The Aftermath: Reality of Mexico’s outsourcing ban

Mexican President Andrés Manuel López Obrador’s ban on the outsourcing of jobs — as staffing is known in Latin America — is a reality this month. And the effects have just started to be felt. Take Edmundo Escobar, for instance. He has shut down his Mexico-based staffing firm, Rolling Personnel, as client reactions to the law took shape. Now he has begun a new firm providing specialized services for the petroleum industry.

Escobar is one example. However, he is quick to note that the situation in Mexico is still too new to gauge the true impact of the law on the workforce solutions ecosystem.  Martín Padulla, founder and managing director of staffingamericalatina, an independent organization covering the Latin American labor market and an associate of Staffing Industry Analysts, concurs.

Employment Numbers. There are preliminary indicators of the law’s effects, though. For example, Mexico’s Social Security Institute, or IMSS, noted that as of Aug. 31, the share of permanent employment in Mexico was at an 11-year high. However, Padulla and others caution it is still too soon to make a determination and the numbers shouldn’t be relied upon. While the law went into effect on April 24, there was a transition period until Aug. 1, which was extended to Aug. 31 just before the initial Aug. 1 deadline.

Rolling’s Escobar, who also previously has served as president of AMECH, the Mexican association of staffing firms, says, “I don’t think that we can have a real assessment at this stage of the effects of the law.”

Staffing with a Twist

The Law. The new business reality involves staffing firms operating in Mexico unable to supply workers within the country unless they are providing specialized services and are registered.

A legal update by Staffing Industry Analysts noted the law defines outsourcing, or subcontracting, as when a legal entity such as a company makes its employees available for the benefit of another. The only exception to the law is the subcontracting of specialized services that are not part of the corporate purpose or main economic activity of the client company.

“Staffing firms may no longer supply staff unless they are providing specialized services and are registered,” according to the report. The deadline for that was Aug. 31. “Otherwise, a staffing supplier is limited to acting as an employment agent in the recruitment, hiring and training of staff who must be employed directly by the client.”

Real repercussions. But there are concerns about going forward given the law and the uncertainty in the economy. Escobar cites a large retailer that no longer allows independent companies to send staff to promote products in its stores. Instead, the retailer has hired its own internal staff and manufacturers must now pay the retailer to promote their products in its stores.

Still, “we are not close to seeing the real impact,” Escobar says.

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He expresses concern, though, about the number of people in Mexico living in poverty, which has grown by 50 million since the start of Covid. Will the law actually make it more difficult for them to find formal work?

Staffing options. For staffing firms that do plan to provide specialized services — beyond just providing talent — under the law, they must be registered with the government, according to a report by SIA. “Otherwise, a staffing supplier is limited to acting as an employment agent in the recruitment, hiring and training of staff who must be employed directly by the client.”

Craig Johnson

Craig Johnson
Craig Johnson is senior editorial director at Staffing Industry Analysts. He can be reached at cjohnson (at) staffingindustry (dot) com.

Craig Johnson

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