On 26 January 2017, Puerto Rico enacted Law No 4-2017 (Law No 4-2017), a far-reaching statute known as the Labour Reform Act, which amended most of the existing labour and employment legislation in the jurisdiction. Notably, the Labour Reform Act increased the number of hours employees must work in order to accrue statutory vacation and sick leave1, as well as the number of hours needed to qualify for Puerto Rico’s statutory Christmas bonus2; decreased the number of vacation days accrued by employees in a given year; established a cap for the statutory indemnity under Puerto Rico’s Wrongful Discharge Act (Law No 80 of 30 May 1976)3; instituted probationary periods of nine months for hourly employees and 12 months for exempt employees; and changed the computation of daily overtime, among many others. The law also introduced unquestionably positive changes to Puerto Rico’s labour and employment legislation, such as a statutory cap on damages in employment cases; a presumption in favour of independent contractor relationships; codification of employees’ duties towards their employers (such as a duty of loyalty, a duty to not compete against the employer’s business activities and an obligation to cooperate in good faith towards the successful operation of the business), as well as the rights of employees in the workplace (such as the right to be free of discrimination in the workplace, the right to be timely compensated for work performed, and protection of an employees’ right to privacy, subject to the employer’s legitimate interest in protecting its business, its property, and the workplace); religious accommodation; and a rule requiring that local labour and employment statutes be interpreted in a manner consistent with federal legislation on the same issues. Proponents of the Labour Reform Act argued that by reducing burdens on employers, the law would incentivise hiring and stimulate Puerto Rico’s flagging job market. Since its enactment, the statute was met with fierce pushback from labour organisations, who argued that it unfairly reduced employees’ statutorily protected benefits and would have the reverse effect of further dragging down the job market.
During the 2020 election campaign in Puerto Rico, several candidates ran on a platform that included amending the Labour Reform Act of 2017, Law No 4 of 26 January 2017 (Law No 4-2017), including Governor Pedro Pierluisi, who indicated that these matters would be addressed as part of his administration’s public policy. Accordingly, it was no surprise that in the opening 2021 legislation session, there were a flurry of bills in the House intended to amend or repeal Law No 4-2017.
Legislators introduced H-B3 as a full reversal of Law No 4-2017, but ultimately a pared-down version was sent to the Governor’s desk for approval. Most notably, if passed, employers will be faced with changes to the statutory probation period, daily overtime compensation, statutory severance for wrongful discharge (along with changes to the definition of unjust termination which had been enacted in the Labour Reform Act), among others. HB-3 also includes provisions that would eliminate the requirement that there be consistent interpretation between federal laws and local laws that regulate the same issues; reincorporation of the presumption of wrongful termination in all employment termination cases and reverting the commencement of meal period to no earlier than the third hour of work, rather than the second, unless there is written agreement to do so. The law would have gone into effect immediately, leaving employers ill-prepared and hard-pressed to comply.
However, on 5 March 2022, Governor Pierluisi vetoed H-B3, on the grounds that it contained errors and inconsistencies as drafted. In addition, Governor Pierluisi indicated that the proposal for the law to go into effect immediately after being signed was prejudicial to employers, who would not have time to adjust their payroll systems and prepare for the dramatic changes the law contemplated. Notwithstanding, Governor Pierluisi indicated that there were areas of consensus within the proposed statute, including establishing a fixed probationary period of six months for both exempt and non-exempt employees, creating a uniform requirement of 700 hours worked in order for private-industry employees to be entitled to the local statutory Christmas bonus, and reverting the minimum hours worked in order to be entitled to accrue statutory vacation leave from 130 hours to 115 hours per month.
After the governor’s veto, the Puerto Rico legislature wasted no time. On 8 March 2022, an overwhelming majority of the members of the House approved HB-1244. This new version was discussed with the Governor’s team in advance and introduces some changes to HB-3. For instance, under HB-1244, employees who work 20 hours or less per week would accrue half a day of vacation per month. Also, HB-1244 restores the accrual for those employees who work 115 hours per month to one and quarter days per month, among other changes. The probationary period will likewise be restored to three months, which can be extended to a maximum of six months. The Christmas bonus will be accrued with 700 hours of work. On the other hand, HB-1244 is silent as to flexible schedules. However, employees could request changes in work schedules and the employer must respond in 20 days. Employers will not be obligated to publish work schedules in writing. As to the indemnity provided for wrongful discharge, HB-1244 restores the previous formula of the law and language to the effect that terminations are presumed unjustified. Finally, the statute of limitations for wrongful discharge is restored to three years.
