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Closing a Mexican operation and the workforce: statutory closure causes, labor court approval, three months plus seniority premium and the priority of workers' claims

Last verified: 2026-10-26 · Status: Stable

Mexican labor law lists the causes that allow an employer to end employment because of closure: force majeure, notorious unprofitability, exhaustion of an extractive operation and insolvency where closure is decided; most require labor court approval or prior authorization. In those cases each worker receives three months' salary plus a seniority premium of 12 days per year, with the salary for the premium capped at twice the minimum wage (MXN 630.08 a day in 2026 outside the border zone). Workers' last year wages and severance rank ahead of every other creditor, including secured, tax and IMSS claims, and a closure decided for other reasons is treated as dismissal.

USD conversions use MXN 18.6638 per US dollar, the US Federal Reserve H.10 noon buying rate in New York for 23 October 2026 (FRED series DEXMXUS), the latest observation available when this page was verified. Mexican tax law uses the Banxico FIX for foreign currency amounts, which differs slightly. Conversions are for orientation only.

Key facts

Severance on statutory closure	3 months of salaryLFT art. 436, as of 2026-10-26 · in force
Seniority premium	12 days of salary per yearLFT art. 162, as of 2026-10-26 · in force
Salary cap for the seniority premium	2 x minimum wage of the area LFT arts. 162 and 486, as of 2026-10-26 · in force
General daily minimum wage 2026	315.04 MXNCONASAMI resolution on minimum wages in force from 1 January 2026, as of 2026-10-26 · in force
Northern Border Free Zone daily minimum wage 2026	440.87 MXNCONASAMI resolution on minimum wages in force from 1 January 2026, as of 2026-10-26 · in force
Severance on technology driven reduction	4 months + 20 days per year + seniority premium LFT art. 439, as of 2026-10-26 · in force
Cap on back wages in unjustified dismissal	12 monthsLFT art. 48, as of 2026-10-26 · in force
IMSS separation notice	5 business daysLSS art. 15, as of 2026-10-26 · in force

The rule

1. Employment ends by closure or definitive reduction of work for: (I) force majeure or an unforeseen event not attributable to the employer, or the employer's incapacity or death, that necessarily and directly ends the work; (II) notorious and manifest unprofitability; (III) exhaustion of the material of an extractive industry; (IV) the cases of art. 38 (work for a specific project or investment); and (V) concurso or bankruptcy where the authority or creditors decide on definitive closure or reduction.
Cost to do it: See the severance rule.
Example: A mining operation whose ore body is exhausted ends employment under section III; a parent deciding to move production to another country is not on this list. / Not a monetary rule.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Arts. 433 and 434, 1970-04-01 official text · verified 2026-10-26

2. For force majeure and insolvency the employer gives notice to the labor court, which approves or disapproves through the special collective procedure; for exhaustion of an extractive industry the employer must obtain the court's authorization in advance through that procedure; for unprofitability it must obtain prior authorization through the procedure for collective conflicts of an economic nature.
Cost to do it: Legal costs of the proceeding; no court fee is set in the LFT.
Example: An unprofitable plant cannot simply terminate its staff under section II; it must first win authorization in an economic collective conflict. / Not a monetary rule.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Art. 435, 1970-04-01 official text · verified 2026-10-26 · changed: The DOF 1 May 2019 reform replaced the conciliation and arbitration boards with labor courts in these procedures.

3. In the closure cases (except art. 38 project work) each worker is owed three months' salary and the seniority premium. The premium is 12 days' salary per year of service, paid on any separation by dismissal whatever the cause; for computing it, salary above twice the minimum wage of the area is capped at that amount. The 2026 daily minimum wage is MXN 315.04 in general and MXN 440.87 in the Northern Border Free Zone.
Cost to do it: Three months' salary plus 12 days a year at up to MXN 630.08 a day (MXN 881.74 in the border zone).
Example: Worker earning MXN 1,000 a day with six years: three months taken as 90 days, MXN 90,000; premium 12 x 6 x MXN 630.08 = MXN 45,365.76; total MXN 135,365.76 before accrued vacation and year end bonus. / About USD 7,253 per worker.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Arts. 162, 436, 485 and 486; CONASAMI resolution for 2026, 1970-04-01 official text · verified 2026-10-26

