On March 3, 2023, the U.S. District Court for the District of Puerto Rico (the “Court”), through the voice of Judge Laura Taylor Swain declared null and void Law 41-2022, also known as the 2022 Labor Reform Act, after the Financial Oversight & Management Board for Puerto Rico (“FOMB”) under the provisions of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) challenged the legitimacy of Law 41-2022. The Court declared that Law 41-2022, and any actions that have been taken to implement it, are null and void ab initio; which means that it should be treated as it never existed and invalid from its approval, rather than from when the Court declared it so.
Moreover, the Court permanently prohibited and enjoined the Governor of Puerto Rico, Pedro R. Pierluisi Urrutia (the “Governor”), or other persons who are in active concert or participation with the Governor from taking any actions to assist private parties implement or enforce Law 41-2022.
The 2022 Labor Reform Act had reinstated and expanded some employment rights that employees lost upon the approval of Law 4-2017 known as the “Labor Transformation and Flexibility Act”. For example, rights related to overtime pay, probationary period, meal period, vacation and sick leave, Christmas bonus, unjust dismissal, computation of the severance payment, among others. Basically, the Court’s ruling reverted the state of law under Law 4-2017.
Following we highlight the most relevant changes considering the Court’s decision. Please be aware that it is not intended to be an exhaustive analysis of the implications of the recent ruling.
Automatic Probationary Period
Now employees will have an automatic probationary period of nine (9) months, with the exception of those exempt employees classified as executives, administrators and professionals pursuant to the Fair Labor Standards Act and its local counterpart, who will have an automatic probationary period of twelve (12) months, as previously provided by Law 4-2017.
Vacation Leave
For those employees hired on or after January 26, 2017, the effective date of Law 4-2017, they will accrue half (½) day during the first (1st) year of employment; 3/4 day after the first (1st) year until the fifth (5) year of employment; one (1) day after the fifth (5) year of employment until the fifteenth (15) year of employment and 1¼ days after fifteen (15) years of employment. The accrual applies for each month during which the non-exempt employee has worked at least one hundred and thirty (130) hours.
For employers with twelve (12) or less employees, they will accrue half (½) day for each month during which the non-exempt employee has worked at least one hundred and thirty (130) hours, for a total of six (6) days of vacation leave per year.
Sick Leave
The sick leave accrual will be at the rate of one (1) day for each month during which the non-exempt employee has worked at least one hundred and thirty (130) hours for a total of twelve (12) days of sick leave accrual per year.
Christmas Bonus
Employers who employ more than twenty (20) employees during more than 26 weeks within the twelve (12) months period comprised between October 1st to September 30th of the subsequent calendar year, will have to pay each employee who has worked a minimum of 1,350 hours or more within the stated period a bonus equivalent to 2% of the amount earned up to $600.00. For those who employ twenty (20) or less employees, will have to pay each employee who has worked a minimum of 1,350 hours or more within the stated period a bonus equivalent to 2% of the amount earned up to $300.00. During the first year of employment, the required bonus will be fifty percent (50%) of the amount previously mentioned.
Also, the statute of limitations for claims and benefits derived of an employment contract, unjust dismissal and wage and hour claims are reduced to one (1) year, instead of three (3) years, as established by Law 41-2022.
The Governor has stated that his legal team is evaluating the possibility to appeal the Court’s determination. The Legislative branch has also stated that it is evaluating the legal action to be taken to contest the Court’s decision.