On 20 June 2022, the Puerto Rico government passed Act No. 41-2022 (the “2022 Labor Act”), aiming to amend certain labor provisions to increase protections for private sector workers. However, on 3 March 2023, the United States District Court for Puerto Rico declared the 2022 Labor Act null and void, effectively reinstating the previous labor laws.
Background
Act No. 4 of 26 January 2017 (the “2017 Labor Act”) introduced several changes to labor laws, including provisions on wrongful termination, wages and working hours, entitlement to vacation and sick leave and employee benefits.
The 2022 Labor Act sought to amend the 2017 Labor Act and other labor laws to increase protections for private sector workers. It required employers with 50 or fewer employees and a gross income of less than USD 10 million per year to comply by 18 September 2022, while all other employers had to comply by 20 July 2022. As a result, most employers made the necessary changes to ensure compliance.
However, the Financial Oversight and Management Board filed a lawsuit on the basis that the 2022 Labor Act was not consistent with the Puerto Rico Fiscal Plan. On 3 March 2023, the United States District Court for Puerto Rico issued a decision declaring the 2022 Labor Act, and any actions that have been taken to implement it, null and void ab initio (i.e., as if it had never been in effect) (the “Decision”), effectively reinstating the 2017 Labor Act.
Although the Court did not specify a deadline for employers to return to compliance with the 2017 Labor Act, employers should revert any changes originally made to comply with the 2022 Labor Act, which had only been briefly implemented from July and September 2022 until its nullification on 3 March 2023.
Key details
The below sets out the most relevant employees’ rights affected by the Decision:
Statute of limitations
The current statute of limitations under the 2017 Labor Act for claims related to wages, leave, breach of employment contract and unjust dismissal is one year, reduced from the three years that applied briefly under the 2022 Labor Act.
The new provision that applied under the 2022 Labor Act, which stated that ambiguous or unclear clauses in employment contracts shall be interpreted in favor of the employees, has also been nullified per the Decision.
Probationary period
The provisions under the current 2017 Labor Act mandate an automatic probationary period of 12 months for exempt executive, administrative, and professional employees (as classified under the Federal Labor Standards Act and the Department of Labor and Human Resources regulations), and nine months for nonexempt employees. This replaces the reduced three-month probationary period that briefly applied to all employees under the 2022 Labor Act.
Severance pay formula
For employees hired prior to 26 January 2017, the formulas for statutory severance pay (to be paid when there is no just cause for termination) under the 2017 Labor Act are currently:
For employees with five or fewer years of service: two months of pay plus one week’s pay for each completed year of service.
For employees with more than five and up to 15 years of service: three months of pay plus two weeks’ pay for each completed year of service.
For employees with more than 15 years of service: six months of pay plus three weeks’ pay for each completed year of service.
For employees hired from 26 January 2017, regardless of years of service, the statutory severance pay formula under the 2017 Labor Act is three months of pay plus two weeks’ pay for each completed year of service. The total amount of severance pay is subject to a nine-month cap (no cap under the 2022 Labor Act).
Under the 2022 Labor Act that no longer applies, formulas had been introduced for all employees regardless of their hire date. All employees with fewer than 15 years of service were entitled to three months of pay plus two weeks’ pay for each completed year of service, whilst employees with at least 15 years of service were entitled to six months of pay plus three weeks’ pay for each completed year of service.
Vacation and sick leave accrual rules for nonexempt full-time employees
The table below shows the current vacation and sick leave accrual rules for nonexempt full-time employees hired from 26 January 2017, under the 2017 Labor Act.
Number of working hours to qualify for accrual | Vacation (accrual per month of service) | Sick leave (accrual per month of service) | |
Nonexempt full-time employees working for employers with 12 or fewer employees | At least 130 hours per month | Half day | One day |
Nonexempt full-time employees working for employers with 13 or more employees | At least 130 hours per month | Based on years of service Up to one year of service: half day More than one year and up to five years of service: 0.75 day More than five years and up to 15 years of service: one day More than 15 years of service: 1.25 days | One day |
The 2022 Labor Act had briefly reduced the number of working hours for nonexempt full-time employees to qualify for accrual from 130 to 115 hours. Nonexempt full-time employees working for employers with 13 or more employees had also been entitled to an accrual rate of 1.25 days of vacation per month, regardless of years of service.
In addition, under the 2017 Labor Act, nonexempt employees are currently only able to request pay in lieu of accrued and unused vacation in excess of 10 days. Under the 2022 Labor Act, pay in lieu could be requested for all or a portion of accrued and unused vacation.
Vacation and sick leave accrual rules for nonexempt part-time employees
Under the 2017 Labor Act, nonexempt part-time employees are currently not entitled to accrue vacation or sick leave, though the 2022 Labor Act had briefly introduced vacation and sick leave accrual rules for these employees.
Christmas bonus
Under the 2017 Labor Act, the minimum required working hours to be eligible for the mandatory Christmas bonus is 1,350 hours per year for employees hired from 26 January 2017, instead of 700 hours per year that briefly applied under the 2022 Labor Act.
The 2022 Labor Act also briefly introduced a minimum threshold specifically for small or medium-sized employers of 900 working hours per year, but this has been nullified per the Decision.
Meal periods
Employees are required under the 2017 Labor Act to take their meal period after the second hour of work and before the sixth hour of work, unless otherwise agreed upon between the employer and the employee. Under the 2022 Labor Act, employees had been required to take their meal period after the third hour of work and before the sixth hour of work.
In addition, employees who work fewer than six hours per day are now allowed to waive their meal breaks under the 2017 Labor Act. Meal breaks could no longer be waived under the 2022 Labor Act.
Employer action: ACT
Following the Decision, any changes made by employers to comply with the 2022 Labor Act should be reversed. Employers should review their internal policies, procedures, handbooks, and contracts to determine if they comply with the current legislation in force, disregarding the 2022 Labor Act, and engage with their legal counsel to make any necessary changes.
Further Information
2017 Labor Act - Act No. 4-2017 (opens a new window)
2022 Labor Act - Act No. 41-2022 (opens a new window)
Court Decision - In re: FOMB v Pierluisi Urrutia Case No. 17 BK 3283-LTS (opens a new window)
