The Effects of Exaggeration in Labor Lawsuits in Mexico

Alexander Gotthard, Ohio State University - Main Campus
David S. Kaplan, World Bank
Joyce Sadka, Instituto Tecnológico Autónomo de México

Abstract

This paper uses data gathered by the authors from the archives of a local labor court in the State of Mexico to study the effects of overtime claims on lawsuit outcomes. Labor law in Mexico dictates that labor courts must record the amounts of compensation in all pre-trial settlements. This allows us to measure the impact of strategies chosen by the parties on all lawsuit outcomes, including settlement. In particular, this paper focuses on the plaintiff (employee)’s choice of overtime claim as part of her total claim. Overtime claims are generally unverifiable, particularly because firms that are sued in this court tend to be small or medium-sized firms that do not have formal time-keeping procedures. In addition, labor jurisprudence indicates that judges in labor courts should evaluate unverified overtime claims conservatively, that is they should not recognize unreasonable amounts of overtime. We find that these overtime claims, although often large enough to be considered unreasonable, do affect court rulings, making them more favorable to workers. In addition, in cases that settle, workers whose cases are handled by private lawyers tend to receive higher payments as their claims contain relatively more overtime, while workers whose cases are handled by public lawyers tend to receive lower payments as their claims contain relatively more overtime. This may indicate that private and public lawyers choose very different strategies in relation to the amount of overtime claimed, but may also reflect the selection effect of lawyer type, that is the fact that cases going to public lawyers tend to be different, in both observable and unobservable ways, from cases going to private lawyers.