Puerto Rico is a jurisdiction that is highly protective of employees' rights, which are liberally interpreted in their favour. From rights established in the Constitution of Puerto Rico, such as the right to privacy, to over a dozen statutory leaves of absence and numerous categories protected from discrimination, employers doing business in Puerto Rico encounter a jurisdiction rich in employment legislation.
As an unincorporated territory of the United States, Puerto Rico's dual legal system is characterised by coexisting US federal laws and local legal provisions. Thus, Puerto Rico enjoys US constitutional, legal and regulatory protections, many of which extend to the employment context. A similar duality applies to Puerto Rico courts of law – claimants have access to Puerto Rico state courts of general jurisdiction and the US District Court for the District of Puerto Rico, a federal court of limited jurisdiction. US District Court decisions are subject to appeal before the First Circuit Court of Appeals in Massachusetts and subsequently to the US Supreme Court.
The Department of Labour and Human Resources of Puerto Rico (PRDLHR) is responsible for the administration of public policy related to labour and employment legislation, occupational safety, unemployment insurance benefits, re-employment services and human resources training. The divisions of the PRDLHR, where employees commonly file administrative claims, include the Bureau of Employment Norms, the Office of Mediation and Adjudication and the Anti-Discrimination Unit. Under a work-sharing agreement, the latter is the US Equal Employment Opportunity Commission's (EEOC) state counterpart that handles discrimination complaints.
To further facilitate access to the judicial system, employees in Puerto Rico count on a special proceeding to file employment-related lawsuits in state courts pursuant to Act No. 2 of 17 October 1961, as amended. This statutory, summary proceeding provides for the expeditious handling of claims, and imposes strict requirements and severe consequences upon employers.
II YEAR IN REVIEW
After a major overhaul of Puerto Rico's employment-related legislation as a result of the Labour Transformation and Flexibility Act (LTFA) of 26 January 2017, statutes and regulations were enacted thereafter to clarify or further expand the 2017 employment law reform. These include the following:
- Act No. 60 of 27 January 2018 prohibits employers from taking into consideration an employee's justified use of sick leave when evaluating an employee's efficiency and performance, and deciding upon salary increases, promotions or imposition of disciplinary actions. Employers are expressly prohibited from having policies that penalise employees for using accrued sick leave.
- Act No. 28 of 3 January 2018 provides six additional days of special sick leave to all employees owing to certain catastrophic illnesses. The illnesses include AIDS, tuberculosis, lupus, cystic fibrosis, cancer, autism, multiple sclerosis and post-organ transplant procedures. This is an annual entitlement that does not accrue from one year to the next.
- Act No. 115 of 20 June 2018 allows employers to deduct from non-exempt employees' salary any amounts owed to them for a loan, payroll advance, or for the cost of goods or materials provided by the employer to employees in direct relation to the needs created by an official state of emergency. Employees must authorise the deduction in writing and the deduction cannot be for an amount exceeding 20 per cent of their payroll.
- On 4 April 2018, the PRDLHR issued Regulation No. 9017 for the application of Act No. 379 of 15 May 1948 (Act 379), as amended, the Working Hours and Days Act, regarding work schedules, making up time owing to absences from work not covered by a leave, meal periods, reduction of meal periods, meal penalties, administration and management of personnel records and settlement of claims, among other matters.
- On 23 July 2018, the PRDLHR issued Opinion No. 15832 interpreting the application of the new one-year statute of limitation under the LTFA regarding wage and hour and unjust dismissal claims, and when the prior three-year statute of limitation applies.
- On 2 August 2018, the PRDLHR issued Opinion No. 15833 clarifying that all non-exempt employees must work at least 130 hours each month to accrue vacation and sick leave pursuant to the amendments to Act 180 by the LTFA.
III SIGNIFICANT CASES
i Sexual harassment in the workplace and retaliatory measures
In Gretchen Caballer Rivera v. Nidea Corporation (2018 TSPR 65), the plaintiff accused one co-worker and two supervisors of sexual harassment and also alleged that they had taken retaliatory actions against her. The Puerto Rico Supreme Court determined that the agents and supervisors of an employer are not responsible in their personal capacity for acts of retaliation pursuant to Act No. 115 of 10 December 1991 (Act 115), under the provisions of Act No. 69 of 6 July 1985 (Act 69), which prohibits sex discrimination, and under Act No. 17 of 22 April 1988, which prohibits sexual harassment in the workplace. Neither Act 115 nor Act 69 provide an independent cause of action for retaliatory measures taken by an agent or supervisor, unless the supervisor or agent is also responsible for sexual harassment.
