The U.S. Senate has approved the controversial “Puerto Rico Oversight, Management, and Economic Stability Act” (“PROMESA”), H.R. 5278, which will establish an Oversight Board to assist the Government of Puerto Rico in managing its public finances and for other purposes. The Senate acted on June 29, 2016. The U.S. House of Representatives approved the measure on May 18, 2016. President Barack Obama has issued a statement confirming he will sign the bill into law, which will become effective immediately.

PROMESA, among other things, addresses the applicability to Puerto Rico of the U.S. Department of Labor’s Final Rule updating regulations under the Fair Labor Standards Act (“FLSA”) governing overtime exemptions for executive, administrative, and professional employees (commonly known as the “white collar exemptions” or “EAP exemptions”). The changes are scheduled to go into effect on December 1, 2016. Under Section 404 of PROMESA, the Final Rule will have no force or effect in Puerto Rico until:

  1. The Comptroller General of the United States completes an assessment and transmits a report to Congress assessing the impact of applying the regulations to Puerto Rico, taking into consideration regional, metropolitan, and non-metropolitan salary and cost-of-living differences. The report should be submitted not later than two years after the enactment of PROMESA.
  2. The Secretary of Labor, taking into account the assessment and report of the Comptroller General, provides a written determination to Congress that applying such rule to Puerto Rico would not have a negative impact on the economy of Puerto Rico.

Based on the above, the Final Rule likely will not apply to Puerto Rico for at least the next two years, until these requirements are met.

Section 403 of PROMESA also amends the FLSA to allow employers in Puerto Rico to pay employees aged 25 or younger, who are employed initially after the enactment of PROMESA, a wage which is not less than $4.25 an hour. But an employer may not take any action to displace employees (including partial displacements, such as reduction in hours, wages, or employment benefits) for purposes of hiring individuals at the $4.25 rate. Any employer disregarding this prohibition shall be considered to have violated the non-retaliatory provisions found in section 15(a)(3) of the FLSA.