At the beginning of an employment relationship, both the employer and the employee constitute that relationship thinking that it will lasts several years. However, certain situations may change the expectations of both parties and a job separation process will be presented, which sometimes leads to disagreements. If this situation occurs, it is important that the employer knows the differences between a settlement and a liquidation.

The settlement refers to the proportional part of the benefits accrued for the year, that is, those to which the employee is entitled but did not exercise at the time the employment relationship comes to an end, which consist of the following:

1. Proportional part of bonus – 15 days of salary according to article 87 of the Federal Labor Law (LFT).

2. Proportional part of vacations not taken – these days vary according to the seniority of the employee, according to article 76 of the LFT.

3. Proportional part of the vacation premium – equivalent to 25% of vacation days, according to article 76 of the LFT.

It is worth mentioning that there are companies who pay additional days to those established by the LFT as minimum. In those cases, the proportional part is paid both with the minimum days and with the additional days.

4. The days worked and not paid in the last work period, depending on whether the payment is weekly or bi-weekly.

5. The seniority premium – 12 days of salary for each year worked, if the employee voluntarily resigns and has worked for 15 years or more; or due to total permanent disability regardless of seniority, in accordance with article 162 of the LFT. The seniority premium is paid up to a maximum of 2 times the minimum wage for wages higher than such amount.

The settlement must be paid in the following cases: for voluntary resignation; temporary termination of the individual contract; in case of an unjustified or justified dismissal; if the employee terminates his/her contract without liability on his/her part; for total permanent disability derived from a non-professional illness (in this case, in addition to the seniority premium, one month’s salary is paid, in accordance with articles 53 section IV and 54 of the LFT); or, by the death of the employee. In addition, the settlement is a payment of those considered inalienable for the employee.

On the other hand, the liquidation is an indemnity granted by the employer to the employee when the relationship ends for reasons beyond the control of the latter. These situations can be: due to the closure of the company; a reduction in personnel; or in the event that the position that the employee performs disappears. Likewise, the liquidation takes place when an unjustified dismissal happen.

The liquidation includes, in addition to the items of the settlement and in accordance with the provisions of articles 46 to 55 of the LFT, the following:

1. The Constitutional Compensation, equivalent to three months of the employee’s daily salary;

2. Seniority premium, 12 days per year worked regardless of years of service;

3. Wages due, as long as, after a lawsuit, the employee has won and it has the limit of 12 months of the employee’s salary; and

4. Twenty days per year worked, as long as, in the case of an unjustified dismissal, the employee requests reinstatement, wins it before the Labor Courts and the company refuses to reinstate him/her.

At Trejo Gutiérrez Abogados, we have a group of experts in labor matters with more than 20 years in the market. Please do not hesitate to contact us, we will be glad to provide the personalized legal advice that you require, including queries related to the compensation that corresponds in each specific case in which a job separation process takes place in your company.