ii Wrongful termination, and successor employer liability and mere continuation of business doctrines
In Roldan Flores v. M. Cuebas (199 DPR 664 (2018)), the Puerto Rico Supreme Court determined that neither the mere continuation of business nor the successor employer liability doctrines apply when a business has permanently closed during the transfer of assets. This case follows from Meléndez Gonzalez et al v. M. Cuebas (193 DPR 100 (2015)). In the 2018 case, two employees sued their former employer and the buyer of the former employer's business for wrongful termination under the mere continuation of business and the successor employer liability doctrines. For the former to apply, the business must continue or be expected to continue operating indefinitely as it is being passed from one employer to the next. Defendants in this case successfully argued that the continuation of business doctrine did not apply because the business in question had permanently closed during the negotiation and subsequent transfer of assets, thus relieving the seller from any responsibility towards the plaintiffs. The Supreme Court found no reason to apply the successor employer liability doctrine as it requires the original employer to have a legal obligation towards former employees. The employer did not have such an obligation.
iii Employee benefits
In Iglesias Saustache v. Calderón Félix (2018 TSPR 154), the Puerto Rico Supreme Court ruled that the surviving spouse of a deceased participant in a retirement plan governed by the federal Employee Retirement Income Security Act of 1974, as amended (ERISA), has the right to receive pension payments when the plan participant remarries and does not revoke a prior beneficiary designation form in favour of his former spouse. The Supreme Court reiterated that ERISA contains an 'assignment and anti-alienation provision' that prohibits the payment, transfer, assignment or transfer of benefits of a retirement plan to a person other than the beneficiary or participant thereof. The Court discussed ERISA's exception to said prohibition, specifically that a person may obtain rights to the benefits of a retirement plan through a qualified domestic relations order and thereby be treated as a beneficiary under the plan even when he or she is not the surviving spouse. ERISA provides that a qualified domestic relations order creates or recognises the existence of a right of an alternate beneficiary to receive part or all the benefits. In this case, when the participant remarried, the new spouse automatically became his beneficiary under the plan regardless of the divorce agreement and the prior beneficiary assignation insofar as neither the plan's form nor the agreements in the divorce proceedings were considered a qualified domestic relations order. Here, the plan document clearly stipulated that the beneficiary had to be the participant's spouse. Accordingly, if the participant died while married, the widow would become the beneficiary of the plan, unless otherwise indicated by written consent of the widow or through a qualified domestic relations order. The Supreme Court did not address potential claims the plaintiff may have to assert her rights, if any, under the stipulations of the divorce agreement under Puerto Rico law.
IV BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP
i Employment relationship
Employment rights can stem from employee handbooks, employment offers, collective bargaining agreements or an employment contract. In general, executing an employment contract is not required to establish an employment relationship in Puerto Rico because employment agreements can be binding regardless of whether they are in writing. Under certain circumstances, it may be advisable and practical to execute a written employment agreement that establishes the terms and conditions of employment, such as base salary, benefits, responsibilities and job expectations, to name a few. While the LTFA increased flexibility, which reduced the need to have employment agreements in writing, there are still certain specific, employment-related obligations that can only be validly established through a written agreement. The following are some examples of agreements that still need to be executed in writing. Employers are advised to expressly reserve their right to interpret unclear clauses or language in any of their agreements.
- Agreements with non-exempt employees to reduce the statutory meal period, to fragment the use of vacation leave, to use non-working days as part of the vacation leave period, to partially liquidate and pay accumulated and unused annual leave in excess of 10 days, and to accumulate annual leave in excess of one year.
- Non-competition agreements and some other restrictive covenants.
- Voluntary agreements with non-exempt employees to establish alternate, weekly work schedules to fulfil a 40-hour week in no more than 10 consecutive working hours per day, without incurring daily overtime liability.
ii Probationary periods
The law authorises the hiring of new, indefinite-term employees on a probationary basis. Employees properly classified as executives, professionals or administrators are subject to an automatic 12-month probationary period and all other employees are subject to a nine-month probationary period, unless a shorter period is agreed between the employee and the employer. Generally, during the probationary period, the employer may discharge or terminate the contract of an employee without cause and without responsibility for the severance payment established by Act No. 80 (Act 80). The termination cannot be for discriminatory reasons.
iii Establishing a presence
A foreign company may not hire employees in Puerto Rico without being officially registered with the Department of State of the Commonwealth of Puerto Rico. Companies engaged in trade or business in Puerto Rico must register with the Department of State and having an employee may qualify as conducting trade or business. However, a company may hire an independent contractor and, depending on the nature and extent of the duties performed by the contractor, the entity may not need to register with the Department of State.
