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  • Writer's pictureBrandon Guillermo Lopez Moreno

Settlement or Payoff? Find out which one is right for you

Updated: May 27, 2022

The Mexican labor laws protects the worker excessively and the employer must prevent himself using the elements that the law gives him to defend himself if any worker acts unethically or is ill-advised and seeks to harm him through an erroneous application. of the laws.

It’s a key piece that when a worker is hired, an employment contract must be drawn up and signed with all the terms and conditions agreed between the parties.

Similarly, when a worker decides to separate or terminate the employment relationship, certain requirements must be met to be fully valid and the employer can be protected avoiding future controversies with the worker. The main requirements and formalities to be covered are:

  • Obtain resignation letter where the worker with his fist and letter states that it is his will to end the employment relationship

  • Have proof of payment of the settlement of benefits signed by the worker.

  • Evidence of payment of the settlement, preferably made by check or transfer in the name of the worker.

  • Ratify the separation agreement before the H. Conciliation and Arbitration Board.

This last requirement is very important since this authority is validating and accrediting that the worker is willing to terminate the employment relationship and accept the employer, showing that there is no pressure from the employer, as well as giving us the certain date of the document and waiver, these elements can be proof in case there is any future problem.

One of the main problems that we’ve observed is that sometimes there are workers without knowledge, without ethics or poorly advised, they confuse the terms settlement and liquidation, and consider that by resigning they have the right to be compensated with three months of salary, 20 days of salary for each year worked, a seniority premium of 12 days of salary for each year of service rendered, being that payment of said concepts only proceeds when the employer dismisses the worker without justification.

For example, if a worker terminates the employment relationship verbally and the employer accepts it without having the aforementioned elements, the ill-advised worker can sue the employer for unfair dismissal, in this case, the employer will not have elements to distort the worker’s word and will have to pay a settlement instead of a settlement.

The differences between settlement and liquidation can be considerable, as we can see in the following example:

That is why we recommend, before the resignation or dismissal of a worker, to have the termination letter, the settlement, the proof of payment of benefits and that it be ratified before the H. Conciliation and Arbitration Board to give full legality of the resignation of the worker and thus have elements to distort labor claims that erroneously wanted to argue an unjustified dismissal.

In case you need any additional information regarding this topic, please contact us.


Published on June 23rd, 2020.

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