The bill has already been approved by the lower house and now goes to President Felipe Calderon for his signature. He originally proposed the measure.
The measure's supporters predict it will create hundreds of thousands of new jobs. Critics say the bill strips away job protections and seniority while doing little to combat the sclerotic leaderships that have spent decades in control of many unions.
"This is going to affect the rights of young workers to get seniority. It is generating the loss of rights for a whole generation of workers," said Sen. Alejandra Barrales of the leftist Democratic Revolution Party.
The bill doesn't do away with seniority, but makes it less of a factor in promotion, and the measure permits probationary and training contracts.
Other practices like outsourcing and part-time employment already exist in practice in Mexico, and the new law will explicitly allow them under certain regulations. For example, a part-time worker could never earn less than the daily minimum wage of about 60 pesos ($5) a day.
Salaried workers in Mexico, about one-fifth of whom are unionized, have long counted on health, housing, severance and profit-sharing benefits to somewhat offset meager wages. The overhaul could make it harder for workers to get full benefits, if companies try to abuse probationary contracts or outsource their employees to smaller firms with few assets or responsibilities.
The bill passed Tuesday was also seen as a test of the commitment of President-elect Enrique Pena Nieto and the Institutional Revolutionary Party to modernization.
The party, known as the PRI, ruled Mexico with a heavy hand for 71 years until it lost the 2000 elections. The PRI is allied with old-guard union leaders and opposed most of the union democracy reforms. Pena Nieto won the July 1 presidential election and is scheduled to take office Dec. 1, at the head of what he claims is a changed and modernized PRI.
Some legislators had proposed requiring unions to submit proposed contracts to union members for approval and elect their leaders by secret ballots. Both of those clauses were stripped out in the lower house. The Senate agreed to pass the bill along to Calderon without the democracy clauses.
Mexican unions are so undemocratic that, when opening new factories, employers sometimes select a docile union for the new facility and the first workers enter with a contract already signed behind their backs. Many workers don't even know the name of the union that supposedly represents them and takes their dues.
The new bill does try to make unions somewhat more accountable in how they use dues money.
Union "democracy was not completely eliminated," said Calderon's labor secretary, Rosalinda Velez. "Even if the president's original proposal was not preserved, there is important progress in union democracy."