Top Ten Things to Know when Navigating the Employment Law Waters of Puerto
Rico
Nov 03, 2014
Top Ten
By Mariela Rexach-Rexach
This resource is sponsored by:
By Mariela Rexach-Rexach
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.
1 144 D.P.R. 952 (1998).
2 For employers with 15 or fewer employees, the bonus is 3% of the total annual wages up to a $10,000 salary cap.
3 However, 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.
The information in this Top Ten should not be construed as legal advice or legal opinion on specific facts and should not be considered
representative of the views of its authors, its sponsors, and/or the ACC. This Top Ten is not intended as a definitive statement on the subject
addressed. Rather, it is intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.
Reprinted with permission from the Association of Corporate Counsel (ACC)
2014 All Rights Reserved.
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