On March 3, 2023, Judge Laura Taylor Swain declared Act 41-2022, which amended the 2017 Labor Reform, null and void ab initio. Thus, the 2017 Labor Reform Act is again in full force. Taylor Swain’s Opinion and Order declaring Act 41 Act null and void also nullifies any actions that have been taken to implement it, this includes various opinions and proposed regulations issued by the Puerto Rico Department of Labor. The Opinion and Order will become final in 30 days. The Puerto Rico government is considering appealing the court’s decision.
By way of background, Act 41 went into effect on July 20, 2022, for many large employers in Puerto Rico and on September 18, 2022, for smaller employers. Act 41 had reduced the length of the probationary period, changed the mandatory meal period schedule, granted sick leave and vacation leave benefits to part-time employees, changed the Christmas Bonus eligibility requirements, the severance formula, expanded the statute of limitations, among other.
Employers may now examine all actions taken after the effectiveness of Act 41 to consider if measures may be taken to reverse any benefits granted under the Act. To this end, employers will have to honor all benefits that were contractually adopted. Similarly, companies that granted benefits under their policies or handbooks, must amend and notify any changes. However, if a Company did not change its policies, it could just simply eliminate Act 41 benefits from their systems.
Below is a summary of some relevant dispositions of the 2017 Labor Reform:
Probationary period: The length of the automatic probationary period is nine (9) months for nonexempt employees and twelve (12) months for exempt employees.
Overtime: Overtime will be paid at a rate of one and a half (1½) times the employee’s regular rate.
Meal Period: The meal period must be taken after the second and before the sixth hour of work. The meal period can be waived if the total worked hours is no more than six hours. The second meal period could be waived if the employee does not work more than twelve (12) hours and took a first meal period. A meal period agreement cannot be terminated by an employee before a year of its execution.
Sick Leave: One-day sick leave accrual rate per month for employees who work 130 hours per month.
Vacation Leave: Monthly accrual rate of half (½) day during the first year of employment; three-fourths (3/4) of a day after the first year of employment until the fifth year; one (1) day after the fifth year of employment until the fifteenth year; one and one-fourth (1¼) of a day after fifteen years of employment, provided that the employee works 130 hours per month.
Christmas Bonus: The Christmas Bonus is two (2) percent of the salary earned, up to $600, for employees who work 1,350 hours during the eligible period. For smaller employers, with 20 employees or less, the bonus is two (2) percent up to $300. During the first year of employment, employees are entitled to fifty percent (50%) of the Christmas Bonus.
Act 80, Wrongful Termination: The Severance Formula for wrongfully terminated employees is three (3) months, plus two (2) weeks of salary. This formula is capped at nine (9) months of salaries. The definition of just cause is more expansive under the 2017 Labor Reform.
Employees hired before the enactment of the 2017 Labor Reform may have different and greater rights.
Department of Labor’s Opinion 2023-01 regarding Judge Taylor Swain’s Opinion and Order
On March 10, 2023, the Puerto Rico Secretary of the Department of Labor issued Opinion 2023-01, regarding Taylor Swain’s Opinion and Order. The following statements are some of the key points included in his Opinion. First, the decision, although not final, has an immediate effect. There is also the possibility that the Federal Court may modify its ruling to recognize that the Act was in force up until the decision was notified; this is an issue that is currently being reconsidered.
The Secretary further recommends that, if their circumstances permit, employers should recognize benefits greater than those in effect. Moreover, employers must discuss the changes arising from the court decision with their employees, as well as revise and evaluate any employment documents modified as a result of Act No. 41.
As for Act No. 17 of April 17, 1931, which concerns the payment of salaries, this law prohibits deductions from the salaries of non-exempt employees, with some exceptions, and does not contemplate the overpayment of benefits. Finally, the Bonus Payment Act allows for the crediting of bonuses previously granted throughout the year. However, that notification must be clear and done within the five (5) day period after the disbursement of the payment.
Our team of attorneys are available to clarify any questions regarding the Opinion and its effects.
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©2023 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.