The concept of a permanent establishment is not defined by the Puerto Rico Internal Revenue Code of 2011, as amended. Thus, tax presence in Puerto Rico is determined by whether a business is engaged in trade or business, or case by case in connection to fixed or determinable annual or periodical income. Accordingly, a corporation engaged in trade or business in Puerto Rico is subject to the normal tax on corporations pursuant to the Puerto Rico Internal Revenue Code.
Since 26 January 2017, with the enactment of the LTFA, the rights and responsibilities of an employee from another jurisdiction who (1) is assigned to work in Puerto Rico for the benefit of another employer, (2) maintains an employment relationship with the employer outside Puerto Rico and (3) is assigned to work in Puerto Rico for no more than three consecutive years, will be interpreted in accordance with the provisions of the employment contract. Notwithstanding contract provisions, the employee will be subject to Puerto Rico laws concerning income tax, employment discrimination and work-related accidents. If the parties do not stipulate the applicable law, they will be subject to Puerto Rico legal provisions.
Companies establishing a presence in Puerto Rico must also be aware that statutory benefits are vast and include those relating to wage and hours as discussed in subsection i, as well as a statutory Christmas bonus, unemployment insurance, worker accidents and non-occupational disability insurance compensation, and leaves of absence for maternity, adoption, breastfeeding, jury duty, renewal of a driver's licence, participation in Olympic games and other world championships, appearance as witness in criminal cases, military duty, occupational and non-occupational disability, family medical leave and car accidents, among others.
V RESTRICTIVE COVENANTS
Non-competition clauses in employment contracts are valid in Puerto Rico and must comply with requirements established by the PRSC. There is no legislation controlling this type of agreement except that the LTFA expressly recognises employees' obligation not to compete with the employer's business activity unless it is otherwise provided by law or in an agreement with the employer. The requirements are as follows:
- Non-competition clauses must respond to the employer's legitimate interest, such as the protection of the business from the adverse effect of competition by a former employee. Restrictions on the employee's future functions must be limited to activities similar to the activities the employee performed during his or her employment.
- The duration of the prohibition shall not exceed one year after termination of employment.
- The object of the prohibition must be limited to activities similar to those performed for the employer.
- The non-competition agreement must specify the geographical boundaries where the prohibition is to apply, limited to what is necessary to avoid competition. Alternatively, it should be limited to those customers the employee personally served for a reasonable period of time prior to the termination of employment or during a period immediately before said termination, and who were still customers of the employer when the employee's employment ended.
- The employee must receive adequate consideration in exchange of the prohibition.
- As required by the Puerto Rico Civil Code, the essential elements of consent, object and cause must also be present, and the employer may not coerce or exert undue pressure on the employee to accept the non-compete obligation, which must be in a written agreement.
i Working time
Wage and hour coverage in Puerto Rico for non-exempt employees is governed by the US federal Fair Labour Standards Act (FLSA) as well as local laws. Non-exempt employees in Puerto Rico are entitled to more benefits than those provided by the FLSA. These benefits include payment for the following:
- hours worked in excess of eight hours or daily overtime;
- hours worked in excess of 40 hours or weekly overtime (also recognised under US federal law);
- hours worked during the meal period;
- hours worked during the seventh consecutive day or day of rest;
- statutory entitlement to vacation leave under Act 180; and
- statutory entitlement to sick leave under Act 180.
Act 379, as amended by the LTFA, coexists with the FLSA and regulates hours and days of work, overtime compensation and a mandatory meal period for non-exempt employees. Administrators, executives, professionals, computer programmers and outside sales persons, as these terms are defined by the Regulation No. 13 of Puerto Rico's Minimum Wage Board or US Federal Regulation No. 541, are occupational classifications excluded from the application of Act 379 as well as other wage and hour provisions.
On 4 April 2018, the PRDLHR issued a regulation for the application of Act 379. It establishes the requirements regarding working hours, alternate weekly work itineraries, changes in the working day, and employers' obligation to maintain employment and payroll records and compensatory time agreements. It also sets the norms applicable to meal periods, agreements to reduce them and compensation for working during meal breaks.
