper procedures to minimize liability. Employees should understand their rights and keep records of their employment terms, hours, and compensation. When termination occurs, both parties should ensure all calculations are correct and all documentation is signed and witnessed.

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