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Newsletter Date: Janua ry 16, 2017 2 0 1 7-LABR-0 1

2017 LABOR REFORM ACT ALERT

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PUERTO RICO

BUSINESS LAW NOTES

P uerto Rico is yet again in the process of debating new labor and employment measures intended to improve competitiveness, create new jobs, reduce the unemployment rate of approximately 12%, improve

the labor participation rate, and halt the migration of citizens in search of work opportunities. To that effect,

Senate Bill 212 (“SB 212”) and House Bill 453 (“HB 453”) have been filed by the current government

administration on January 9, 2017, to establish the Labor Transformation and Flexibility Act of 2017.

The House of Representatives approved HB 453 on January 14, 2017. The bill heads to the Senate

and could be approved at the end of this week. All in all, the bill is intended to amend major employment

laws applicable to Puerto Rico’s private sector. Once approved, the amendments will apply only to newly

hired employees. Current employees will be grandfathered. These changes include:

Law Number 80 of May 30, 1976, 29 L.P.R.A. §185a et seq. (“Law No. 80”)

1- Newly hired employees will have an automatic probationary period of twelve (12) months, as

opposed to the current three (3) months provided by the Puerto Rico Wrongful Discharge Act

or Law No. 80

2- No requirement of a written probationary period agreement, as opposed to the current strict

requirements of Law No. 80.

3- The current severance formula provided by Law No. 80 for regular employees will be

amended and reduced to a basic indemnity of three (3) months of salary and a progressive

indemnity of two (2) weeks for every completed year of salary. However, the severance

payment will be capped to nine (9) months of salary.

4- Changes and clarifications in the basic salary to be used for purposes of computing the

indemnity provided by Law No. 80, to exclude certain benefits such as deferred

compensation, income from tips that surpasses the federal minimum wage, and disability

payments.

5- Amendments and clarifications to the definition of just cause under Law No. 80.

By: Edwin J. Seda-Fernández

Verónica Torres-Torres

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Newsletter Date: Janua ry 16, 2017 2 0 1 7-LABR-0 1

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PUERTO RICO

BUSINESS LAW NOTES

6- The statute of limitations for wrongful discharge cases is reduced to one (1) year. The

current statute of limitations under Law No. 80 is three (3) years.

7- Severance payments under Law No. 80 will not be subject to any withholdings, except such

withholdings required by federal law.

8- Proposed amendments to the Puerto Rico internal revenue code to make all payments under

Law No. 80 tax exempt.

9- Mandatory settlement hearings in cases under Law No. 80 within sixty (60) days of the

filing of the answer to the complaint.

10- Terminated employees are allowed to settle claims under Law No. 80.

Law Number 180 of July 27, 1998, 29 L.P.R.A §250 et seq. (“Law No. 180”)

1- Puerto Rico’s Minimum Wage Act, Vacation and Sick Leave Act or Law No. 180 is

amended to increase the number of hours from one hundred fifteen (115) to one hundred and

thirty (130) per month to accrue vacation and sick leave.

2- Newly hired employees will accrue a minimum of ½ of vacation day per month during the

first year of employment. The employees will then accrue ¾ of vacation day from the

second (2 nd

) up to the fifth (5 th

) year of employment. From the sixth (6 th

) to the fifteenth

(15 th

) year of employment the employees will accrue one (1) day. Finally, employees with

over fifteen (15) years of employment will accrue 1 ¼ days of vacation.

3- Sick leave accrual will be ¾ of a day per month.

4- The statute of limitations under Law No. 180 will be reduced from three (3) years to one (1)

year.

5- For employers whose payroll do not exceed twelve (12) employees, the accrual for both

vacation and sick leave will be ½ day per month.

6- Current employees with higher accrual rates for vacation and sick leave will maintain such

accruals rates, provided they continue to work for the same employer.

7- It would be illegal to fire and rehire, or substitute current employees to obtain the benefits

provided by the amendments to Law No. 180.

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Newsletter Date: Janua ry 16, 2017 2 0 1 7-LABR-0 1

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PUERTO RICO

BUSINESS LAW NOTES

Law Number 379 of May 15, 1948, 29 L.P.R.A. §271 et seq. (“Law No. 379”)

1- Puerto Rico’s Working Hours and Days Law or Law No. 379 will be amended to provide

new definitions of over-time.

2- Daily over-time will be hours worked in excess of eight (8) per calendar day; not in every

twenty-four (24) hour period.

3- Over-time will also be the hours worked in excess of forty (40) during the workweek, the

hours worked during the period in which a business shall be closed to the public by law, the

hours worked during the rest day, or as defined in a collective bargaining agreement.

4- Over-time will be paid at a rate of one and a half times (1.5) the base salary rate. Any

provision contained in a mandatory decree related to over-time will be repealed.

5- The meal period penalty will be paid at a rate of one and a half times (1.5) the base salary

rate.

