Puerto Rico Governor Pedro Pierluisi signed Act No. 41-2022 on June 20, 2022, amending and repealing certain sections of the Labor Transformation and Flexibility Act of 2017, also known as the 2017 Labor Reform. The act aims to restore and broaden labor rights for workers in the private sphere and to have the Legislative Assembly inquire into prevailing work conditions and propose new protections for the working class.
The amendments are effective within 30 days for most large employers in the island. Microbusinesses (a business or company that generates a gross income of less than $500,000 each year and has seven or fewer employees), small-sized businesses (a business or company that generates a gross income of less than $3 million each year and has 25 or fewer employees), and medium-sized business (a business or company that generates a gross income of less than $10 million each year and has 50 or fewer employees) will have 90 days to comply with the act.
WHAT IS 2017 LABOR REFORM?
The 2017 Labor Reform was passed with the goal of stimulating Puerto Rico’s economy through employer-friendly provisions intended to attract new business to Puerto Rico while also facilitating operations for existing enterprises. The 2017 Labor Reform made changes to the Puerto Rico Unjust Dismissal Act (Law 80), as well as various local overtime laws, meal break requirements, vacation and sick time accrual rates, and other local employment laws. The new act repeals some of the changes brought about by the Labor Reform.
AMENDMENTS TO 2017 LABOR REFORM
The act states that its intended goal is to reverse some of the changes brought about by the 2017 Labor Reform with a work plan that has two priorities: (1) restore and broaden the labor rights applicable to workers in the private sphere, and (2) reclaim that the Legislative Assembly exercise its investigative power to inquire into prevailing work conditions in Puerto Rico and propose new protections for the benefit of the working class.
Amendments to the 2017 Labor Reform provisions include the following:
- Repeal the provision in the 2017 Labor Reform that provided for consistent interpretation between federal and local laws that address a similar employment issue.
- Provide that any ambiguity in an employment contract or policy will be interpreted in favor of the employee; employers may reserve the discretion to interpret their own policies, so long as the interpretation is reasonable and not arbitrary or capricious or inconsistent with any special law.
- Create a three-year statute of limitations for certain breach of contract, wage and hour, unjust termination, discrimination, and other employment claims.
- Revise the statutory formula for statutory severance for employees unjustly terminated under Law 80 to (1) three months for employees terminated within 15 years from employment and six months for employees terminated after 15 years of employment; and (2) two weeks per year of service for employees terminated within 15 years from employment and three weeks per year of service for employees terminated after 15 years of employment. The act also eliminates the severance cap for employees hired after the 2017 Labor Reform.
- Amend Law 80’s definition of “just cause,” eliminate the 2017 Labor Reform’s definition of “constructive discharge,” and revise the requirements for the order of retention seniority analysis under Law 80.
- Reduce automatic probationary periods to three months (with a potential maximum three-month extension, provided the written notice of extension is submitted to the Puerto Rico Department of Labor and Human Resources).
- Reinstate the presumption of dismissal without just cause, requiring employers to allege in their answers to unjust dismissal complaints the facts that support the termination and prove there was just cause.
- Amend Law 100, the antidiscrimination statute, to create a rebuttable presumption that discriminatory actions violate the act where the actions were taken without just cause.
- Provide for time-and-a-half pay, and double pay for employees who are also students, for employees who are required to work on a seventh consecutive day and consequently forfeit their day of rest. Microbusinesses and small-sized and medium-sized businesses may still pay students at time-and-a-half for work on the seventh consecutive date.
- Revise the timing for taking meal breaks, remove the provision that allowed for the waiver of meal breaks for nonexempt employees who work six hours or less per day, and amend certain provisions concerning meal break reduction agreements.
- Increase the accrual of paid vacation to 1.25 days, and of paid sick time to one day, for each month in which an eligible employee works at least 115 hours, irrespective of date of hire; provide for the accrual of paid vacation time and paid sick leave at half a day per month for employees who work at least 20 hours per week, but less than 115 hours per month.
- Employers with 12 or fewer employees (1) who work no less than 20 hours a week, but less than 115 hours per month, will accrue vacation at a rate of a quarter of a day and sick leave at a rate of half a day per month; and (2) who work no less than 115 hours per month will accrue half a day of vacation per month and one day of sick time per month.
- Allow for the total or partial liquidation payout of accrued vacation.
- Reverse the Christmas bonus hours worked requirement from 1,350 hours to 700 hours and revise the percentage salary requirements.
- Expand the definitions of “catastrophic illnesses” included under Law 28 of 2018, which provides a special leave for those illnesses.
IMPLICATIONS FOR EMPLOYERS
The act brings significant changes to employers throughout Puerto Rico, scaling back or eliminating many of the employer-friendly provisions that the 2017 Labor Reform brought along. Employers in the island should immediately revise their Puerto Rico employment policies and practices to ensure compliance with these new provisions.