Top Ten Things to Know when Navigating the Employment Law Waters of Puerto Rico

Introduction

Puerto Rico's political status is complicated. Officially known as the Commonwealth of Puerto Rico, the island is an unincorporated territory of the United States subject to the plenary powers of the U.S. Congress under the territorial clause of Article IV of the U.S. Constitution. Accordingly, laws enacted at the federal level in the United States apply to Puerto Rico as well. From an employment law perspective, this means federal statutes such as Title VII, FLSA, ADA, ADEA, FMLA, USERRA, OSHA, ERISA, COBRA, among others, apply to Puerto Rico. For stateside employers, that is the easy part. In order to effectively navigate the Puerto Rico employment law waters, however, corporations with operations in Puerto Rico are well advised to be familiar with several pieces of local legislation which can become a veritable maelstrom to the unfamiliar or uninformed employer. The "Top 10" are summarized below.

1. Act 80 - Unjustified Dismissal Statute

Puerto Rico is not an employment-at-will jurisdiction. Employees hired for indefinite periods of time, including executives, professionals, administrative employees and outside salespersons, may only be terminated for just cause. Generally, just cause for termination exists when an employee: (a) engages in a pattern of improper or disorderly conduct; (b) is not efficient, or works belatedly and negligently, or in violation of the quality standards of the product produced or handled by the establishment; or (c) has incurred repeated violations of reasonable rules established for the operation of the establishment, provided a written copy of the rules had been given to the employee prior to the violation. Act 80 further provides that all terminations must be tied to the employer's legitimate interest in the proper and normal operations of the establishment.

At times, terminations are the result of events wholly unrelated to employee misconduct or poor performance, but for which employers are not made liable either. Such is the case with: (a) the full, temporary, or partial closing of an establishment's operations; (b) technological or organizational changes to the establishment, as well as changes to the style, design or nature of the product made or handled by the establishment and changes in the services rendered to the public; or (c) reductions in employment made necessary by a reduction in the volume of production, sales or profits, anticipated or prevalent at the time of the discharge. In these cases, however, just cause for termination exists only if the terminations follow seniority, and Act 80 requires the employer to retain those employees in each occupational classification with the highest total service time with the employer. If terminations fall within any of these categories, and the employer rehires employees within six months, then the terminated employees must be recalled in the reverse order in which they were laid-off (again, following seniority within each occupational classification impacted) to preserve the just cause defense.

An employee terminated without just cause is entitled to statutory severance compensation based on years of service.

2. Probationary Employment Contracts

In light of the limitations Act 80 imposes upon employers regarding employment termination, the law allows the employment of new hires to be conditioned upon the successful completion of a probationary period. This requires entering into a written probationary employment contract with the employee, which the new hire must sign before engaging in any type of work. If the new hire performs any work at all before signing a probationary employment contract, a subsequent signing of such a contract will be considered null, void and unenforceable, and the new employee will be deemed a regular employee hired for an indefinite term.

The written contract must be for a fixed term not to exceed 90 calendar days, and must establish the specific dates on which the probationary period commences and ends. If the new hire signing a probationary employment contract previously worked for the employer through a temporary employment agency, he or she must be credited for the time worked as a temporary employee up to a maximum credit of 45 days. The Secretary of the Department of Labor and Human Resources may extend the probationary period up to an additional 90 days upon a showing of good cause and of the need for the extension. The probationary period extension must be requested no less than 15 days before the expiration of the original term.

During the probationary employment period, an employer may terminate an employee without a showing of just cause and the corresponding liability for severance pay under Act 80. As an exception to the general rule, however, an employer may not discharge a pregnant employee without just cause during her probationary employment period. The exception for pregnant employees is discussed further below.

