Significant Amendments to Puerto Rico Employment Laws Became Effective

On June 20, 2022, the Governor of Puerto Rico signed into law Act 41-2022 (“Act 41”), which amends the Labor Transformation and Flexibility Act (“LTFA”) to reinstate some benefits for employees in the private sector.  Also, the Act provides additional new benefits to employees in the private sector and expands such benefits to part-time employees and student workers.  We caution our readers that the Puerto Rico Financial Oversight and Management Board (“FOMB”) created under PROMESA has already advised the Government of Puerto Rico that Act 41 “is directly at odds with the Certified Fiscal Plan and the purposes of PROMESA. Enactment, implementation, and enforcement of [Act 41] will remain barred by PROMESA Section 108(a)(2).”  The Governor responded that the FOMB’s reaction was premature and invited the FOMB to further dialogue or to seek judicial recourse.  Nonetheless, for its relevance until such time as the Board formally blocks the statute (if it determines to do so), below we provide a summary of the most significant changes introduced by Act 41.  The statute became effective since July 20, 2022.

I. Amendments to Act 4-2017: Labor Transformation and Flexibility Act

New amendments require that any ambiguity in an employment agreement provision be interpreted in favor of the employee.  The statute of limitations for any claim involving employment or benefits under an employment agreement will now be of three (3) years, as opposed to the prior term of one (1) year.

II. Amendments to Act No. 379 of May 15, 1948: Working Hours and Days (“Act 379”)

The amendments introduced by Act 41 state that meal periods  for nonexempt employees that take place outside the normal work hours may be disregarded through written agreement between employer and employee and without the intervention of the Labor Secretary.  Also, the timing of the meal periods changed.  The meal period must begin after the conclusion of the third hour of work and before the commencement of the sixth hour of work.  Employees may also begin their lunch break between the second and third consecutive work hour through written agreement between employer and employee.  Employees that work between 10 and 12 hours are entitled to a second meal period.  Employees who do not exceed 12 hours may waive their second meal period by written agreement if they benefited from the first meal period.  Act 41 further eliminated the provision that stated that nonexempt employees scheduled to work six or less hours are not entitled to meal periods.  Finally, the Act reinstates that unionized employees may reduce their lunch break time by collective bargaining agreement or by agreement between the union and employer.  According to the new statute, no later than 90 days after its approval, the Secretary of Labor must issue new rules and regulation.  We will supplement this newsletter upon issuance of the same.

III. Amendments to Act No. 289 of April 9, 1946: One Day of Rest for Every Six (6) Days (“Act 289”)

Nonexempt student employees are now entitled to twice their regular rate of pay for the work performed in their day of rest.  If the employer is a microbusiness or a small or medium business, these nonexempt student employees will be entitled to one and a half of their regular hourly pay rate.  This will require employers to establish a process in their payroll systems to establish which employees are entitled to the above.

IV. Amendments to Act 180-1998: Vacations and Sick Leave Act (“Act 180”)

Work hours required to accrue vacation and sick leave were reduced from 130 to 115 hours a month, as it was prior to the enactment of the LTFA.  Nonexempt employees are now entitled to one and a quarter (1 ¼) days of vacation leave and one (1) day of sick leave per month.

Act 41 introduced vacation and sick leave benefit for part time employees.  Employees that work less than 115 hours a month but who work at least 20 hours a week are entitled to one-half (1/2) a day of sick leave and one-half (1/2) a day of vacation leave, per month.  Employees in certain companies with 12 employees or less, who work more than 20 hours per week, but less than 115 hours per month, will accrue vacation leave at the rate of one quarter (1/4) of day per month and one-half (1/2) of sick leave day per month.  In the case of employees who work more than 115 hours per month, they will be entitled to a minimum accrual of vacation leave at the rate of one-half (1/2) day per month, and sick leave at the rate of one (1) day per month.

Moreover, if requested by an employee, an employer may pay employees the partial or total unused balance of vacation time accumulated.  Before this amendment, employees could only ask to cash out the accumulated vacation leave in excess of 10 days.  Finally, the statute of limitations for salary claims against employers was increased from one (1) year to three (3) years.

V. Amendments to Act No. 148 of June 30, 1969: Christmas Bonus for Private Sector Employees (“Act 148”)

The newly enacted Act 41 changed the eligibility of employees, as well as the basic requirements for employers to pay the Christmas Bonus.   Employees that were hired before the LTFA went into effect and who work 700 hours or more from October 1 of any calendar year until September 30 of the subsequent calendar year, will receive a bonus of 6% of the maximum salary of $10,000.00, if their employer has 13 employees or more.  If their employer has 12 employees or less in more than 26 weeks of the year from October 1 to September 30, employees are entitled to a bonus of 3% of the maximum salary of $10,000.00 if they worked 700 hours or more.

