COVID-19 Labor, Contracts and Tax Implications

In Cannizzo we are aware of the situation the world, and in particular Mexico, is going through due to the COVID-19 pandemic and the various implications this will have on our clients’ labor and contractual relationships. Therefore, some of the most relevant legal aspects to be taken into consideration in these matters are mentioned below.

Considering the evolving nature of the scenario, it will be important to monitor the provisions, agreements and decrees that, from time to time, the competent authority issues and, if considered appropriate, the communications that Cannizzo issues in this regard to remain aware of the legal provisions applicable to your labor, contractual and tax obligations.

LABOR MATTERS

Article 73, section XVI, 2nd and 3^rd bases of the Constitution requires the Ministry of Health to issue indispensable preventive measures in cases of serious epidemics, subject to subsequent sanction by the President. These measures include, as was the case in April 2009 with the decree on seasonal influenza epidemic, the isolation of persons who may carry or suffer from the disease, the temporary closure of premises or entertainment centers and even work suspension.

Until this day, considering that the competent authorities in Mexico have not issued a health contingency decree as referred to in the previous paragraph, the only relevant legal provisions on labor matters are those relating to the Joint Commission on Safety and Hygiene of companies, the obligation of medical examinations for employees and the provisions applicable in the event that an employee is infected by COVID-19.

In addition to what will be mentioned below, it will be important to bear in mind that, without the issuance of the above-mentioned decree, it will not be possible to suspend any of the effects of the employment relationship between the employer and its employees without the acknowledgment of the competent labor court.

With respect to the Joint Commission on Safety and Hygiene of the companies, we emphasize the importance of having it, since through it the employer complies with its obligation under Article 475 Bis of the Federal Labor Law; to be responsible for the safety and hygiene of the company or work center. At this time, it is essential that this Commission hold a session in which the necessary health measures are decreed to reduce the risk or even avoid, as far as possible, viral infections within the workplaces.

Regarding the obligation of medical examinations for employees, this derives from the provisions of Article 134, section X, of the Federal Labor Law. This Article emphasizes that the purpose of the medical examinations must be, among others, to confirm that the employee does not suffer from any contagious disease. Therefore, and independently of the fact that we recommend including such obligation in the internal work regulations or internal policies of each company or establishment, it is important that in the event of any suspicious symptom in any employee, the employer requests the employee to go to the medical service to have the relevant tests performed.

However, if an employee is infected with COVID-19, the Mexican Social Security Institute (IMSS) must issue a certificate of disability. Such Institute will pay the employee a daily subsidy equivalent to 60% of the reported salary as from the fourth day of disability and the employer shall not pay 40% of the remaining salary.

On the other hand, in case the competent authorities decree the health contingency referred to in the first paragraph of this section and such decree implies work suspension, the employer shall only pay its employees an indemnity equivalent to one day of the in force general minimum wage, for each day the suspension lasts, without exceeding one month. In addition to the foregoing provided by the Federal Labor Law, it will be necessary to wait to know the transitory provisions that, if applicable, are issued by the Ministry of Labor and Social Security, the Ministry of Health or the Mexican Institute of Social Security jointly with the health contingency decree to know the rest of the legal implications of the relevant decree.

CONTRACTUAL MATTERS

The general rule in contractual matters is that the parties shall comply with what has been agreed between them in the manner and terms that appear to have been intended. Therefore, to determine whether a pandemic such as COVID-19 is justified, legal and sufficient cause for exemption from liability in the event of breach of contractual obligations assumed by the parties, it will be necessary to analyze the agreement or legal act from which the relevant obligation derives. A definition of what constitutes an Act of God or force majeure, the duration of said event to be considered as such and, where appropriate, the procedure to be followed by the parties to notify the other party that it has occurred, could be derived from such agreement.

If the parties have not included provisions to that effect in the relevant agreement, they shall apply the provisions of the Civil Code of the relevant state (remember that civil matters are local and therefore each state is authorized to legislate on such matters) or, in case of a commercial act, the provisions of the Federal Civil Code. Pursuant to the provisions of the Federal Civil Code, no one is bound by Acts of God derived from acts or omissions due to the COVID-19 pandemic and, if applicable, the health contingency decree, unless they have expressly accepted said responsibility or when the law imposes it.

Notwithstanding the foregoing, it is pertinent to highlight the difficulty of proving in a procedural manner the causal relationship between COVID-19 and the breach of the contractors’ obligations, especially considering that the Mexican authorities have not issued a health contingency decree until today. Without the existence of such a decree, we consider it difficult to legally justify the existence of an Act of God or force majeure that could allow any of the parties to fail to comply with their obligations without any liability. However, it should be reviewed on a case-by-case basis to determine whether or not it is possible to invoke an Act of God or force majeure.

By way of example, we refer to the provisions of Article 2431 of the Federal Civil Code that would be applicable to commercial leases in the event of the issuance of the health contingency decree, as follows: “If by reason of an Act of God or force majeure the tenant is totally prevented from using the leased item, no rent shall be due for the duration of the impediment, and if the impediment lasts for more than two months, the tenant may request the termination of the agreement”. Other similar provisions are included in the Civil Codes of the various states of Mexico.

In the event that the above mentioned health contingency decree is not issued, please consider that in some Civil Codes of the states of Mexico the “unforeseeability theory” is acknowledged, which seeks to balance the benefits between the parties in the event that there are extraordinary national events that were not possible to foresee and that generate that the obligations of one of the parties are more onerous. In such a case, the concerned party concerned may attempt to take action to restore the balance between their obligations. Notwithstanding the aforementioned, please note that there are judicial criteria that do not acknowledge the application of the unforeseeability theory to commercial acts.

If you or any of your clients cannot comply with the obligations arising from your contractual relationship, it will be important to analyze the specific case and the provisions of the agreement or legal bond from which the obligation derives, in a detailed manner, to determine the possibility of invoking unforeseen circumstances or force majeure and suspend compliance without any liability.

TAX MATTERS

Although no decree has been issued in this regard, it is presumable that within the next few days the Ministry of Finance and Public Credit will issue a decree extending the deadlines for individuals and corporations to file their annual tax return for the fiscal year ending on December 31, 2019. The dates applicable today, without any decree having been issued by the authority, are March 31st for legal entities and April 30th for individuals. In addition to the foregoing, it should be recalled that in accordance with the provisions of the Federal Tax Code in the event of catastrophes suffered by epidemics, the payment of contributions and their accessories may be totally or partially waived or remitted. It will be necessary to wait for the corresponding decree from the competent authority in this respect.

We reiterate our wishes that all our clients, business partners and collaborators and their families are and remain in good health. We reiterate our commitment to our clients to overcome these times of economic and business uncertainty with creativity in the application of best legal practices. Please find below the recommendations of the World Health Organization with which we will be able to face the historical episode in which we find ourselves together.