All questions

Discontinuing employment

i Dismissal

Act 80, known as the Unjust Dismissal Act, regulates employment termination of any person hired for an indefinite term. Puerto Rico is not an 'employment at-will' jurisdiction. Thus, an indefinite-term employee discharged without just cause is entitled to receive a statutory discharge indemnity (or severance payment) based on the length of their employment and a statutory formula. The LTFA amended Act 80 to implement the equivalent of a nine-month salary cap to the statutory formula, applicable to employees hired on or after the enactment of the law on 26 January 2017. Employees hired prior to the LTFA, preserve their rights to receive a severance payment under the prior statutory formula.

Act 80, as amended by the LTFA, defines just cause for dismissal as:

  1. the employee's engagement in a pattern of improper or disorderly conduct;
  2. the employee's failure to work efficiently, working belatedly and negligently, or in violation of quality and security standards of the product handled by the establishment; lack of competence and inability to perform the reasonable requirements of the employer; and if the employee is the subject of complaints received from clients;
  3. the employee's repeated violations of reasonable written rules established for the operation of the business, provided a written copy of the rules had been given to the employee;
  4. full, temporary or partial closing of the establishment's operations. If the employer has more than one office, factory, plant or branch, the full, temporary or partial closing of the operations of any of the establishments where the employee works will constitute just cause for termination, subject to additional considerations established by the law;
  5. technological changes or reorganisations, as well as changes of style, design or the nature of the product made or handled by the establishment, and changes in the services rendered to the public; or
  6. reductions in employment made necessary owing to a drop in the volume of production, sales or profits, anticipated or prevalent at the time of the discharge or with the sole purpose to increase business' competitiveness or productiveness.

Unless the employee engages in gross misconduct (e.g., physical violence, fraud or stealing under certain circumstances), a first offence or reasons unrelated to the proper and normal operation of the establishment shall not constitute just cause. Written progressive disciplinary or corrective actions are highly recommended and normally required. Generally, however, employers are not required to give written notice of the dismissal to the employee or the government.

Act 80 provides the exclusive remedy for indefinite-term employees whose employment is terminated without just cause but does not bar independent causes of action based upon torts, violation of constitutional rights or arising from other legislation prohibiting discriminatory employment and retaliation. In those cases, employees may be entitled to job reinstatement and other remedies for damages. Categories protected from discrimination in Puerto Rico include: disability; sex; age; race; colour; marital status; political affiliation or political ideas; religious beliefs; national or social origin; social condition; pregnancy; genetic information; union affiliation; being, or being perceived as, a victim of domestic violence; stalking or sexual aggression; sexual orientation or gender identity; and veteran status. Local and US federal laws also prohibit retaliation.

The LTFA expressly allows waivers of Act 80 rights and settlement of the severance payment once the termination of employment has occurred the intention to terminate has been notified. The waiver must be made pursuant to a valid settlement transaction agreement that complies with legal requirements.

ii Redundancies

In essence, Act 80, and local and federal anti-discrimination and anti-retaliation statutes, regulate redundancies in Puerto Rico. Redundancies have to respond to legitimate and non-discriminatory business reasons. The Age Discrimination in Employment Act has important provisions to protect employees over the age of 40 affected by different redundancy scenarios.

Employers must also comply with Act 80 when they have group lay-offs because of any of the following:

  1. a full, temporary or partial closing of operations;
  2. technological or reorganisation changes;
  3. changes to their products' style, design or nature;
  4. changes in the employer's services rendered to the public; and
  5. necessary employment reductions because of reduced production, sales or profits or with the purpose to increase business' competitiveness or productiveness.

Because the above circumstances are considered just causes to terminate employment, no compensation or offers of alternative employment are required.

Under a more flexible Act 80 after the enactment of the LTFA, if there is a group lay-off, an employer must determine who is to be discharged based on a worker's employment seniority within the affected occupational classification or their performance, efficiency or capacity. Certain rules apply to employers with multiple establishments. Act 80 also provides recall rights for six months following a group lay-off if the same or similar work is needed during that time.

Puerto Rico has no law setting notice requirements for group lay-offs. The US Worker Adjustment and Retraining Notification Act, however, requires most employers with 100 or more employees to give notification of 60 calendar days before a plant closing or mass lay-offs. Notice must be given to employees, employees' representatives, the local chief elected official and the state dislocated worker unit.