On March 21, 2018, the Governor of Puerto Rico announced his “Initiative to Reform the Labor Force,” with the express goal of increasing the employment rate. Standing alongside the presidents of the Senate and House of Representatives, the Governor anticipated this Initiative would include: elimination of the Christmas Bonus; implementation of a “Bonus for Work;” a tiered increase of the minimum wage; a reduction of sick and vacation leave; a reassurance that all recipients of the Nutritional Assistance Program (PAN, for its Spanish acronym) between the ages of 18 and 55 will join the labor force; and the repeal of Act 80 (indemnifying unjust dismissals). The Governor also intends to increase tax incentives and lower the current rates for individuals as well as corporations.
Regarding the Christmas Bonus, private sector employers would be able to opt out of granting the bonus, as well as the amount granted,1 by 2021. Employers would be able to offer other productivity or Christmas bonuses as they saw fit. Workers who qualify will also receive an Earned Income Tax Credit (EITC) ranging from $300 - $2,000 as a “Bonus for Work.” The Governor commits to securing funds close to $200 million for the EITC. The Governor also intends to increase the minimum hourly wage to $7.75 by 2019, and to $8.25 by 2021. However, the Governor also intends to reduce sick and vacation leave to seven days each.2 Notwithstanding, the Governor noted that Puerto Rico is the U.S. jurisdiction with the longest statutorily provided sick and vacation leave.
Perhaps more significantly, the Governor intends to eliminate Act 80 within three years. The Governor highlighted that Puerto Rico and Montana are the only jurisdictions granting protection against an unjustified dismissal, though Montana is less restrictive. Though Act No. 4-2017 already granted employers greater leeway by, for example, reducing the indemnity available to ex-employees, the Governor intends to fully eliminate the framework intended to deter wrongful terminations. Thus, Puerto Rico would fall in line with the at-will employment doctrine followed by so many other jurisdictions.
The Governor stated that the increase in minimum wage, the “Bonus for Work,” and the tax reform will strengthen the labor force on the one hand. On the other hand, the elimination of Act 80 and the optional Christmas Bonus will incentivize job creation in Puerto Rico. According to the Governor, this will strike a balance between employers’ expectations and employees’ needs. It remains to be seen how this proposal will fare in the Legislature. Moreover, while the expected results of the announced overhaul may be commendable, the means to achieve them might send chills down the spines of employers and employees alike, particularly when both sides are still adjusting to the effects of the Puerto Rico Labor Transformation and Flexibility Act approved a little over one year ago. Stay tuned.