Recent Puerto Rican Employment Law Amendments Challenged in Federal Court

Puerto Rico’s governor made significant changes to the island’s employment laws in June, impacting contract interpretation, sick and vacation leave, bonus eligibility, severance pay, probationary periods, and presumptions of just cause and discrimination. However, the Financial Oversight and Management Board for Puerto Rico has recently filed a federal lawsuit seeking to nullify them. Employers in Puerto Rico should expect a Court decision in coming months, but until then, the new labor reform is still in effect.

On June 20, 2022, Puerto Rico’s governor signed Act No. 41-2022 into law, rolling back certain changes brought about by the Labor Transformation and Flexibility Act (LTFA), enacted in 2017 with the goal of reenergizing the island’s economy following its effective bankruptcy. Main changes include:

• Ambiguities in employment agreements shall be interpreted in favor of employees.
  
  
• Reduces the minimum threshold for eligible employees to accrue paid vacation and sick leave from 130 hours to 115 hours of work per month.  
  
  
• To be eligible for the Christmas bonus, the hours-worked threshold returns to 700 hours from 1,350 hours for most employees and will apply regardless of hiring date.
  
  
• Rolls back the calculation of the remedy for an unjust dismissal from a fixed rate to the requirements under Law 80-1976. Importantly the new law also reincorporates the statutory presumption that all employment terminations are unjust dismissal and reverts to the presumption that a termination is also discriminatory if there is no just cause for termination.
  
  
• It also reverts the meal period commencement to no earlier than the third hour of work from the second hour, unless a written agreement of an exception is in place.

The focal argument that the Oversight Board made was that the new act violates several provisions of the PROMESA Act, a federal law to allow Puerto Rico to restructure its public debt, for causing negative effect on the revenues of the government of Puerto Rico and slowing economic growth. Therefore, it would in turn affect Puerto Rico’s capacity to pay newly restructured public debt.

Outlook: Employers in Puerto Rico should keep a close eye on the court decision. However, the labor reform is still effective and should be complied with until further notice.