Under Act 379, non-exempt employees are entitled to a one-hour, unpaid meal period. The meal period can start after the second hour of work and, to avoid a meal-period work penalty, it must also be scheduled before the beginning of the sixth hour of work. If a non-exempt employee's workday consists of up to six hours, the meal period may be waived. If the employee works for a period exceeding 10 hours per day, the employee is entitled to a second meal period. This second meal period may be waived when a workday does not exceed 12 hours and provided the first meal period was taken by the employee.
The meal period may be reduced to 30 minutes, and in some cases to 20 minutes, by means of a written stipulation. The agreement to reduce the meal period will be effective indefinitely and cannot be terminated unilaterally until one year after its effective date. In other words, before one year expires, both parties must consent to the termination, and after one year expires, either the employer or the employee can terminate the agreement unilaterally to reduce the meal period.
According to Act 379, eight hours of work is the regular work day in Puerto Rico, while 40 hours is a regular working week. In addition, pursuant to Act No. 289 of 9 April 1946, as amended (Act 289), non-exempt employees are entitled to one day of rest per six consecutive days of work. Under Act 289, one day of rest is considered to comprise 24 consecutive hours. The LTFA repealed Act No. 1 of 1 December 1989, as amended, also known as the Closing Law, and work performed during Sundays in retail establishments is no longer considered overtime work subject to premium pay.
The current minimum hourly rate is US$7.25 per hour. Through company policy, employers may establish limits to overtime work they will allow employees to perform. Any work employees perform for the benefit of the employer, however, generally requires compensation even when unauthorised.
The LTFA established a new uniform overtime rate of pay for non-exempt employees hired after 26 January 2017. The rate, which is equal to the rate established by the FLSA, consists of one-and-a-half times the regular rate of pay for hours worked in excess of eight hours during any calendar day (daily overtime), hours worked in excess of 40 hours in a week (weekly overtime) and hours worked during the meal period, the day of rest, and when a commercial establishment is required to remain closed to the public or when provided by a collective bargaining agreement.
Non-exempt employees hired prior to the enactment of the LTFA maintain superior benefits to which they were already entitled, which may include overtime compensation at double their regular rate of pay, when applicable and depending on a variety of circumstances and the industry in which they work.
iii Alternate weekly work schedules, compensatory time and modified working conditions
The LTFA now provides for three flexible-work arrangements for non-exempt employees. First, it permits voluntary, written agreements with non-exempt employees to establish alternate, weekly work schedules to fulfil a 40-hour week in no more than 10 consecutive working hours per day, without incurring daily overtime liability. Work in excess of 10 hours per day will be considered overtime. Second, the LTFA recognises the concept of compensatory time agreements. That is, the employer may grant a non-exempt employee's request to make up hours not worked in a week because of absences for personal reasons. These compensatory hours will not be considered overtime when they are worked in the same week of the absence, do not exceed 12 hours in a day or 40 hours in the week. Third, the LTFA created an employee's right to request changes of schedule, working hours or work location. An employee is entitled to make the request if it is in writing if he or she works 30 hours or more per week, has worked for at least one year for an employer and has not made the same request in six months. There are other requirements applicable to the response the employer must provide. Employees are not automatically entitled to a change in work conditions just because they made the request. Priority must be given to employees who are head of a family or have sole custody of minor children.
VII FOREIGN WORKERS
US federal law governs Puerto Rico immigration matters. There are no statutory provisions requiring employers to keep a register of foreign workers. The Federal Immigration Reform Control Act of 1986 (IRCA), however, requires employers to complete the Employment Eligibility Verification Form (Form I-9) to confirm that hired workers (citizens and non-citizens) are authorised to work in the United States. Through the verification process, hired workers must furnish, and their employer verify, documentation that confirms the workers' identity and their authorisation for employment in the US. Employers are required under the IRCA to retain Form I-9 for a designated period and make it available for inspection by authorised government officials. Employers must ensure that all foreign workers hired are admitted in the US as permanent residents or under work-related non-immigrant visa classifications.
While there are no limits on the number of foreign workers a company may have, there is a limited number of certain work visas issued by the US government each year. Non-immigrant workers hired for temporary employment in the US under an employment-based visa category are restricted to the activity or reason for which their non-immigrant visa was issued. The length of stay in the US will depend on the specific employment-based visa category under which the foreign worker was authorised for employment in the US and whether the visa category permits extensions of stay.
