Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
For the past few years, Puerto Rico’s finances have been supervised by a board designated by the U.S. Government—the Financial Oversight & Management Board for Puerto Rico (“FOMB”). Its role is to revise and approve the budget and obligations of the Puerto Rico Government in compliance with a federal law mandate named PROMESA, to manage the liquidity crisis facing the island's government amid a shrinking economy and debt crisis.
On June 20, 2022, Puerto Rico Governor Pedro Pierluisi signed into law Act No. 41-2022 (“Act 41-2022”), instituting changes to labor and employment laws in Puerto Rico and extending employment rights for employees in the private sector. The FOMB’s contention was that the bill is inconsistent with the fiscal plan. It therefore filed a complaint in the U.S. District Court for the District of Puerto Rico to nullify Act 41-2022. In its complaint the FOMB reiterated that Act 41-2022 is contrary to the certified fiscal plan and that its enactment adversely affects the Commonwealth’s compliance with the plan. The complaint asked the court to nullify Act 41-2022 and any actions taken to implement it, ab initio1 and that the government be permanently enjoined from taking any action to help private parties implement Act 41-2022.
Following the filing of dispositive motions, this past Friday, March 3, 2023, the district court ruled that Act 41-2022, and any actions taken to implement it, are null and void ab initio. The court further prohibited and enjoined the governor or other individuals in active concert or participation with the governor from taking any measures to help private parties implement or enforce Act 41-2022.
What does this mean for employers?
The court basically pressed the reset button and reverted Puerto Rico to a pre-summer 2022 era in which the Puerto Rico Labor Transformation and Flexibility Act, Act No. 4 of January 26, 2017 (“Act 4-2017” or “LTFA”) was in effect. As further addressed below, these are the key aspects of the prior law of which employers should be aware:
Act No. 4-2017 Statute of Limitations Employment Claims
The statute of limitations for actions or claims stemming from employment contracts is now reduced to one year, as prescribed by the LFTA.
Act No. 379-1948 Working Hours and Days
Meal periods for non-exempt employees may now be enjoyed after the conclusion of the second hour worked and before the commencement of the sixth consecutive hour of work.
Employees who work more than 10 hours in a particular day must also be permitted to enjoy a second meal period, with certain exceptions.
If an employee is required or permitted to work during the meal period, or if the meal period is enjoyed outside this time frame, the employee will be entitled to payment for said period or fraction thereof, at a rate of time and a half.
In cases in which the total hours worked in a day does not exceed six hours, the meal period may be waived.
Act No. 289-1946 Day of Rest
Employers with non-exempt student employees are no longer required to pay twice the rate per hour for work performed in their day of rest.
Act No. 180-1998 Vacation and Sick Leave
The statute of limitations for wage and hour-related claims is now one year.2
Non-exempt employees can only ask to cash out the excess of 10 days of accrued vacation leave.
Work hours required to accrue vacation and sick leave are now 130 hours a month, and part-timers no longer accrue either leave.
The minimum monthly accrual for vacation leave will be:3
The minimum monthly accrual for sick leave will be one day per month.
In the case of Puerto Rico resident employers with 12 employees or fewer, the minimum monthly accrual for vacation leave will be 1/2 day per month.
Act No. 148-1969 Christmas Bonus
Christmas Bonus payments were restored to LFTA times, in which the benefit varies depending on the employee’s hired date:
For employees hired prior to January 26, 2017, employers must grant employees who worked 700 hours4 or more a bonus equivalent to 6% of the total maximum of $10,000 earned by the employee within that period. Employers with 15 employees or fewer shall grant a bonus equivalent to 3% of the total maximum salary of $10,000.
For employees hired after January 26, 2017, employers with more than 20 employees must grant employees who worked at least 1,350 hours within said period a bonus equivalent to 2% of the total salary earned up to the amount of $600. Employers with fewer than 20 employees for the same 12-month period must grant employees who worked at least 1,350 hours within said period a bonus equivalent to 2% of the total salary earned up to the amount of $300. During the first year of employment the required bonus payment is 50% of the above.
The total amount paid for the above-provided totals cannot exceed 15% of the employer’s annual net earnings.
Act No. 80-1976 Unjustified Dismissal Act
The statute of limitations for unjust dismissal claims reverts to one year.
Automatic nine-month probationary periods were reinstated for non-exempt employees and 12 months for exempt employees.
The statutory severance formula for employees hired prior to January 26, 2017 changes to:
The statutory severance formula for employees hired on or after January 26, 2017, regardless of years of service, changes to three months of salary plus two weeks for each completed year of service.
The statutory severance is capped at nine months.
For purposes of calculating statutory severance, if there was an interruption in service of more than two years, prior tenure does not count.
Severance payments are free of Puerto Rico income tax up to statutory severance amount. Excess is subject to taxation.
1 From its inception.
2 For claims under the Puerto Rico Minimum Wage Law, Law No. 47-2021, the statute of limitations is five (5) years.
3 Note, employees hired prior to January 26, 2017 have a different accrual formula.
4 From October 1 of any year to September 30 of the following calendar year.