Despite opposition from the Financial Oversight and Management Board (“Oversight Board”), Governor Pedro Pierluisi recently signed into law House Bill No. 1244, Act No. 41-2022 (“Act No. 41”) which amends various employment statutes and partially repeals the Labor Transformation and Flexibilization Act, (Act No. 4-2017 or Labor Reform of 2017). While only time will tell whether the Oversight Board will challenge its implementation or validity, it is important to beware of the relevant provisions of Act No. 41 as its 30-day effective date of July 20th, 2022 is fast approaching.

Succinctly, Act No. 41 partially repeals the Labor Reform of 2017 to reinstate statutory benefits to eligible employees and expands on certain rights and entitlements, as is the case with student workers and part-time employees. Act No. 41 tasks the Secretary of the Department of Labor to prepare the necessary rules and regulations for better compliance within 90 days from its enactment, or by September 18th, 2022.

Below we summarize certain key aspects that you should be mindful of in light of the July 20th effective date. Bear in mind that some of the provisions impact non-exempt employees while others are extensive to all employees in the private sector.

Employment Agreements

Note that whereas the Labor Reform of 2017 provided that in the event of ambiguity in an employment agreement, any interpretation would be guided by the intent of the parties, the law, the purpose of the relationship, productivity, the nature of the employment relationship, good faith and the customs and uses generally observed in the context of the relationship, Act No. 41 specifically provides that in the event of ambiguity in an employment agreement, such ambiguous language will be interpreted liberally in favor of the employee. As such, it is imperative that the language and provisions contained in employment agreements be clear and free of ambiguities.

Unjust Dismissal Act (Act 80) and Probationary Period

The key takeaways are that the definitions or examples of “just cause” contained in Article 2 are once again identical to those used prior to the enactment of the Labor Reform of 2017, the presumption of unjust dismissal favoring plaintiffs is reinstated, and that the formula to calculate severance pay was once again modified. Now, employees hired for an indefinite term and terminated without just cause before their 15th anniversary are entitled to an indemnity equivalent to 3 months’ pay plus an additional progressive indemnity equivalent to 2 weeks for each year of service. Those employees hired for an indefinite term and terminated without just cause after 15 years of service are entitled to an indemnity equivalent to 6 months’ pay plus an additional progressive indemnity equivalent to 3 weeks for each year of service. It’s also important to note that while the Labor Reform of 2017, through the introduction of Article 3-A to Act 80, attempted to provide clarity and uniformity to layoffs or terminations of employees as a result of economic reasons whenever employers had more than one facility or location, Act No. 41 repealed Article 3-A and reinstated the original Act 80 language that created confusion in terms of determining seniority of employees and requires employers to consider seniority of employees within the impacted occupational classifications depending on employer’s practice of transferring employees among facilities and the nature of employer’s human resources operation (integrated vis a vis independent).

The Probationary Period is reverted to a 3-month term for exempt and non-exempt employees, but automatic nature (no strict contractual requirements in place prior to Labor Reform of 2017) of probationary period is preserved. Considering that Act No. 41 is silent with respect to whether this amendment has any bearing on the probationary period of employees hired prior to the effectiveness of Act No. 41 (July 20th, 2022 for employers not considered micro, small or medium sized) – retroactive effect – the Secretary of the Department of Labor recently issued an opinion (No. 2022-01) stating that the provision contained in Act No. 41 shortening the probationary period to a 3-month term shall apply prospectively and automatically to employees on or after the effectiveness of Act No. 41. As stated above, Act No. 41 goes into effect on July 20th, 2022 for all employers not considered micro, small or medium sized, and on September 18th, 2022 for employers considered micro, small or medium sized.

Meal Period

Reverted to state of affairs prior to Labor Reform of 2017 as regards to limitations on when meal period may be enjoyed by non-exempt employees: cannot begin before the conclusion of the third hour nor after the commencement of the sixth consecutive hour of work. Additionally, non-exempt employees may enjoy their meal period between the 2nd and 3rd hour provided there is a written agreement between the employee and employer. For employees who don’t work more than 12 consecutive hours in a shift, the 2nd meal period may be waived provided the 1st meal period was enjoyed and a written agreement exists. Act No. 41 also eliminated provision that allowed waiver of meal period whenever shift did not exceed 6 hours.

Vacation / Sick Leave

With the exception of part-timers and employers with 12 employees or less, Act No. 41 reverted to state of affairs prior to the Labor Reform of 2017 in terms of monthly threshold (back to 115 hours from 130 hours per month) and accrual: 1 ¼ days of vacation leave per month and 1 day of sick leave. However, part-time non-exempt employees who work at least 20 hours a week but less than 115 hours per month, are now entitled to accrue ½ day of vacation and sick leave per month. For employers with 12 employees or less, non-exempt employees who work at least 20 hours a week but less than 115 hours per month will accrue ¼ days and ½ days of vacation and sick leave per month, respectively and ½ days of sick leave per month. Likewise, employees working for these same employers who work at least 115 hours per month will accrue ½ days and 1 day of vacation and sick leave per month, respectively.

Note that non-exempt employees hired prior to the effectiveness of the Labor Reform of 2017 (January 26th, 2017) who enjoyed higher vacation and sick leave accrual rates will continue to enjoy such greater rates provided they continue working for the same employer. Also note that upon written request by the non-exempt employee, the employer may liquidate accrued and unused vacation leave totally or partially.

Christmas Bonus

With regards to employees hired prior to the effectiveness of the Labor Reform of 2017, Act No. 41 essentially maintained the same statutory benefits (6% of the salary up to $10,000, capped at $600) provided the employee worked at least 700 hours from the period of October 1 to September 30 of the following year, while made adjustments and revisions to the formula for eligibility to receive a statutory annual Christmas Bonus. Likewise, employers with 12 employees or less – for more than 26 weeks from the period of October 1 to September 30 of the following year – are required to provide bonuses that are equivalent to 3% of an employee’s annual salary up to $10,000, capped at $300, provided the employee worked at least 700 hours in that time period.

For employees hired on or after the enactment of the Labor Reform of 2017, employers who employ more than 20 employees – for more than 26 weeks from the period of October 1 to September 30 of the following year – shall pay those employees who worked at least 700 hours during that time period a bonus equivalent to 3% of their salary up to a maximum of $600. Employers with 20 employees or less shall pay those employees who worked at least 700 hours during that time period a bonus equivalent to 3% of their salary up to a maximum of $300. Employers considered micro, small or medium-sized shall provide Christmas bonuses to employees who work 900 hours or more during the same time period.

Discrimination

Puerto Rico’s general antidiscrimination statute (Act 100-1959) is amended to include a rebuttable presumption that acts of discrimination were incurred in violation of Act 100 whenever they were perpetrated without just cause.

Students

Non-exempt employees who are high school, college or postgraduate students shall be paid twice their hourly rate for hours worked on a resting day, except if they work for microbusinesses or small- or medium-sized employers, in which case hours worked on a resting day shall be paid at time and a half.

If you have any questions or comments regarding these recent developments that impact the employment landscape, or if you would like assistance to revise or modify your practices and policies accordingly, please contact any of the following attorneys from our Labor & Employment Practice Group at your convenience:

———————————————————————————————————————

The content of this Newsletter has been prepared for information purposes only. It is not intended as, does not constitute and should not be construed as, either legal advice or solicitation of any prospective client. An attorney-client relationship with Casillas, Santiago & Torres LLC (CST) cannot be formed by reading or responding to this Newsletter. Such a relationship may be formed only by express engagement with CST.