Mexico president moves against subcontracting, aiming to end labor abuses

·2-min read
Mexico's President Andres Manuel Lopez Obrador looks on during a news conference at the National Palace in Mexico City

By Daina Beth Solomon

MEXICO CITY (Reuters) - President Andres Manuel Lopez Obrador on Thursday said he was submitting a bill to Congress that would sharply limit companies' ability to subcontract labor in Mexico, a practice he called detrimental to workers' rights and benefits as well as state employment tax revenues.

Under the draft law, companies would be barred from subcontracting jobs to third-party firms, which now employ some 4.6 million workers throughout Mexico, except in cases where workers are needed for special services beyond a company's main business.

"This mechanism ... was created to facilitate hiring processes for companies, but it has been deformed and gone to ruin," Lopez Obrador told a news conference, referring to the increasingly common practice.

"We're going to tidy up this situation," he said, noting that the ranks of contract workers had been growing by about 200,000 a year.

Under the reforms, non-compliant companies could be criminally prosecuted for tax fraud, in line with Lopez Obrador's campaign to go after companies that fail to meet fiscal obligations.

Detailing labor violations the government seeks to end, Labor Minister Luisa Maria Alcalde told the news conference a hotel in Cancun had 802 workers. All but two were hired through 14 different outsourcing firms, she said, adding that none had been able to name her or his hiring employer.

"They are shell companies that are created and disappear precisely to avoid responsibilities," she said.

The United States-Mexico-Canada Agreement (USMCA), a new trade accord that replaced the 1994 North American Free Trade Agreement (NAFTA) beginning in July, has stepped up pressure on Mexico to strengthen its labor laws.

The outsourcing announcement quickly sparked a pushback from Mexico's top business leaders, who said they were not consulted on the proposal.

"The initiative ... betrays the commitment to build legal change based on consensus with the private sector," Gustavo de Hoyos, president of Coparmex, one of Mexico's top business associations, said on Twitter.

Mexico's influential Business Coordinating Council (CCE) - noting the importance of outsourcing to foreign companies - said the plan would put thousands of jobs at risk just as companies grapple with the coronavirus pandemic.

"Authorities and entrepreneurs should be looking for ways to strengthen the economy, and not weaken it," the CCE said in a statement.

In his comments to reporters, Lopez Obrador also reproached large companies for laying off workers during the pandemic, singling out restaurant operator Alsea <ALSEA.MX>, which operates Starbucks cafes across Mexico and other markets.

"Starbucks workers started to complain that they were laying off everyone, without giving them a single benefit," he said, without providing details on the workers' claims.

Alsea did not respond to a request for comment.

(Reporting by Daina Beth Solomon, Additional reporting by Ana Isabel Martinez and Raul Cortes, writing by Laura Gottesdiener; Editing by Bernadette Baum and Tom Brown)

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