The 1917 Constitution of Mexico included Article 123 to defend the social rights of workers, as a result of the demands of those who did not have them, by virtue of which companies, in their capacity as employers, acquired various duties by hiring personnel to form a labour relationship.
Therefore, profit sharing became a constitutional public social right through which the worker was incorporated into the life and operation of the company.
Subsequently, the Federal Labour Law (Ley Federal del Trabajo) of 1970 included broad individual and collective guarantees, including workers' statutory profit sharing (PTU, based on the term in Spanish).
As a result of the foregoing, in Mexico, it is an obligation for employers to distribute the profits of companies generated in a fiscal year.
PTU around the world
As in Mexico, PTU has been adopted in various countries, with the purpose of granting workers the right to benefit from the results of the companies for which they work, with a redistributive intent.
In Ecuador, PTU corresponds to 15% of net profits; 10% is distributed equally, and the remaining 5% is distributed based on family burden.
In Peru, PTU is calculated on profits after investments and taxes, and the rate ranges between 5% and 10%, depending on the economic activity.
Brazil takes a different approach, since participation criteria may be linked to profits or results, depending on the negotiation between the company and the workers.
On the other hand, there are countries where profit sharing is not an obligation. Such is the case for Canada, where profit sharing is used as a way to compensate good work done by employees, with the intention of incentivising employees to work to achieve better profits for the company.
In France, PTU is calculated by applying a financial formula to the net profit of the company and exists as an obligation only for taxpayers with 50 or more employees.
In Germany, it is mandatory to distribute PTU to employees whose salary depends on the company's profits, since it is considered that the employee assumes part of the economic risk for the company's results.
As can be seen, even though it is not mandatory for all countries and there are different schemes for granting this benefit, the common denominator is the intention to equitably share with the personnel the result of their efforts.
Addition of a limit to PSU in Mexico
In general terms, and until the reform published in the Federal Official Gazette (Diario Oficial de la Federación) on April 23 2021, profit sharing was calculated only in the following manner.
The amount to be distributed is 10% of the taxable income for the immediately preceding fiscal year. For example, let us assume that the taxable income for the fiscal year 2023 was $1 million. Therefore, the PTU amount to be distributed (10%) will be $100,000.
The first half of this $100,000 – i.e., $50,000 – will be distributed among the employees in proportion to the days worked in the fiscal year 2023, and at least 60 days must have been worked for an employee to be entitled to receive PTU.
The other $50,000 will be distributed based on each employee's daily salary multiplied by the number of days worked during the year.
The reform published on April 23 2021 sought to protect workers by restricting the amount of outsourcing, since, as mentioned in the explanatory memorandum of the reform, outsourcing led to a new paradigm within the business world: a gradual decrease in the participation of workers in the profits of companies.
However, the legislator also considered establishing a limit on the maximum amount for the payment of PTU, an issue that will be analysed throughout this article.
By virtue of the reform of April 23 2021, a Section VIII was added to Article 127 of the Federal Labour Law, which establishes new limits in addition to the rules mentioned above. It reads: “The right of the workers to participate in the sharing of profits, recognised in the Political Constitution of the United Mexican States, shall be in accordance with the following rules: […] VIII. The amount of profit sharing will have a maximum limit of three months of the employee's salary, or the average of the profit sharing received in the last three years; the amount most favourable to the employee shall be applied.”
Therefore, under the new scheme, in addition to calculating the two halves of the 10% of the taxable income to be distributed, it is mandatory to limit the PTU to be distributed taking into account these two new limits, and the one that favours the employee must be applied:
Limit 1 – maximum three months of the worker's salary; and
Limit 2 – the average PTU received by the employee in the last three years (in the event that the worker has not yet completed that length of service, the average corresponding to a similar position in that period will be taken into account, according to the Guide To Comply With The Obligations Regarding Profit Sharing, issued by the Ministry of Labour and Social Welfare (Secretaría del Trabajo y Previsión Social) on March 25 2022).
In response to this situation, many workers filed direct amparo lawsuits before the district courts; among them, the most representative mining groups in Mexico.
Although there have been some cases in which judges have ruled in favour of the workers (for example, the Eighth District Court on Labour Matters in Mexico City, in the indirect injunction 2071/2022), the rulings are not yet final, since appeals for review have been filed against them; therefore, it will be a collegiate circuit court that will resolve the case definitively.
It should be noted that the Second Chamber of Mexico´s Supreme Court of Justice (SCJN), on April 3 2024, issued a decision in which it declared that the two limits set forth in Section VIII of Article 127 of the Federal Labour Law are constitutional, in ruling on Amparo en Revisión 633/2023.
The vote in that ruling was unanimous (by the five justices of the Second Chamber of the SCJN). Therefore, Article 94, paragraph 12, of the Political Constitution of the United Mexican States and Article 223 of the Amparo Law, which state the following, are applicable.
“Article 94. The reasons that justify the decisions contained in the rulings issued by the Plenary of Mexico´s Supreme Court of Justice by a majority of eight votes, and by the Chambers, by a majority of four votes, shall be binding for all jurisdictional authorities of the Federation and of the federal entities.”
“Article 223. The reasons that justify the decisions contained in the rulings issued by the chambers of Mexico´s Supreme Court of Justice constitute binding precedents for all jurisdictional authorities of the Federation and of the federal entities where made by a majority of four votes. Matters of fact or law that are not necessary to justify the decision shall not be binding.”
Returning to the judgment in amparo in review 633/2023, Communication No. 101/2024 was published on the website of Mexico´s Supreme Court of Justice: “The Second Chamber of Mexico´s Supreme Court of Justice validated that the amount of profit sharing has a maximum limit of three months of the worker's salary or the average of the profit sharing received in the last three years, whichever is more favourable to the worker, as set forth in Article 127, section VIII, of the Federal Labour Law, as amended in the Decree published on April 23rd, 2021 that regulated the figure of outsourcing, and the Guide to Comply with the Obligations in Profit Sharing Matters, issued by the Ministry of Labour and Social Welfare.
“With respect to the Law, the Chamber unanimously stated that the Congress of the Union has the power to legislate on labour matters and to issue provisions concerning profit sharing, such as the one that was challenged.
“As for the three-month salary cap, it was emphasised that this limit is not absolute, since it admits the possibility of taking into account the average of the amount paid to the category, position or level of the worker during the last three years, always favouring the best option for the worker; without this affecting retroactively the rights of the workers, since the Federal Constitution does not establish a minimum limit for such purposes, so that this variable can always be modified.”
Ruling brings certainty for employers and workers in Mexico
Due to the ruling issued by the Second Chamber of the SCJN, certainty is generated for employers and workers with respect to the new way of calculating the amount of PTU to be distributed in Mexico.
