Executive Summary: On January 26, 2017, Puerto Rico’s Governor, Ricardo Roselló, signed into law the Labor Transformation and Flexibility Act (the “Act”). The Act represents the first significant and comprehensive labor law reform to occur in Puerto Rico in decades. Prior to the Act, Puerto Rico’s labor laws were historically employee-friendly. The Act has changed the employment landscape in Puerto Rico making the labor laws more business-friendly. Unless otherwise stated in the Act, the revisions in the law will apply only to employees hired after January 26, 2017. The most significant changes to the labor law are explained below.

Law 80 – Severance Pay for Termination without Just Cause. Changes include:

  • Capping severance payments at nine months for employees hired after the Act’s effective date (there is still no cap for employees hired before the effective date);
  • Eliminating the presumption that a termination was without just cause and shifting the burden to the employee to prove the termination was without just cause;
  • Revising the definition of just cause to state that it is a “pattern of performance that is deficient, inefficient, unsatisfactory, poor, tardy, or negligent”;
  • Shortening the statute of limitations for Law 80 claims from three years to one year and requiring all Law 80 claims filed after the Act’s effective date to have a mandatory settlement hearing within 60 days of the filing of the answer; and
  • Clarifying the standard for constructive discharge to require an employee to prove that the employer’s conduct created a hostile work environment such that the only reasonable thing for the employee to do was resign.

Employment Law Claims. The Act requires that all Puerto Rico employment laws be applied in a similar fashion as federal employment laws unless explicitly stated otherwise in the local law and applies Title VII’s cap on punitive and compensatory damages to damages for discrimination and retaliation claims.

Probationary Periods. The Act eliminated the requirement for written probationary agreements and now imposes a mandatory probationary period of 12 months for all administrative, executive and professional employees and a nine-month period for all other employees.

Electronic Signatures. Employers can send notices to employees electronically and can obtain employee signatures electronically.

Independent Contractors. The Act provides a statutory definition for “employment contract,” which specifically excludes the relationship between an employer and independent contractor. The Act also includes a non-rebuttable presumption that an individual is an independent contractor if the individual meets a five-part test, which is set forth in the statute.

Wage and Hour Issues. Changes include:

  • Modifying the definition of overtime to require overtime pay for work over eight hours in any calendar day instead of eight hours in any 24-hour period;
  • Changing the overtime rate for employees hired after the Act’s effective date to time and one-half their regular rate. The overtime rate for employees hired prior to the Act remains at two times the employee’s regular rate;
  • Providing for alternative workweek agreements in which employees can work four 10-hour days without being entitled to overtime, but must be paid overtime for hours worked in excess of 10 in one day;
  • Giving employees the right to request flexibility with regard to work hours and location of employment, and requiring the employer to respond and provide alternatives if the request is denied;
  • Shortening the statute of limitations for wage and hour claims from three years to one year for claims filed after the Act’s effective date. A wage and hour claim begins to accrue when the employee’s employment ends.

Closing Law Repealed. This law previously restricted retailers’ operations on Sunday mornings and required special pay for employees working on Sundays. The Act, however, still prohibits commercial retailers from opening on Good Friday and Easter Sunday.

Meal and Lactation Breaks.

  • Employees who work less than six hours in a day are not entitled to a meal break; those who work six or more hours per day are entitled to a meal break that must start between the end of the second hour of work and the beginning of the sixth hour of work. Employees who work more than 12 hours are entitled to a second break.
  • Nursing mothers who work at least seven and one-half hours per day must be given a one-hour break to express breast milk, which can be broken up into half hour or 20-minute increments.
  • Nursing mothers who work less than seven and one-half hours per day but more than four hours must be given a paid half-hour break for each four-hour period worked.
  • Small businesses are subject to the same requirements, but full-time nursing mothers need only be given a half-hour break each day, which can be broken up into two 15-minute breaks.

Vacation and Sick Leave. To accrue vacation and sick pay, employees must work a minimum of 130 hours per month. Employees will accrue vacation leave based on seniority, ranging from one-half a day per month to 1.25 days per month. Sick leave will accrue at the rate of one day per month.

Christmas Bonus. To earn a Christmas Bonus, employees must work 1,350 hours between October 1 and September 30 of the following year. Employers must pay a Christmas Bonus equaling two percent of the employee’s salary, not to exceed $600 per employee for employers with more than 20 employees and $300 per employee for employers with 20 or fewer employees. Christmas Bonuses must be distributed to employees between November 15 and December 15 and may be offset by other bonuses if written notice of the intent to offset is provided.

Religious Accommodations. Employers must reasonably accommodate an employee or prospective employee’s need for a religious accommodation, if doing so does not present an undue hardship to the employer. Employers cannot refuse to allow an employee to attend a religious service nor can an employer penalize an employee for attending a religious service.

Disability Leave and Reinstatement. Employees on disability leave have a right to reinstatement for six months if the employer has 15 or fewer employees. Employers with more than 15 employees must provide employees on disability leave with the right to reinstatement for one year, as was required prior to the Act.

Employee Rights. The Act includes certain enumerated employee rights, which include a prohibition against discrimination or retaliation; protection from workplace injuries or illnesses; protection of privacy; timely compensation; and the individual or collective right to sue or file claims for actions arising out of the employment contract.

Employers’ Bottom Line:

The Act will undoubtedly impact employers across the island because of the significant changes made to the existing labor laws. Employers should review their personnel policies and revise them to be compliant with the Act. Since the Act distinguishes between those employees covered by the prior labor laws and the rights of new hires under the Act, it is imperative that employers not only be meticulous about the revisions to their policies but also seek legal counsel when making such revisions.