An individual may seek an immigration classification that permits him or her to live temporarily in the US. The employer or potential employer must file a petition for non-immigrant worker before the United States Citizenship and Immigration Services on behalf of the beneficiary worker under one of the employment-based visa categories. The most common non-immigrant visa categories are:
- H1B (workers in a speciality occupation);
- H2B (temporary non-agricultural workers);
- L1A (intra-company transferee in managerial or executive positions); and
- L1B (intra-company transferee in positions utilising specialised knowledge), among other categories.
In general, Puerto Rico source income paid to a foreign worker will be subject to local income tax withholdings at source and US FICA taxes. Foreign workers are fully protected under local and federal employment laws, including discrimination based on citizenship or immigration status.
VIII GLOBAL POLICIES
The provisions of an employee handbook and other written norms, policies or benefits are considered part of the employment contract. Once these norms and policies are established, the employee and the employer are expected to honour them.
The rules of conduct and discipline must be reasonable and non-discriminatory as to their content and application. Depending on the circumstances, an employee's failure to comply with rules duly notified could constitute just cause for disciplinary action, including termination of employment. Consequently, employers usually include, and provide a copy to employees, of the rules of conduct in the employee handbook.
Although not required in general, the best practice is for employers to have and distribute written basic rules of conduct, policies and procedures, as they are important tools to manage potential risks relating to employment practices and to ensure compliance with the many statutory requirements applicable in Puerto Rico.
Notwithstanding the above, local and US law requires employers to have in place and disseminate written sexual harassment and anti-discrimination policies, including prohibited conduct and a mechanism to report and investigate complaints. Similarly, under local law, employers are required to have a domestic violence protocol and policies specifically addressing gender identity and sexual orientation discrimination. Employers that perform drug testing are also required to establish a policy, rules of conduct and regulations compliant with Act No. 59 of 8 August 1997 (Act 59). Also, under Puerto Rico law, employers who conduct electronic surveillance in the workplace are required to have and distribute an electronic surveillance policy.
It is not legally required, but is recommended, that these policies be in Spanish and that employers maintain evidence of their notification to and signed receipt by employees.
As an unincorporated territory of the United States, the official languages of Puerto Rico are Spanish and English. Spanish is the native tongue of the vast majority of Puerto Ricans. Although English is taught as part of the academic curriculum in schools, according to estimates, a low percentage of residents in Puerto Rico can speak, read and write English fluently.
Notwithstanding this, there is no law that requires employers to maintain employment documents in Spanish or English. Many employers, however, opt to prepare, distribute and maintain employment documents, such as employee handbooks, policies, procedures, contracts, admonishments and documents pertaining to employees' personnel records, in Spanish. This recommended practice reduces the risk of employees subsequently challenging their obligations, employers' expectations, disciplinary measures, rules of conduct, duties pursuant to policies, etc., on grounds that they did not understand the contents of the documents.
In the employment context in general, translations do not require a notarial certification or the use of a certified translator. The Puerto Rico court system permits the filing of documents in Spanish or English. Documents filed in cases before the US District Court for the District of Puerto Rico must be in English or translated by a certified translator to be relied upon or by stipulation of the parties in lieu of the certified translation requirement.
X EMPLOYEE REPRESENTATION
Employees have a constitutional right to organise and bargain collectively through representatives. These rights are regulated through local and US federal laws.
The principal law governing relations between unions and employers in the private sector is the US National Labour Relations Act of 1935, as amended (NLRA). The NLRA created the National Labour Relations Board (NLRB) as the statute's administering body. The NLRA guarantees the rights of employees to organise and to bargain collectively with their employers, and to engage in other protected concerted activities with or without a union, or to abstain from all such activity. The NLRB has jurisdiction over cases involving businesses engaged in activities affecting interstate commerce.
Act No. 130 of 8 May 1945, as amended (Puerto Rico's Labour Relations Act; Act 130), establishes collective bargaining as a public policy. It is inspired by the NLRA and was enacted to promote collective bargaining principles, reduce certain labour disputes and to enhance economic productivity.
Act 130 created the Puerto Rico Labour Relations Board (PRLRB), a quasi-judicial body of limited jurisdiction authorised to consider and adjudicate labour disputes. The scope of the PRLRB's authority includes determination and recognition of employees' representatives and appropriate units of workers for collective bargaining, investigation of controversies regarding representation, consideration of illicit labour practices and enforcement of mediation decisions.