3. Maternity Leave

Under the Puerto Rico Working Mothers Act, exempt and non-exempt pregnant employees are entitled to eight weeks of maternity leave at full pay, which employers are required to pay at the commencement of the maternity leave. The Act also provides for leave rights in the event of a miscarriage or abortion which has "the same medical effects as child birth," evidenced by a medical certificate. Female employees who adopt a child that is five years old or younger and is not yet enrolled in school also have leave entitlement. In adoption cases, maternity leave commences on the date on which the adopted child is received by the family. The Working Mother's Act, however, is more than just a leave statute. An employee who is the victim of pregnancy discrimination with respect to the terms and conditions of employment is entitled to recover double damages and reinstatement under the Act. Of particular importance is the fact that the Act expressly provides that the diminished productivity of a female employee during pregnancy, both quantitatively and qualitatively, is not considered just cause for dismissal. Furthermore, in Padilla v. Centro Gráfico¹, the Supreme Court of Puerto Rico held that any termination of a pregnant employee without just cause is in violation of the Act. Thus, even in the absence of discriminatory animus on account of the pregnancy, an employer that terminates a pregnant employee may be liable if it cannot prove just cause.

4. Christmas Bonus

Act No. 148 of June 30, 1969, as amended, provides for the annual payment of a bonus (commonly known as the "Christmas Bonus") for all employees who have worked at least 700 hours during the period from October 1 of any calendar year until September 30 of the subsequent calendar year. The law allows for a partial or full exemption for employers who demonstrate to the Puerto Rico Department of Labor and Human Resources that they lack sufficient funds to pay the bonus.

The Christmas bonus represents six percent of the employees' annual wages, up to a $10,000 cap. Thus, Act No. 148 currently requires a maximum Christmas Bonus of $600 per employee². The total sum payable, however, need not exceed 15% of the employer's net profits on its operations in Puerto Rico. Payment of the bonus must be made between December 1 and 15, except when a different date is mutually agreed upon by the employer and its employees. Any such agreement should be in writing. If the employer fails to pay the bonus within the deadline set by the Act or the agreed upon date with the employees, it must pay, in addition to the bonus, a 50% penalty if payment is made within six months of the due date, and a 100% penalty if payment is made after six months of the due date.

5. Statutory Vacation Leave

Non-exempt employees are entitled to accrue one and one quarter (1¼) days of vacation leave, up to 15 days per year, for each month in which they work at least 115 hours³. Although employees do not accrue vacation leave during the probationary period of employment, once the employee has completed the probationary period, the employee will be considered to have accumulated vacation leave from the first day of employment. (See discussion on probationary period, above). Nevertheless, employees are not entitled to take their accrued vacation leave until it has been accrued for an entire year.

Vacation leave must be granted annually. Employers have the discretion to establish a vacation schedule to avoid interruptions to the employer's normal operations. The employer and the employee may agree to allow vacation leave to accrue for a maximum of two years. An employer who fails to grant vacation leave to an employee after said maximum has been accrued will be liable for all of the vacation days accrued until then, plus payment to the employee of twice the corresponding salary for the period in excess of said maximum.

If employment is terminated for any reason after the probationary period, if applicable, the employer must pay the employee the total vacation leave accrued, even if it would be equivalent to less than one year's accrual.

6. Statutory Sick Leave

Non-exempt employees are entitled to accrue one day of sick leave, up to 12 per year, for each month in which they work at least 115 hours. Sick leave not used by the employee during the year it is accrued is carried forward for successive years, up to a maximum of 15 days. The Act does not require the liquidation of accrued sick leave upon employment termination.

In terms of enjoyment of sick leave, except for force majeure, employees must notify the employer about an illness as soon as possible and not later than the same day of an absence. Employers, however, cannot require a medical certificate to recognize the leave as sick leave unless the absence exceeds two working days.

7. Workers Compensation and Non-Occupational Leave Job Reserve

The Puerto Rico Compensation System for Work-Related Accidents Act provides certain economic benefits and job reinstatement rights to employees who become temporarily disabled due to work-related illness, injury or condition. Employers are required to pay mandatory premiums to a public corporation known as the State Insurance Fund Corporation ("SIFC"). In addition to economic benefits, the SIFC also provides the medical and rehabilitation services that ill or injured employees may need. This government system may not be substituted with private coverage. In exchange for payment of the mandatory premiums, employers are granted immunity from any civil action and damages resulting from employees' work-related accidents. Additionally, employers are required to reserve the injured worker's job for one year and, upon his or her release, to reinstate the employee to the same position he or she occupied before the leave.

