In our short or long employment history, we have all heard about severance and liquidation. Many of us know that, at least financially, it is always better news to be fired than to quit.
It is more than understood that we have all heard that at the time of a non-voluntary departure or more commonly said, "he was fired" there is talk of months of salary and there is also a lot of noise regarding the legends of lost wages, 20 days per year and some other things that we will detail below.
But first, let's do a precision exercise to differentiate one term from the other, it is common to confuse settlement and liquidation, so that you can quickly differentiate them using the following word game:
FINiquito, and remember that "FIN" is because we put an end to the relationship with the company, which is why we will be paid our proportional salary, vacations, Christmas bonus and some other benefits depending on the company.
And liquidation, we can remember when in a store there is an "inventory liquidation", that is, the store is going to auction everything, it is removing the items. So liquidation is when the company for X or Y reasons decides to terminate the labor contract it has with one or more employees.
Is the difference between severance and liquidation clearer now?
Let's start with the law that covers each of these cases:
The Federal Labor Law or LFT in Article 53 states:
These are causes for termination of employment relationships:
Mutual consent of the parties;
Death of the worker;
Completion of the work or expiration of the term or investment of the capital, in accordance with Articles 36, 37 and 38;
The physical or mental incapacity or manifest inability of the worker, which makes it impossible to perform the work; and
Cases referred to in article 434
Now let us review Article 434, which indicates that the causes for termination of employment relationships are:
Force majeure or fortuitous event not attributable to the employer, or his physical or mental incapacity or death, which produces as a necessary, immediate and direct consequence, the termination of the work;
The notorious and manifest unaffordability of the operation;
The depletion of the subject matter of an extractive industry;
The cases of article 38; and
The legally declared insolvency or bankruptcy, if the competent authority or the creditors resolve the definitive closure of the company or the definitive reduction of its work.
And finally, let's see what Article 38 says, which applies only to mining issues.
Article 38.- Labor relations for the exploitation of mines lacking affordable minerals or for the restoration of abandoned or paralyzed mines, may be for a determined time or work or for the investment of determined capital.
Therefore, the Federal Labor Law does consider that we may resign and thereby terminate the employment relationship by consent of both parties.
But what part of the law covers me for a FINiquito (resignation)?
In the case of the proportional Christmas bonus, the law establishes that it must be paid regardless of whether you are working or not.
- Excerpt from Article 87: "Regardless of whether or not they are working on the date of payment of the Christmas bonus, they shall be entitled to be paid the proportional part of the bonus, according to the time they have worked, regardless of the time worked.
- Excerpt Article 79: "If the employment relationship terminates before the year of services is completed, the worker shall be entitled to remuneration proportionate to the time of services rendered."
Now, what about liquidation?
The settlement must include:
- 3 months' salary.
- Seniority premium.
- Overdue wages (Only in case of unjustified dismissal, with a limit of 12 months from the notice of dismissal. It is no longer years of past due wages, the law only contemplates 12 months).
- 20 days of salary per year worked (Only in the case of unjustified dismissal, request reinstatement before the Conciliation and Arbitration Board and receive the company's refusal).
Article 436 of the Federal Labor Law establishes that in the cases of termination of the jobs indicated in Article 434, except for Section IV, the workers will be entitled to a severance payment of three months' salary, and to receive the seniority premium referred to in Article 162.
How do I know if I am entitled to a settlement or not?
It is important to confirm that the responsibility for the termination of the labor relationship does not fall on the employee; therefore, this concept represents an indemnity to the employee by the employer.
The causes for termination of the labor contract without liability for the employee are set forth in Article 51, as summarized below. If you have any doubts, we recommend that you review the link to the latest update to the LFT.
https://www.gob.mx/cms/uploads/attachment/file/156203/1044_Ley_Federal_del_Trabajo.pdf
Article 51.- The following are causes for termination of the employment relationship, without liability for the employee:
Employer deception of working conditions.
The employer, his family members or any of his representatives, within the service, in acts of dishonesty or dishonesty, acts of violence, threats, insults, harassment and/or sexual harassment, bad treatment or other similar acts against the employee, spouse, parents, children or siblings.
Incurring the employer, his relatives or workers, outside the service, in the acts referred to in the preceding section.
Reduce the employer's salary of the worker.
Failure to receive the corresponding salary on the agreed or customary date or at the agreed or customary place.
Suffer damages caused maliciously by the employer, in his tools or work tools.
The existence of a serious safety hazard.
The employer, by his inexcusable imprudence or carelessness, compromises the safety of the establishment or of the persons in it.
Demanding the performance of acts, conducts or behaviors that undermine or violate the worker's dignity.
Those analogous to those established in the previous fractions.
It is important to consider that both settlement and liquidation must be stamped, i.e. we must receive our CFDI of the payment, we must validate that it is using Regime 13, since the Tax Administration Service (SAT) announced that the concepts compensation or separation are identified with the key regime 13. This change should be implemented as of January 1, 2019.
Lastly
This article provides the information by law and its respective articles on severance and liquidation, but today there are several calculators, payroll software, macros and other tools that help managers and workers to make accurate calculations.
It is critical for any calculation that we do to be sure that we are doing it with an accurate and professional tool; this gives us peace of mind and assures us that the numbers will be error free.
In case you need help, it is always good to seek the advice of a legal expert.
