2017 was a key year for employers in Puerto Rico with the enactment of a major labor reform known as the Labor Transformation and Flexibility Act of 2017. On June 20, 2022, five years later, Governor Pedro Pierluisi approved the controversial Act 41-2022, reverting and repealing many of the changes introduced in 2017, that were more favorable to employers. Governor Pierluisi publicly stated that he wanted to make the labor market in Puerto Rico more attractive and safer for employees.
The below content aims to simplify the latest employment legal structure in Puerto Rico. Employers must note that Act 41-2022 was not endorsed by the Financial Oversite and Management Board, thus we anticipate its validity will be challenged in court soon. The amendments will become effective in 30 days.
Probationary period
- The length of the probationary period was reduced to three (3) months irrespective of the employee’s exempt or nonexempt classification.
- Probationary period applies automatically and may be extended for three (3) additional months after written notice to the Secretary of the Department of Labor expressing the reasons for the extension.
- Unions may negotiate up to six months of probationary period without written notice to the Department of Labor.
Fixed Term or Project Based Employment Agreement
- Must be in writing and executed during the first day of employment.
Overtime
- Overtime will be paid at a rate of one and a half (1½) times the employee’s regular rate
- for work in excess of eight (8) hours in a calendar day
- for work in excess of forty (40) hours in a calendar week
- for work performed, while the commercial establishment is supposed to be closed
- for work performed during the statutory rest day
- in case of students, the rate will be double the time of the employee’s regular rate
- for work in excess of the maximum hours stated in a collective bargaining agreement
Meal Period
- The meal period must be taken after the third and before the sixth hour of work.
- The meal period could be taken between the second and third hour of work if there is a written agreement.
- Act-41 eliminates the automatic waiver of meal period when the employee works a 6-hour shift.
- Meal period reduction agreements are valid as long as the employer and the employee consent.
- For unionized employees, stipulations to reduce the meal period will need to be negotiated with the union.
- Employees may agree in writing to a waiver of a second meal period when the work-shift is not greater than twelve (12) hours.
Sick Leave:
- 1-day accrual rate per month for employees who work 115 hours
- 0.5-day accrual rate per month for employees who work 20 hours a week, but less than 115 hours per month
Vacation Leave:
- Employees accrue vacation leave during the probationary period
- 1.25-day accrual rate per month for employees that work 115 hours
- 0.5-day accrual rate per month for employees who work 20 hours a week, but less than 115 hours per month
- Employers with 12 employees or less:
- 0.5-day accrual rate per month for employees that work 115 hours
- 0.25-day accrual rate per month for employees who work 20 hours a week, but less than 115 hours per month
- Vacation leave may be totally or partially paid out if requested in writing by the employee.
Christmas Bonus
- The Christmas Bonus amount is now equivalent to 6% of the employee’s salary up to $10,000.
- The Christmas Bonus is payable to employees who have worked at least 700 hours during accrual period.
- The 700-hour threshold also includes employees hired after January 26, 2017.
- For employers with 12 or less employees, the Christmas Bonus amount is equivalent to 3% employee’s salary up to $10,000.
- Micro, Small or Medium sized businesses as defined by Act 62-2014:
- No less than 900 hours of work required
- Christmas bonus equivalent to 6% of the total salary, up to $600, for employers with more than 20 employees
- Christmas bonus equivalent to 3% of the total salary, up to $300, for employers with 20 employees or less
- No less than 900 hours of work required
Severance payment for wrongful termination
- New Severance Formula:
- Three (3) months, plus two (2) weeks of salary for employees with less than 15 years of service
- Six (6) months, plus (3) weeks of salary for employees with more than 15 years of service
- The nine (9) month cap for severance payment was eliminated
- Definitions and other dispositions:
- The definition of just cause was reverted to the pre labor reform language
- Employers have the burden to prove a dismissal was justified
Interpretation and ambiguity
- In case an employment agreement is ambiguous, it will be interpreted liberally in favor of the employee.
- Employers may reserve the right to interpret their policies, as long as such interpretation is reasonable.
- Puerto Rico’s wage and hour regulations will no longer be interpreted according to the Fair Labor Standards Act rules.
Statutes of Limitations
- The statutes of limitations for employment claims was raised from one (1) year to three (3) years.
- Employees will have three (3) years to file for wage and hour claims, unjust dismissal claims and for other employment-related claims.
Other important dispositions:
- During a pre-trial conference a judge may require an employer to post a bond equivalent to the severance payment if he/she understands there are sufficient reasons to believe the termination was unjustified.
Our team of labor and employment attorneys is available to answer any questions regarding the 2022 recent amendments and its consequences. JGL strongly recommends that employers review their handbooks and policies to ensure compliance with the most recent legal changes.
We look forward to hearing from you.
©2021 Jiménez, Graffam & Lausell. This material is provided for informational purposes only and it is not intended to constitute legal advice, nor does it create a client-lawyer relationship. Please consult with counsel before taking any actions based on the information contained within this material.