6- Employers and employees may agree to a voluntary flexible work schedule of no more than

ten (10) regular hours per day in a period of four (4) days in a workweek, without incurring

in over-time liability.

7- Employees may request flexibility as to place of employment and working hours and the

employer is obligated to respond and/or provide alternatives to the employees’ requests.

8- The statute of limitations under Law No. 379 will be reduced from three (3) years to one (1)

year.

Law Number 148 of June 30, 1969, 29 L.P.R.A. §501 et seq. (“Law No. 148”)

1- Puerto Rico’s Bonus to Workers and Employees Act (Christmas Bonus) or Law No. 148

will be amended to increase the number of hours to be eligible for the bonus, from seven

hundred (700) hours to one thousand three hundred and fifty (1,350), in the period from

October 1 to September 30 of the year in which the bonus is paid.

2- The Christmas bonus will be reduced to two percent (2%) of the salaries earned with a cap

of six hundred dollar ($600) dollars or three hundred dollars ($300) depending on the

number of employees.

3- Newly hired employees will only be eligible to fifty percent (50%) of the bonus during the

first year of employment.

4- The bonus will be paid between November 15 and December 15.

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Newsletter Date: Janua ry 16, 2017 2 0 1 7-LABR-0 1

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PUERTO RICO

BUSINESS LAW NOTES

Law Number 427 of December 16, 2000, 29 L.P.R.A §478 et seq. (“Law No. 427”)

1- Puerto Rico’s Law to Regulate the Period to Breastfeed or to Express Breast Milk or Law

No. 427 will be amended to require employers a safe, private, and hygienic place to nurse or

extract breast milk.

2- Part-time mothers who work more than four (4) hours shall be entitled to thirty (30) minutes

to nurse or extract breastmilk.

3- Penalty of at least three thousand dollars ($3,000) for violations of the law.

Law Number 100 of June 30, 1959, 29 L.P.R.A. §146 et seq. (“Law No. 100”)

1- Puerto Rico’s Antidiscrimination Act or Law No. 100 is amended to cap compensatory and

punitive damages in employment discrimination cases, pursuant to the limits established by

Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991.

2- Employers with less than one hundred and one (101) employees will have a cap of fifty

thousand dollars ($50,000).

3- Employer with one hundred and one (101) and up to two hundred (200) employees will have

a cap of one hundred thousand dollars ($100,000).

4- Employers with two hundred and one (201) and up to five hundred (500) employees will

have a cap of two hundred thousand dollars ($200,000).

5- Finally, employers with five hundred and one (501) employees or more will have a cap of

three hundred thousand dollars ($300,000).

6- This cap will also apply to cases of retaliation.

Law Number 1 of December 1, 1989, 29 L.P.R.A. §301 et seq. (“Closing Law”)

1- Puerto Rico’s Act to Regulate the Operation of Commercial Establishments or Closing Law

is repealed.

2- This action will result in the loss of the $11.25 salary per hour for work on Sundays.

As to employees with religious beliefs, such employees must seek reasonable accommodation from

their employers in certain circumstances. To attend an extraordinary religious service, the employee must

request a leave at least ten (10) days prior to such activity. A penalty of up to five thousand dollars

($5,000) will be imposed on employers who violate the employee’s religious beliefs.

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Newsletter Date: Janua ry 16, 2017 2 0 1 7-LABR-0 1

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PUERTO RICO

BUSINESS LAW NOTES

As to the employment reservation provided by Law Number 45 of April 18, 1935, 11 L.P.R.A. §1 et

seq. (work related accidents or conditions) and Law Number 139 of June 26, 1968, 11 L.P.R.A. §201 et

seq. (short term disability not related to the employment), the employment reservation of twelve (12)

months is decreased to six (6) months for employers with fifteen (15) employees or less at the time of the

accident or disability.

The Labor Transformation and Flexibility Act also defines the term “employment contract” and

establishes a non-rebuttable presumption of independent contractor if certain criteria is met. The law also

includes sections devoted to the rights and obligations of the employees.

We will continue to monitor these developments during the week until the bill is signed into

law.

If you should have any questions or comments relative to the 2017 LABOR REFORM ACT or

any other labor and/or employment matter, please contact any member of the Labor and

Employment Division of AMG for further information: Edwin J. Seda Fernández, 787-281-

1822, [email protected]; Mariel Y. Haack, 787-281-1951, [email protected]; Liana

M. Gutiérrez, 787-281-1950, [email protected]; Verónica M. Torres-Torres, (787) 281

-1965, [email protected]; or Luis Pérez Giusti, (787) 281-1809, [email protected], for

further information.

The above summary is intended for information purposes only. It cannot be considered a legal opinion, and it does not intend to consider all legal

considerations that could be relevant to any particular person or entity.

The contents of PUERTO RICO BUSINESS LAW NOTES may not be reproduced, transmitted, or distributed without the express written consent of

Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C. (“AMG”). The material contained herein is intended for information purposes only and is not to be

considered legal advice. Qualified counsel should be consulted based on individual circumstances.

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