There is no fixed ratio of representatives to employees.
Either the Puerto Rico Regional Office of the NLRB or the PRLRB oversees union representation elections. A labour organisation interested in becoming an exclusive representative of a group of employees must file a petition of investigation and representative certification before either body. After this petition is filed, the Board initiates an investigation of the case and determines whether elections are warranted. Elections are only held for 'appropriate' bargaining units of employees. To form such a unit, employees must have common interests, that is, be subjected to similar policies, and terms and conditions of employment and supervisors. Elections may be celebrated by consent of the parties, by order of the President of the Board, or by the Board via a decision and order.
Elections may be held by virtue of an agreement between the employer and the labour organisation. When the parties cannot agree on elections, the President of the Board may order a public hearing or may also order the parties to hold elections pending a public hearing. After the public hearing is held, the case is transferred to the Board so that it may resolve the issue between the parties.
When elections are to be held, the Board requires employers to post a notice of elections in visible places, in and outside the employer's business. These notices must include the name of the employer, the time and place of the elections, and a detailed description of the categories of eligible and non-eligible voters of each unit.
When a labour organisation obtains the majority of votes in an election, it receives a representative certification. The representative is given a status of immunity for 12 months following the elections. This means that no labour organisation may petition to represent the same group of employees for at least a year after elections are held.
After the union is certified, the employer and the union have an obligation to bargain collectively in good faith with a genuine objective to reach agreements. Employers are prohibited from engaging in a wide range of unfair labour practices such as retaliation against employees for organising or supporting a union, surveillance of union activity, offering benefits to employees in exchange of opposing union activity and questioning employees about their feelings toward union activity.
In June 2018, the Supreme Court of the United States ruled that states and public-sector unions may no longer extract agency fees from non-consenting employees.2 The First Amendment is violated when money is taken from non-consenting employees for a public-sector union; employees must choose to support the union before anything is taken from them. Accordingly, neither an agency fee nor any other form of payment to a public-sector union may be deducted from an employee, nor may any other attempt be made to collect such a payment, unless the employee affirmatively consents to pay. This change has the same effect in Puerto Rico.
XI DATA PROTECTION
i Requirements for registration
Puerto Rico does not have a formal data protection agency or government body responsible for supervising the collection, use and dissemination of employees' personal information gathered by a public or private corporation. The right to privacy, nonetheless, is recognised under the Constitution. Additionally, local and federal laws recognise the confidential nature of certain information gathered by businesses. Depending on the nature of the information, a higher or lesser degree of confidentiality and reasonableness is applicable to employees' employment records and private data.
ii Cross-border data transfers
Companies do not need to register for purposes of cross-border data transfer of an employee's personal information. To the extent records and information transferred include employees' private data, a company must take necessary steps to protect it from indiscriminate or public disclosure. The applicable standard should be that of a prudent business person.
iii Sensitive data
Various federal and local employment laws specify the confidential information employers must protect from public disclosure.
The US federal Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act, as amended, and their local counterparts, protect employees' genetic, medical and health-related information, and data in the employment context, or relating to disabilities or requests for accommodation (or both). This information must be kept in separate records. Enforcement guidance issued by the EEOC under the ADA, and applicable in Puerto Rico, concerning disability-related enquiries and medical examinations of employees suggests that any medical information concerning employees' disabilities must be treated as confidential. Employers may share such information in limited circumstances with supervisors, safety personnel and government officials investigating compliance with the ADA.
Additionally, Act No. 207 of 27 September 2006 prohibits employers from using an employee's social security number for identification purposes and requires safeguards to protect it from undue disclosure. An employer may only transfer social security numbers electronically when there are sufficient safeguards to protect their confidentiality.
Puerto Rico's legislation prohibiting discrimination owing to sexual orientation and gender identity also requires employers to keep information about gender identity and sexual orientation confidential. A similar protection from disclosure is afforded to information gathered during an investigation to protect a domestic violence victim who is at risk in the workplace, or who is alleging discrimination. Employers must take reasonable measures to prevent disclosure of the confidential information to persons without a need to know.
Furthermore, Act 59 requires employers who perform drug tests to job applicants and employees in the private sector to treat test results and related data confidentially. Also, to the extent Form I-9 for employment eligibility contains personal information about employees, the US Citizenship and Immigration Service recommends that employers provide adequate safeguards to protect it.
