On June 20, 2022, Governor Pedro Pierluisi signed into law Act No. 41-2022, instituting drastic changes to labor and employment laws in Puerto Rico and extending employment rights for employees in the private sector. In doing so, the governor rejected the Financial Oversight and Management Board for Puerto Rico’s position that the bill is inconsistent with the fiscal plan. The new law intends to restore certain rights that had been eliminated or reduced by the 2017 Labor Transformation and Flexibility Act (“2017 Labor Reform”) and, further, to create additional rights for part-timers and students. It is important to note that unless an employer qualifies as a microbusiness1 or as a small2 or medium-sized3 business, it has 30 days to comply with the Act.

As further addressed below, among the many changes incorporated are: amendments to the formula for calculating severance payment and the language of the “just causes” for termination under the Unjustified Dismissal Act, the hours of work required to accrue vacation and sick leave as well as the monthly accrual rates for these benefits, meal period provisions, and Christmas Bonus provisions. Given the above, it is important for employers to move quickly with their payroll experts to make the necessary changes to their systems to comply with the new law and seek out legal guidance to ensure their policies, manuals and procedures are in alignment with the Act’s many provisions.

The following is a summary of the key aspects of the new law:

Act No. 4-2017 – Labor Transformation and Flexibility Act

The statute of limitations for actions stemming from employment contracts, which had been reduced to one year following the 2017 Labor Reform, is now increased to three years. Additionally, any ambiguous employment contract provision, employer policy or rule will now be interpreted liberally in favor of the employee.

Act No. 379-1948 – Working Hours and Days

The timing of meal periods has also changed. Meal periods for non-exempt employees cannot begin before the conclusion of the third hour nor after the commencement of the sixth consecutive hour of work. Employees can, however, enjoy their meal period between the second and third consecutive hour of work through written agreement between the employee and the employer. Employees who work more than 10 hours in a particular day must also be permitted to enjoy a second meal period, with certain exceptions. In addition, the provision providing that non-exempt employees scheduled to work six hours or less are not entitled to a meal period has been eliminated.

The new law reinstates pre-2017 Labor Reform language regarding reduction of meal periods for unionized employees. In addition, the new law establishes that the Puerto Rico Secretary of Labor must prepare rules and regulations necessary for better compliance with this law, and that they should be promulgated no later than 90 days from enactment.

Act No. 289-1946 – One Day of Rest in the Working Hours

Employers must now be mindful that if they employ non-exempt student employees, they must pay them for work performed in their day of rest at twice their regular rate of pay. Nevertheless, employers considered microbusiness or small and medium-sized businesses may pay a wage rate equal to time and one-half of the employee’s regular rate of pay.4

Act No. 180-1998 – Puerto Rico Minimum Wage, Vacation and Sick Leave Act

The statute of limitations for wage-related claims has also been changed from one to three years. Moreover, pursuant to the written request of a non-exempt employee, an employer may now allow for partial or total payout of accumulated vacation leave. This is an important change as, currently, non-exempt employees can only ask to cash out the excess of 10 days of accrued leave. Work hours required to accrue vacation and sick leave are now reduced from 130 to 115 hours a month, benefits are increased back to pre-2017 levels, and new benefits are established for part-timers who work more than 20 hours per week.

Employees who work no less than 20 hours a week, but less than 115 hours per month, will accrue vacation and sick leave at a rate of half a day per month. Employees who work no less than 115 hours per month will accrue vacation leave at a rate of one and one-fourth a day per month and one day a month for sick leave. Employers with 12 or fewer employees who work no less than 20 hours a week, but less than one 115 hours per month, will accrue vacation leave at a rate of a quarter of a day and sick leave at a rate of half a day per month. Employees who work for these employers for no less than 115 hours per month will be entitled to a minimum accumulation of vacation leave at the rate of half a day per month and to sick leave accrual of one day per month. Certain exceptions to the above apply to employees covered by mandatory decrees or those directly excluded from Act No. 180-1998’s application.