However, if the employee was hired after the LTFA was enacted, the employee is entitled to a bonus of 3% of the annual salary up to $600.00 if the employee worked more than 700 hours and if their employer has more than 20 employees for 26 weeks during a given year (October 1st to September 30th).  On the other hand, if employer has 20 employees or less during a given year (October 1st to September 30th), then the employee is entitled to a bonus of 3% of the annual salary up to $300.00 if they worked more than 700 hours.

The amendment also establishes that the employee work hours requirement for microbusinesses and small and medium business is 900 hours instead of 700.

VI. Amendments to Act No. 80 of May 30, 1976: Wrongful Termination Act (“Act 80”)

Act 41 amended the Wrongful Termination Act in various aspects.  First, the severance calculation was increased.  Employees with less than 15 years of service are entitled to 3 months of salary, plus a progressive compensation of 2 weeks for each year of service.  On the other hand, employees with more than 15 years of service are entitled to 6 months of salary, plus a progressive compensation of 3 weeks for each year of service.  The previously established severance caps were eliminated, as well as the provision referencing that any amount exceeding the statutory severance would be subject to Puerto Rico income taxes.

Importantly, various causes for justified dismissal were amended.  The standard to determine a constructive discharge was eliminated from the law.  Also, the Act eliminated or substantially amended the provisions that offer guidance on the analysis of terminations for employers operating more than one location.

Although the probationary period continues to be automatic, it has been reduced to three (3) months, which can be extended to six (6) months with approval from the Secretary of Labor.  Unions may contract a six (6) period under their collective bargaining agreement.

Act 80 was also amended to compel employers to allege all facts that support a termination and establish just cause in the answer to complaint.  Therefore, the presumption of the unjustified dismissal was reinstated, placing on the employer the burden of proof.  The Court may order the employer to consign in Court a sum equal to the total compensation the employee is entitled to, as well as a sum to compensate for attorney’s fees, which will never be less than 15% of the total compensation, if there are sufficient grounds to believe that the termination was unjustified.  Such amounts will be returned to the employer if the Court enters final judgement in its favor.

Finally, the statute of limitations for filing a wrongful termination claim has been increased to three (3) years, since the date the termination was made effective.

VII. Amendments to Act No. 100 of June 30, 1959: Antidiscrimination Act (“Act 100”)

There is a rebuttable presumption that acts of discrimination were made, in violation of Act 100, when acts alleged were without just cause.

VIII. Amendments to Act No. 28 of January 21, 2018: Catastrophic Illness Leave

Act 41 amends the definition of catastrophic to include any “illness listed in the Special Coverage of the Health Insurance Administration, as amended from time to time, which currently includes the following serious illnesses: (1) Acquired Immune Deficiency Syndrome (AIDS); (2) Tuberculosis; (3) Leprosy; (4) Lupus; (5) Cystic Fibrosis; (6) Cancer; (7) Hemophilia; (8) Aplastic Anemia; (9) Rheumatoid Arthritis; (10) Autism; (11) Post Organ Transplant; (12) scleroderma; (13) Multiple Sclerosis; (14) Amyotrophic Lateral Sclerosis (ALS); and (15) Chronic Kidney Disease at levels 3, 4 and 5.  In addition, it includes bleeding conditions similar to Hemophilia.”

XI. Date of Effectiveness and Potential Legal Challenges

Unless an employer is considered a microbusiness, or a small or medium business, Act No. 41-2022 shall take effect upon 30 days of its approval.  As a result, employers were advised to adopt the necessary changes in their policies and procedures on or before July 20, 2022.  If the employer is a microbusiness or small or medium business, it will have 90 days, this is, until September 19, 2022, to comply with the Act.

As stated, we foresee litigation between the FOMB and the Government of Puerto Rico.  We will inform our readers of any further developments on this front.  However, to the extent this does not occur, Act 41 will remain in full force.

Contact our Labor and Employment Practice Team.

Alfredo Fernández Martínez
787.522.0524
afernandez@delgadofernandez.com

Sashmarie Z. Rivera López
787.523.3819
srivera@delgadofernandez.com

Eduardo L. Hernández Freire
787.626.1855
ehernandez@delgadofernandez.com

If you have any questions about the matters addressed in this News Alert, please contact Delgado & Fernández, LLC.

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