Finally, the privacy and security provisions of the US federal Health Insurance Portability and Accountability Act of 1996 apply to employers who are covered entities in Puerto Rico.
iv Background checks
Employers can perform background checks (including criminal and credit checks) on job applicants and current employees, subject to legal parameters. Employment decisions that consider the results of background checks cannot have an adverse impact on a category protected from discrimination. The PRSC has held that not hiring an applicant based on his or her criminal record may constitute social-condition discrimination. In that regard, employers are required to assess different factors to make employment decisions involving an individual with a criminal record. Despite initiatives by the US government to promote removing from employment applications the check box or enquiries about applicants' criminal records (a campaign also known as 'ban the box'), Puerto Rico does not have such a prohibition.
Employers must also comply with the US federal Fair Credit Reporting Act of 1970 by notifying the applicant or employee of the possibility of using their background report for employment decisions; getting their written permission; and certifying compliance to the reporting agency. If an employer takes an adverse employment action based on the background report, it shall provide a copy of the report to the job applicant or employee and a notice of rights with the contact information of the consumer reporting agency. Its Puerto Rico counterpart, the Credit Reporting Agencies Act, provides similar protections.
Subject to limited exceptions, areas outside the scope of review include job applicants' or employees' genetic, medical and disability-related information. Considering other categories revealed in background checks, such as filing for bankruptcy, military service or discharge records, may also expose employers to discrimination claims.
XII DISCONTINUING EMPLOYMENT
Act 80, known as the Unjust Dismissal Act, regulates employment termination of any person hired for an indefinite term. Puerto Rico is not an 'employment at-will' jurisdiction. Thus, an indefinite-term employee discharged without just cause is entitled to receive a statutory discharge indemnity (or severance payment) based on the length of their employment and a statutory formula. The LTFA amended Act 80 to implement the equivalent of a nine-month salary cap to the statutory formula, applicable to employees hired on or after the enactment of the law on 26 January 2017. Employees hired prior to the LTFA, preserve their rights to receive a severance payment under the prior statutory formula.
Act 80, as amended by the LTFA, defines just cause for dismissal as:
- the employee's engagement in a pattern of improper or disorderly conduct;
- the employee's failure to work efficiently, working belatedly and negligently, or in violation of quality and security standards of the product handled by the establishment; lack of competence and inability to perform the reasonable requirements of the employer; and if the employee is the subject of complaints received from clients;
- the employee's repeated violations of reasonable written rules established for the operation of the business, provided a written copy of the rules had been given to the employee;
- full, temporary or partial closing of the establishment's operations. If the employer has more than one office, factory, plant or branch, the full, temporary or partial closing of the operations of any of the establishments where the employee works will constitute just cause for termination, subject to additional considerations established by the law;
- technological changes or reorganisations, as well as changes of style, design or the nature of the product made or handled by the establishment, and changes in the services rendered to the public; or
- reductions in employment made necessary owing to a drop in the volume of production, sales or profits, anticipated or prevalent at the time of the discharge or with the sole purpose to increase business' competitiveness or productiveness.
Unless the employee engages in gross misconduct (e.g., physical violence, fraud or stealing under certain circumstances), a first offence or reasons unrelated to the proper and normal operation of the establishment shall not constitute just cause. Written progressive disciplinary or corrective actions are highly recommended and normally required. Generally, however, employers are not required to give written notice of the dismissal to the employee or the government.
Act 80 provides the exclusive remedy for indefinite-term employees whose employment is terminated without just cause but does not bar independent causes of action based upon torts, violation of constitutional rights or arising from other legislation prohibiting discriminatory employment and retaliation. In those cases, employees may be entitled to job reinstatement and other remedies for damages. Categories protected from discrimination in Puerto Rico include: disability; sex; age; race; colour; marital status; political affiliation or political ideas; religious beliefs; national or social origin; social condition; pregnancy; genetic information; union affiliation; being, or being perceived as, a victim of domestic violence; stalking or sexual aggression; sexual orientation or gender identity; and veteran status. Local and US federal laws also prohibit retaliation.
The LTFA expressly allows waivers of Act 80 rights and settlement of the severance payment once the termination of employment has occurred the intention to terminate has been notified. The waiver must be made pursuant to a valid settlement transaction agreement that complies with legal requirements.
