Puerto Rico Update: New Employment Benefits Approved

On June 20, 2022, Puerto Rico’s governor signed Act No. 41, which modifies several of Puerto Rico’s current employment statutory entitlements, providing greater employment benefits to employees in the private sector (the “Act”).

The Act was intended to be effective within 30 days of its signature (on July 20) for large employers, and within 90 days (September 20) for microbusinesses, small and medium-sized businesses, if approved by Puerto Rico’s Financial Oversight and Management Board—an entity that is empowered to temporally suspend the enforcement of Acts if it believes new legislation does not comply with Puerto Rico’s fiscal plan. 

However, on July 20, 2022, the Board released a statement instructing Puerto Rico’s governor to suspend the implementation and enforcement of the Act. In spite of this, Puerto Rico’s governor declared that the Act would not be suspended and that the Board would need to obtain such suspension via court ruling.

Although the Board recently filed a lawsuit challenging the governor’s action and seeking for the Act to be declared null, it is not clear what and when a court will decide. To date, the court has not suspended the implementation of the Act, and therefore it is enforceable.

To avoid breaching the Act and incurring sanctions from the failure to implement its provisions, companies should review their current policies and practices, and adjust them to comply with the Act’s rules.

The main employment conditions impacted by the Act are the following:

• Probationary Period. Now, the probationary period may not exceed three months, unless employers notify the Secretary of Labor and Human Resources in writing otherwise.
• Working Hours—Request for Change. Employees who regularly work 30 hours per week or more, and who have worked for the employer for at least one year, may now request a change of schedule, number of hours, or place where they perform their services.
• Rest Day. Employees shall be entitled to one day of rest (24 consecutive hours) for every six days of work.

Employers who ask employees to work during the rest day will be obligated to compensate the hours worked during that day of rest at a rate equal to 1.5 X the rate agreed for regular hours. (Employees who are students are entitled to a rate equivalent to double the rate agreed for regular hours when they work during a rest day, unless they work for micro-enterprises or small and medium-sized businesses, which are allowed to compensate those employees at a rate equal to 1.5 X the rate agreed for regular hours.) 

• Meal Periods. Now, meal periods cannot begin before the end of the third hour, nor after the start of the sixth consecutive hour of work (for non-exempt employees). However, employees may take their meal period between the second and third consecutive hour of work when agreed in writing between the employee and the employer.
• Vacation and Sick Leave Accrual. Employees who work at least 20 hours per week, but less than 115 hours per month, will accrue vacation at the rate of half day per month, and sick leave at the rate of half day per month. Employees who work 115 hours or more per month will be entitled to a minimum vacation leave accrual at the rate of one and one-quarter (1¼) days per month, and a minimum sick leave accrual of one day per month.

The Act also provides a special regimen for employees of Puerto Rico resident employers, depending on the number of employees.

• Vacation Payout. Employers may allow the partial or total payment of accrued vacation leave, upon written request of employees.
• Christmas Bonus. Employers that have not been exempt from payment of Christmas bonuses by the Department of Labor and Human Resources must pay employees who have worked 700 hours or more during the period from October 1 of any calendar year until September 30 of the following calendar year (the “Period”), a bonus equivalent to 6% of the total salaries paid during the period, with a cap of USD $10,000.

Employers who employ 12 or fewer employees for more than 26 weeks within the 12-month Period, must pay their employees a Christmas bonus equal to 3% of their  total salary with a cap of USD $10,000 to each employee who worked 700 hours within the Period.

Employees hired after the enactment of the “2017 Labor Transformation and Flexibility Act," whose employers employ more than 20 employees for over 26 weeks within the 12-month Period, and who have worked 700 hours would be entitled to a Christmas bonus of 3% of the total wages earned capped at USD $600.

Employers with 20 employees or fewer would be required to pay employees who worked 700 hours or more within the Period a bonus equivalent to 3% of the total salaries earned capped at USD $300.

Employers considered microbusinesses or small and medium-sized businesses will be required to pay the Christmas bonus to employees working 900 hours or more.

• Severance—Termination of Indefinite Term Employment without Just Cause. Now, employees hired for an indefinite term, who are dismissed from their position without just cause, will be entitled to receive from their employer, in addition to the salary they earned: (i) three months of salary as severance pay, and two weeks indemnity for each year of service, if the dismissal occurs within 15 years of service, or (ii) six months of salary as severance pay, and three weeks indemnity for each year, if the dismissal occurs after 15 years of service.

Employees with fixed term employment contracts will be entitled to the severance and indemnity mentioned above, if there is evidence in the hiring that indicates the creation of an expectation of continuity of employment or that appears to be a bona fide employment contract for an indefinite period of time.

• Interpretation of Ambiguous Provisions. Any ambiguity in any provision of an employment contract will be construed in favor of employees.
• Statute of Limitations. Now, actions arising from an employment contract (e.g., wage claim, unjustified dismissal claim) or benefits arising under an employment contract shall be barred after three years from the time employees ceased their employment.

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Ana and Juanita are part of Seyfarth’s leading International Employment Law practice. To find out more about the new regulation in Puerto Rico, please reach out to them or anyone else on our specialist team.