On June 20, 2022, Governor Pedro R. Pierluisi signed into law House Bill No. 1244 (the “Bill”), which significantly modifies some of the amendments the Puerto Rico’s Labor and Transformation and Flexibility Act (Law No. 4-2017), also known as Puerto Rico’s 2017 Labor Reform (“2017 Labor Reform”). The Governor signed the Bill yesterday despite the Financial Oversight & Management Board for Puerto Rico (“FOMB”)’s warning that it would challenge this Law. The Law will be effective on July 20, 2022 (thirty (30) days following the Governor’s signature). However, for employers defined as micro, small and medium businesses, as defined in the Law, the Law will come into effect September 18, 2022 (ninety (90) days following the Governor’s signature).

A summary of the most important amendments to the 2017 Labor Reform introduced in the Law follows:

Vacation and Sick Leave: The Law reverts the number of hours that a non-exempt employee must work to accrue vacation and sick time benefits back to one-hundred and fifteen (115) hours per month.  Employees that work this minimum number of hours will now be entitled to accrue vacation and sick leave benefits at a monthly rate of 1 ¼ days for a total of fifteen (15) vacation and a monthly rate of one (1) sick day per month for a total of twelve (12) sick days per year.

The Law also introduces a new vacation and sick leave benefit for part-time employees, defined as employees who work at least twenty (20) hours a week, but less than one-hundred fifteen (115) hours per month. These part-time employees will accrue vacation and sick leave benefits at a rate of half a day (½) per month each, for a total of six (6) days a year.

For employers with twelve (12) or fewer employees, employees who work at least twenty (20) hours a week, but less than one-hundred fifteen (115) hours per month, will accrue these benefits monthly at a rate of one fourth (1/4) vacation days and half a day (1/2) for sick leave. If the employee works at least one-hundred fifteen (115) hours per month, the employee will accrue half a (1/2) a day for vacation time and one (1) day of sick leave. These rules change when the employer’s employee headcount exceeds fifteen (15) employees for more than twenty six (26) weeks in two (2) consecutive years.

The Law also allows employers and employees to agree to a liquidation of an employee’s total accrued vacation without the ten (10) day cap that is currently in place.

Christmas Bonus: The Law reverts to the minimum seven hundred (700) hours of work that were required for an employee to be eligible to a Christmas bonus before the enactment of the 2017 Labor Reform. Accordingly, an employee must now work said minimum number of hours between October 1 of the previous year and September 30 of the in which the bonus will be paid to be eligible to the same. A special nine hundred (900) hours of work eligibility requirement is provided for employees of micro, small or medium-sized employers, as those terms are defined in the Law.

Wrongful Termination: The Law reintroduces the presumption that all employment terminations lack “just cause,” as defined in the law, and places on the employer the burden of proving that the termination was justified. Further, the Law modifies the formula used to compute the discharge indemnity provided in Law 80 as follows:

• Three (3) months’ salary, plus two (2) week’s salary for every completed year of service, if the termination occurs within the first fifteen (15) years of service; or
• Six (6) months’ salary, plus three (3) weeks’ salary for every completed year of service, if the termination occurs after fifteen (15) or more years of service;

The Law also eliminates the nine (9) month salary cap for discharge indemnity payments instituted in the 2017 Labor Reform.

Probationary Period: Further, the Law reduces the automatic probationary period for exempt and non-exempt employees to three (3) months. Employers may extend the probationary employment period by submitting a written notice to the Puerto Rico Secretary of Labor and Human Resources of the need for the extension and the justifications for the same. Once the notification is submitted, the probationary period is automatically extended for a maximum of three (3) additional months.

Student’s Rest Day: The Law introduces a new rule that provides students payment of any work performed on their “Rest Day,” defined as the 24-hour period immediately following six (6) consecutive days of work, at double their regular rate of pay. A student is defined as any individual enrolled in a system of higher education, university, or postgraduate program. Special rules are provided for micro, small and medium sized employers, as defined in the Law, may pay these students at a rate of time and a half (1½) their regular rate for work performed on their “Rest Day.” Further, employees who were entitled to receive a higher overtime rate for work performed on their “Rest Day” prior to the enactment of the 2017 Labor Reform will continue to be entitled to the same.

Meal Periods:  The Law eliminates the 2017 Labor Reform provision that stated that when an employee does not work more than six (6) consecutive hours, the statutory meal period may be obviated. Further, under the new Law, a non-exempt employee cannot enjoy their statutory meal period before the conclusion of their third (3^rd) consecutive hour worked. Taking the statutory meal period between the second (2^nd) and third (3^rd) consecutive hour of work is only allowed by written agreement between the employee and the employer. Under the 2017 Labor Reform, non-exempt employees could enjoy their meal period after their first two (2) hours of consecutive work.

 Discrimination:  The Law reinstates the rebuttable presumption that any employment decision (including termination decisions) executed without just cause were motivated by illegal discrimination. This presumption which was originally included in Puerto Rico’s General Antidiscrimination Statute (Law No. 100-1969) was eliminated by the 2017 Labor Reform.

Interpretation Rule: The Law reverts to the standard that, when there is any ambiguity in an employment agreement, the vague clause shall be interpreted liberally in the employee’s favor.

 Statute of Limitations: Lastly, the Law increases from one (1) year to three (3) years the statute of limitations for the following causes of action:

• Law No. 80-1976’s wrongful termination claims;
• Law No. 180-1998’s wage, accrued vacation and sick leave claims; and
• Claims arising from an employment agreement or those that stem from the same, unless otherwise provided by law or in the agreement.

FOMB’s Challenge Warning

In a letter dated June 13, 2022 and addressed to the Governor and the Presidents of the Legislative bodies, the FOMB warned that the Bill constitutes an obstacle to Puerto Rico’s economic development, as promoted by Puerto Rico Oversight, Management, and Economic Stability Act (commonly known as PROMESA), and is contrary to the provisions included in Article 7 of the Human Capital and Welfare Reform Act, which establishes that the Government of Puerto Rico must refrain from revoking the  2017 Labor Reform or approve laws that may adversely affect the flexibility of Puerto Rico’s labor market. Consequently, the FOMB cautioned that the Governor’s approval of the Bill would cause the FOMB to challenge the Law in the courts. Because the new Law comes into effect on July 20, 2022, the FOMB could file its challenge before then.

At O’Neill & Borges we are available to assist you with  questions you may have regarding the language of the Law.