In essence, Act 80, and local and federal anti-discrimination and anti-retaliation statutes, regulate redundancies in Puerto Rico. Redundancies have to respond to legitimate and non-discriminatory business reasons. The Age Discrimination in Employment Act has important provisions to protect employees over the age of 40 affected by different redundancy scenarios.
Employers must also comply with Act 80 when they have group lay-offs because of any of the following:
- a full, temporary or partial closing of operations;
- technological or reorganisation changes;
- changes to their products' style, design or nature;
- changes in the employer's services rendered to the public; and
- necessary employment reductions because of reduced production, sales or profits or with the purpose to increase business' competitiveness or productiveness.
Because the above circumstances are considered just causes to terminate employment, no compensation or offers of alternative employment are required.
Under a more flexible Act 80 after the enactment of the LTFA, if there is a group lay-off, an employer must determine who is to be discharged based on a worker's employment seniority within the affected occupational classification or their performance, efficiency or capacity. Certain rules apply to employers with multiple establishments. Act 80 also provides recall rights for six months following a group lay-off if the same or similar work is needed during that time.
Puerto Rico has no law setting notice requirements for group lay-offs. The US Worker Adjustment and Retraining Notification Act, however, requires most employers with 100 or more employees to give notification of 60 calendar days before a plant closing or mass lay-offs. Notice must be given to employees, employees' representatives, the local chief elected official and the state dislocated worker unit.
XIII TRANSFER OF BUSINESS
Act 80 specifies the protections granted to employees and employers' obligations when transferring a business. Under Act 80, a former employer and seller is responsible for the severance payment to employees who are not retained by the seller or hired by the buyer in the transfer of a business as a going concern. Act 80 mandates the buyer to retain from the purchase price an amount equivalent to the severance payments owed. If the seller does not pay severance, the buyer could then become liable toward terminated employees if deemed a 'successor employer'. A similar rule applies by virtue of case law to other employment-related liabilities toward the discharged employee (e.g., unpaid wages).
If the buyer chooses to transfer and continue using the services of any employee of the seller, it can also be considered a successor employer. Where a transferred employee is later terminated without just cause, the successor employer is responsible for the severance payment provided by Act 80. The total years of service of the employee under the former and successor employer will be considered to calculate the payment. Also, see Section III.ii on Roldan Flores.
Puerto Rico's employment law panorama has seen substantial change since the enactment of the LTFA almost two years ago. Having overhauled Puerto Rico's employment statutory and regulatory scheme by amending or eliminating more than 12 labour statutes, the LTFA is dictating litigation strategies, motions practice, and compliance and preventive advice by employers' attorneys in an attempt to have a more employer-friendly application of the law. State courts and government agencies, influenced by years of employee-friendly interpretations, however, are expected to continue to have a hard time adopting the new legislative objectives of flexibility sought by the LTFA. We are already seeing the dichotomy between the more lenient, legislative intent of the LTFA and new regulations being approved by the PRDLHR. This will continue to generate employment-related litigation that will affect and most likely transform employment law practice in coming years.
Nothing has been more impactful, however, than the changes to the workplace resulting from Hurricanes Irma and Maria, which hit Puerto Rico in September 2017 only two weeks apart, the effects of which are still being felt. These devastating phenomena put justice and many lives on hold after destruction of the island's infrastructure forced employers and the entire government, including the courts, to shut down in a manner and for a length of time never seen before. In finding more creative solutions to workplace issues and confronting challenges posed by this new reality, new opportunities surfaced. While the dire circumstances brought about an exodus of Puerto Ricans by the hundreds of thousands, operational closings, reductions in force and job losses, opportunities also proliferated in various sectors, including construction, infrastructure recovery, insurance and claims adjusting, safety and security, business immigration and work-related visas, US federal government contractors, and personal investments and entrepreneurship.
We have continued to adapt and transform legal services because of these major natural and legislative events. This transformation and a swift adaptation to change must be long-term as the country prepares for other significant events and situations, including the Puerto Rico tax reform; a damaged economy and infrastructure that will continue to benefit from a generous economic influx from the private and international sectors, as well as the US federal government, in an effort to renovate and reconstruct the island; continued and extreme policy changes implemented by the Trump administration that have a direct impact on workplace law, most of which are beneficial for employers and corporate interests; a growing movement in favour of equality, women's rights and protection from sexual harassment; and the uncertainty of the legitimacy of the medical cannabis industry. There is no doubt that employee handbooks and workplace policies and practices will need to be revised or rewritten, and that management training will become a priority as we prepare for a new labour law era.