4. When work is reduced, the workers with least seniority are let go first. If the employer resumes the business or creates a similar one, it is bound by the hiring preferences of art. 154, which favour, among others, workers who served it satisfactorily for longer. Where new machinery or work methods reduce staff without agreement, labor court authorization is needed and each worker gets four months' salary plus 20 days per year of service (or more if agreed) and the seniority premium.
Cost to do it: Four months plus 20 days a year plus premium for technology driven reductions.
Example: Worker at MXN 1,000 a day with six years displaced by automation: 120 days MXN 120,000 plus 120 days (20 x 6) MXN 120,000 plus premium MXN 45,365.76. / About USD 15,290 per worker.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Arts. 437, 438 and 439, 1970-04-01 official text · verified 2026-10-26

5. If a closure is not based on a statutory cause, terminations are dismissals: the worker may claim reinstatement or three months' salary, plus back wages from dismissal up to twelve months if the employer cannot prove a cause, and after that 2 percent monthly interest on fifteen months' salary.
Cost to do it: Up to twelve months of back wages on top of severance if litigated and lost.
Example: Litigated dismissal of a worker at MXN 1,000 a day: three months MXN 90,000 plus up to twelve months of back wages, about MXN 365,000. / Exposure of about USD 24,379 per worker before the premium.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Art. 48, 1970-04-01 official text · verified 2026-10-26

6. Wages earned in the last year and severance owed to workers take priority over any other claim, including secured, tax and IMSS claims, on all of the employer's assets. Workers need not join a concurso, bankruptcy or succession; the labor court seizes and auctions assets to pay them.
Cost to do it: Severance must be funded before any distribution to shareholders.
Example: In liquidation, the liquidator pays the severance before the bank secured on the plant. / Not a monetary rule.Ley Federal del Trabajo (LFT), DOF 1 April 1970 (Chamber of Deputies consolidated text, last reform DOF 14 May 2026), Arts. 113 and 114, 1970-04-01 official text · verified 2026-10-26

7. Employers must notify IMSS of each employee's separation (baja) within five business days and keep payroll records for five years.
Cost to do it: No fee; late notices keep contributions running.
Example: Staff terminated on 30 June: IMSS bajas filed by 7 July. / Not a monetary rule.Ley del Seguro Social (LSS), DOF 21 December 1995 (Chamber of Deputies consolidated text, last reform DOF 15 January 2026), Art. 15, sections I and II, 1995-12-21 official text · verified 2026-10-26

Scenario	MXN	USD
Statutory closure: 3 months + premium	135,365.76	7,253
Technology reduction: 4 months + 20 days a year + premium	285,365.76	15,290
Litigated dismissal lost: 3 months + 12 months back wages + premium	500,365.76	26,809

Per worker cost of a closure, worker at MXN 1,000 a day with six years, outside the border zone (LFT; USD at 18.6638)

Worked example

Three months are computed here as 90 daily salaries and twelve months of back wages as 365 days, for illustration; accrued vacation, vacation premium, year end bonus and profit sharing are additional.
A 100 person plant with that profile costs about MXN 13,536,576 (about USD 725,285) in statutory closure payments.

Step by step

1. Identify whether a statutory closure cause applies and which court procedure it needs.
2. Budget severance with the seniority premium cap and accrued benefits.
3. Negotiate individual settlements and have them approved by the labor conciliation authority.
4. File IMSS bajas within five business days and pay final contributions.
5. Fund workers' claims before creditors and shareholders.

Common traps

Treating a strategic closure as a statutory cause: it is not listed in LFT art. 434, so dismissal rules apply.
Terminating for unprofitability without prior court authorization (LFT art. 435).
Applying the premium cap to the three months' salary: the cap applies only to the premium (LFT arts. 162 and 486).
Paying shareholders before workers: workers' claims rank first (LFT art. 113).
Reopening a similar business without applying the art. 154 hiring preferences to former workers (LFT art. 438).

Sources

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