Act No. 148-1969 – Puerto Rico Christmas Bonus for Private Sector Employees

Unless an employer has insufficient profits and has followed the procedure established in Act No. 148, it must pay each employee who has worked at least 700 hours during the period from October 1 of any calendar year until September 30 of the subsequent calendar year, a bonus amounting to 6% of the total wages paid during that same period, computed up to the first $10,000 earned.

Employers with 12 employees or fewer for over 26 weeks within the 12-month period from October 1 of any year through September 30 of the following calendar year, must pay their employees a Christmas bonus equal to 3% of the total maximum wage of $10,000 to all employees working at least 700 hours within the said period.

For employees hired after the passage of Act No. 4-2017, any employer that employs more than 20 employees for over 26 weeks within the above-mentioned period, and have worked at least 700 hours, would be entitled to a Christmas bonus of 3% of the total wages earned up to $600. This is in contrast to the 1,350 hours of work required to be entitled to the Christmas Bonus for employees hired between 2017 and 2022. Employers with 20 employees or fewer would be required to pay any employee who worked at least 700 hours or more within the period in question a bonus equivalent to 3% of the total wages earned up to $300. Furthermore, those employers considered microbusinesses or small and medium-sized businesses would be required to pay this bonus to employees working 900 hours or more. Any ambiguity arising from this section will be interpreted liberally in favor of the employee.

Act No. 80-1976 – Puerto Rico Unjustified Dismissal Act

The statute of limitations for unjust dismissal claims has also been raised to three years. Initial severance calculation in cases of unjustified dismissal is now set to three months or six months depending on the employee’s years of service. Additional progressive severance will now amount to either two weeks or three weeks per year of service, depending on the employee’s total years of service. In addition to the above, previously established severance caps have now been eliminated, as well as the provision referencing that any amount exceeding the statutory severance would be subject to Puerto Rico income taxes.

Various causes for justified dismissal have now been amended. Also, the standard for analyzing constructive discharges that had been included in Act No. 80-1976 by the 2017 Labor Reform, has been eliminated. Further, the provisions added to this statute by the 2017 Labor Reform providing guidance on the analysis of dismissals when employers have more than one establishment, have either been amended or repealed altogether. Probationary periods, although remaining automatic under the new law, were also reduced to three months with the possibility of extending them for three additional months, provided the employer submits written notification to the Secretary of Labor and Human Resources, stating the reasons why the nature of the work so requires it.

Further, in the context of unjustified dismissal claims, employers must now allege in their answers to the complaint, any and all facts that support the dismissal and prove that it was with just cause, thus reinstating the presumption of unjustified dismissal and placing the burden of proof on the employer. In the case of employees hired for a certain term or project, the employer will have to allege these facts in the answer to the complaint and prove the existence of a "bona fide" contract to be exempt from complying with Act No. 80-1976 dispositions with regards to such employees, unless the employer proves that the dismissal was justified.

Additionally, while the 2017 Labor Reform eliminated the presumption of unjustified dismissal in favor of the plaintiff for claims under Act No. 80-1976, the new law reinstated it. Lastly, the new law also reinstated pre-2017 Labor Reform language authorizing courts, if during an initial hearing they determine there are sufficient grounds to believe an employee’s dismissal was unjustified, to order employers to deposit at the clerk's office within 15 days an amount equivalent to the total compensation to which the employee is entitled and an additional minimum amount of 15% of the total compensation amount for attorney's fees.

Act No. 100-1959 – Puerto Rico Antidiscrimination Act

There is a rebuttable presumption that acts of discrimination were made in violation of this Act when said acts are perpetrated without just cause.

Additional Provisions

The Act includes an amendment to the definition of “catastrophic illness” included in the special paid leave for employees with catastrophic illnesses. It also contains a supremacy clause, stating all provisions of the Act will prevail over any other provision of law, regulation or rule that is inconsistent with the above.

As previously indicated, this Act will come into effect 30 days after enactment. Nevertheless, those employers that are considered microbusinesses or small and medium-sized businesses will have a period of 90 days to implement the provisions of this Act.

The Secretary of the PR Department of Labor is entrusted with preparing the necessary rules and regulations for better compliance with Act No. 41-2022. These rules and regulations must be published within 90 days from the approval of Act No. 41-2022. Stay tuned for further updates and clarifications.