April 10, 2024

Mexican Supreme Court Declares Constitutional the Limit of the Payment of Profit Distributions

Holland & Knight Alert
Humberto Morales | Francisco García | Sean Muzquiz | Damián Gómez | Juan Carlos Torra

As part of the constitutional review, Amparo No. 633/2023, the Second Chamber of the Mexican Supreme Court of Justice declared constitutional (and thus valid) the limit of three months of the employee’s salary or the average of the contributions received during the last three years, depending on what is most favorable to the employees, with respect to the payment of profit sharing.

In this sense, it is important to remember, that in 2021 subcontracting reforms added Section VIII to Article 127 of the Federal Labor Law to establish a cap on the amount of mandatory profit sharing that employees could receive:

"Article 127. The right of the employees to participate in the distribution of profits, recognized in the Political Constitution of the United Mexican States, will comply with the following standards...

VIII. The amount of the profit sharing will have a maximum limit of three months of the employee’s salary or the average of the participation received during the last three years; the amount that is most favorable to the employees will be applied."

It must be considered that, in first instance, the aforementioned limit had been declared unconstitutional by some district courts, leaving the legal limit for the specific acts ineffective; however, through the ruling of the Second Chamber, the constitutionality and validity of the aforementioned limit is reaffirmed.

The above is relevant considering that employers must make their payment within 60 days following the date of payment of the annual tax.

If you require more information about the ruling issued and how it could impact your company and the specific rules applying to profit-sharing, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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