Act No. 139 of June 26, 1968, commonly known as SINOT, provides a leave of up to one year and certain economic benefits to employees who become temporarily disabled due to a non-occupational illness or injury. SINOT coverage is compulsory for all employees, exempt and non-exempt. SINOT also provides employees with job reserve and reinstatement rights for one year from the commencement of their leave.

Terminating an employee or failure to reinstate an employee on account of the employee being on a workers' compensation or SINOT leave gives rise to a cause of action for which the affected employee is entitled to recover damages and reinstatement.

8. Meal Period

Under Act 379, also known as "Puerto Rico Working Hours and Days Act," non-exempt employees must receive a meal period of one hour after working more than five consecutive hours. As an exception, for the mutual benefit and convenience of, and under a written stipulation between, the individual employee and the employer, a shorter period of at least 30 minutes may be agreed upon. Once an employee starts his or her work shift, the meal period must be scheduled to begin between the conclusion of the third hour and before commencement of the sixth hour of work, so that no employee works more than five consecutive hours without a meal break. A non-exempt employee required or permitted to work during his or her meal period, or who takes the meal period outside the time frame mentioned above, is entitled to receive a penalty compensation in addition to his or her regular pay. The penalty compensation consists of the regular rate of pay for the meal period or the fraction thereof actually worked. This penalty pay is independent of the payment for overtime hours. Additionally, if the employee works overtime, and said overtime causes him or her to work more than five consecutive hours after returning from the first meal period, the employee is entitled to a second meal break. This second meal period may also be reduced as discussed above. If the employee only works two hours or less in excess of his or her regular shift, the second meal period may be obviated. The agreement to obviate the second meal period must be for the mutual benefit of the non-exempt employee and employer, and documented in a written stipulation between the individual employee and the employer.

9. Overtime

Act 379 governs working time for non-exempt employees and generally provides scheduling and overtime pay requirements that are more favorable to employees than under the FLSA. The general rule is that hours in excess of eight during any period of 24 consecutive hours, or in excess of 40 hours during the workweek, are considered overtime. Act 379 requires overtime to be paid at twice the regular rate of pay. In contrast, employers covered by the FLSA must pay overtime at time and one-half (1½) the regular rate of pay, unless a collective bargaining agreement provides otherwise. In practice, however, most employers are covered by the FLSA and, thus, are required to pay overtime at time and one-half (1½) the regular rate.. The daily overtime computation must be based on any consecutive 24-hour period. This requirement typically presents complications for employers to determine the correct overtime payment with regards to flexible schedules, weekly day of rest and Sunday premium pay (in the case of retailers). Employers who are new to Puerto Rico should seek legal counsel when establishing payroll policies and systems, as non-compliance with overtime provisions could represent substantial exposure in terms of statutory penalties.

10. Retaliation

On September 29, 2014, the Governor of Puerto Rico signed into law an amendment to Act 115, Puerto Rico's general anti-retaliation statute. The amendment expands the Act's anti-retaliation protection to cover "any testimony, expression or information [that an employee] offers or attempts to offer as part of internal procedures established in the company, or before any employee or representative in a position of authority." Prior to this amendment, Act 115 limited protected activity to "any testimony, expression or information [that an employee offers or attempts to offer] before a legislative, administrative or judicial forum in Puerto Rico." After the amendment, employees in Puerto Rico have significantly more ample protection against retaliation, ostensibly recognizing as protected conduct internal complaints of any kind, even if not necessarily constitutive of whistleblowing. As mentioned at the beginning of this article, the above is but a list of "Top 10" pieces of Puerto Rico legislation that can result in substantial liability to the uninformed employer. The best advice for new or existing Puerto Rico employers is: know the landscape. While Puerto Rico employment legislation can seem burdensome at times, employers who ensure their familiarity with the jurisdictions' idiosyncrasies are in the best position to avoid legal difficulties related to their employees.

By Mariela Rexach-Rexach, Littler

³However, several grandfather provisions in the law applicable to employees hired on or before August 1, 1995 who remain working for the same employer may impact the vacation accrual level. Employers with such employees on its payroll should seek legal counsel on this specific issue.