On 20 June 2022, Governor Pierluisi signed HB-1244, creating Law No 41-2022. However, the Fiscal Control Board established by PROMESA formally objected to the law on 19 July 2022 and ordered its enforcement suspended. For its part, Governor Pierluisi’s administration has expressed its intention to defend the law and its implementation. The outcome of this dispute remains uncertain. Accordingly, employers doing business in Puerto Rico should continue to monitor this situation closely.
For further information or, if you should have any questions or comments relative to this article, please consult the labour and employment law team at AMG.
- From 115 to 130 hours for all employees.
- From 700 hours to 1,350 hours, with a grandfather clause for employees hired before 26 January 2017.
- With a grandfather clause for employees hired before 26 January 2017.
Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C.
Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C. (AMG) endeavours to provide comprehensive business-related legal services to companies throughout Puerto Rico, as well as business interests based in the continental United States or abroad that have financial interests in Puerto Rico. AMG’s exceptional team of lawyers bring years of experience and a wide range of professional credentials to every matter they handle. As a full-service law firm, AMG assists clients facing a wide range of issues including business disputes; labour and employment law; tax issues; commencing business operations in Puerto Rico; banking, real estate, finance and mergers and acquisitions; and aviation law.
AMG’s labour and employment department is experienced in all areas of labour and employment law, including legal counselling in cases of wrongful discharge, employment discrimination, workplace retaliation, wage and hour claims, employee benefits, business-related immigration, and employment practices liability. AMG’s labour and employment practice includes representation of employers in cases before federal and Puerto Rico courts, as well as administrative agencies. Our attorneys also represent employers in the public and private sectors with claims and proceedings involving union campaigns, negotiation and administration of collective bargaining agreements, and labour arbitrations. AMG labour and employment law attorneys also have extensive experience in reorganisation of businesses, reductions-in-force, plant closings and mergers and acquisitions. AMG’s labour and employment law attorneys are the current Puerto Rico contributors to the Executive Remuneration Review and Chambers Global Practice Guide (Employment).
Mariel Y Haack joined AMG in 2005. She is currently a shareholder in the firm’s labour and employment department. Her areas of practice include representation of management before administrative agencies and in federal and Puerto Rico courts in wrongful discharge cases, discrimination suits, wage and hour and benefits claims; general counselling with clients regarding the avoidance of litigation, as well as compliance with Puerto Rican and federal labour laws, employment discrimination statutes (such as the Americans with Disabilities Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964), ERISA and other laws governing various aspects of employment; appellate practice in both federal and Puerto Rican courts; and employment-based immigration, including H-1B visas for professionals and individuals with specialist knowledge; L visas for intra-company transfers for executives, administrators, professionals and individuals with specialist knowledge; e-Visas for treaty investors and treaty traders; and labour certifications, employment-based permanent resident petitions and naturalisation. Ms Haack’s practice also includes defending insurance claims in the area of employment practices liability. She also represents major airlines serving Puerto Rico in labour and employment matters and aviation law.
Ms Haack is admitted to the Puerto Rico Bar, the US District Court for the District of Puerto Rico and the United States Court of Appeals for the First Circuit.
Edwin J Seda-Fernández is the director of AMG’s labour and employment department. His active practice encompasses counselling and representing clients in all areas of labour and employment law. A substantial element of his practice consists of representing management in union campaigns, negotiation of collective bargaining agreements, labour arbitration and proceedings before the National Labour Relations Board. Mr Seda-Fernández also defends vigorously but judiciously employers in wrongful discharge, employment discrimination, benefits, and wage and hours claims in the Puerto Rican and federal courts, including the United States Court of Appeals for the First Circuit.
Mr Seda-Fernández has extensive experience in counselling employers in workforce reductions, business reorganisations and employment aspects of mergers and acquisitions. He has lectured extensively before commercial and professional associations, including the Puerto Rico Manufacturing Association, the Puerto Rico Chamber of Commerce, the Council on Education in Management, the National Business Institute, the Puerto Rico Hotel and Tourism Association, the programme for professional development of the University of Puerto Rico and the Association of Labour Relations Practitioners. He has also taught courses in labour law and jurisprudence, collective bargaining and labour relations at the Business Administration Faculty of the University of Puerto Rico, Río Piedras.
Mr Seda-Fernández is admitted to the Puerto Rico Bar, the US District Court for the District of Puerto Rico, and the United States Court of Appeals for the First Circuit.