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 more than 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 Puerto Rico Department of Labour and Human Resources (PRDLHR) is responsible for the administration of public policy relating 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
Labour and employment activity faced by Puerto Rico employers in 2019 ranged from US federal to state and local matters. At the federal level, activity was limited to agency regulatory developments. Challenges experienced in 2016 in respect of wage and hour law resurfaced with the issuance by the US Department of Labor (USDOL) on 24 September 2019 of a final overtime rule (the Final Rule), effective 1 January 2020. The Final Rule amended the regulation for overtime exemptions for white-collar employees. While the Final Rule increased the standard salary level from US$455 to US$684 per week for US workers, USDOL maintained the US$455 minimum weekly salary requirement for Puerto Rico given its economic climate at the time. The Final Rule also increased the salary for highly compensated employees and allows employers to use non-discretionary bonuses and incentive payments to satisfy up to 10 per cent of the minimum salary level to the extent that those payments are made at least once a year. It may be interpreted that these two changes apply to Puerto Rico, although the Final Rule does not specify this.
The National Labor Relations Board (NLRB) has also issued proposed rules and key decisions on various topics, namely, employees' right of free choice regarding union representation, joint employer test under the US National Labor Relations Act of 1935, as amended (NLRA), work rules, non-employee access to property, right to use an employer's equipment, including email and other IT systems, for Section 7 purposes of mutual aid and protection, among others. US immigration policy and enforcement remained a priority of US President Trump's administration, including, among other initiatives, increased audits of the Employment Eligibility Verification Form (Form I-9) and visa denials.
On the local front, the PRDLHR has joined forces with the Puerto Rico Women's Advocate Office and the EEOC to increase policing and auditing to verify employers' compliance with US federal and local laws on equal pay.
Other significant developments include the following:
- Act No. 83 of 1 August 2019 provides an unpaid leave of absence for up to 15 working days per year, which are neither cumulative nor transferable to the next year, for employees facing situations of domestic or gender-based violence, child abuse, sexual harassment in the workplace, sexual assault, lewd behaviour or stalking. The Act imposes upon employers the obligation to grant leave of absence to qualifying employees, maintain confidentiality of all information provided for the purposes of using the leave, with certain exceptions, reserve the employee's job position and reinstate the employee once the leave of absence has been exhausted, and advise employees about their rights.
- Act No. 150 of 8 October 2019 (an Act to Protect Employee's Credit Information) (Act 150) prohibits employers from taking adverse employment actions, including refusing to hire, dismissing, or otherwise discriminating against employees or employment candidates based on their credit report or credit history. Employers are also prohibited from verifying or ordering such reports from a credit agency. The prohibition does not apply to certain positions, such as management employees or employees in positions with access to financial or personal information of other individuals, positions for which a credit report is required by law, and those who require access to trade secrets (as defined by local law), among others. When requesting a credit report or history for these positions, the employee or applicant must provide written consent. Each violation of the Act exposes the employer to fines of between US$1,000 and US$2,500.
- The Secretary of the PRDLHR issued on 8 May 2019 the first edition of the Guidelines for the Interpretation of Puerto Rico's Labour Legislation. It is a compilation of historic and new interpretations of Puerto Rico's employment laws and regulations, with a focus on the Labour Transformation and Flexibility Act (LTFA) of 26 January 2017. Topics covered include religious accommodation, Christmas bonus, vacation time and sick leave, employment termination, discrimination, employment contracts, among others. While comprehensive in nature, the Guidelines do not create substantive or procedural rights. They may carry, however, important persuasive weight.
III SIGNIFICANT CASES
i Wrongful termination
In González v. Baxter Healthcare of Puerto Rico,2 the Puerto Rico Supreme Court held that an indefinite suspension pending the criminal trial of an employee accused of committing several felonies did not have to be considered an unjust dismissal under Puerto Rico's Unjust Dismissal Law, Act No. 80 of 30 May 1976 (Act 80). It also determined that an employee can be dismissed with just cause if found guilty of the felonies and that the presumption of innocence does not apply in the employment law context.
ii Exempt status of graduate nurses with associate degrees
In Unión General de Trabajadores v. Centro Médico del Turabo, Inc,3 the Puerto Rico Supreme Court held that graduate nurses with associate degrees were not entitled to overtime pay, concluding that graduate nurses are classified as 'professionals'. Thus, they are exempt from overtime pay under Act No. 379 of 15 May 1948 (Act 379), as amended, the US Fair Labor Standards Act (FLSA), and wage and hour regulations.
iii Counterclaims prohibition in employment claims filed under summary proceeding per Act No. 2
In Bacardí Corporation v. Evaristo Torres Arroyo,4 the Supreme Court of Puerto Rico ruled that the counterclaim prohibition under the summary proceeding for employment claims, pursuant to Act No. 2, does not preclude employers from claiming rights against the claimant employee through an independent lawsuit.
iv Arbitration clauses
In José Méndez et al v. Carso Construction,5 the Puerto Rico Supreme Court issued a judgment validating an arbitration clause covering a claim under Act 80. Although not precedential in nature, this holding means that an arbitrator can have original jurisdiction to hear an unjust dismissal claim, subject to a valid arbitration clause.
IV BASICS OF ENTERING INTO AN EMPLOYMENT RELATIONSHIP
i Employment relationship
Employment rights can stem from an employee handbooks, employment offer, collective bargaining agreement or 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 break, to fragment the use of vacation leave, to use non-working days as part of a 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; and
- voluntary agreements with non-exempt employees to establish alternative, 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 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 periodic 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 well as a statutory Christmas bonus, unemployment insurance, workers' accidents and non-occupational disability insurance compensation, and leaves of absence for maternity, adoption and breastfeeding, victims of domestic violence, child abuse, sexual harassment, assault, lewd behaviour or stalking, jury duty, renewal of a driving licence, participation in Olympic games and other world championships, appearance as a 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 Supreme Court of Puerto Rico (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 those the employee performed during his or her employment.
- The prohibition shall not last for more than one year following the 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 within which 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 prior to the termination of employment or during a period immediately before the termination, and who were still customers of the employer when the employee's employment ended.
- The employee must receive adequate consideration in exchange for 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 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:
- 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 break;
- hours worked during the seventh consecutive day or day of rest;
- hours worked in excess of the maximum number of working hours fixed in a collective bargaining agreement;
- 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 break for non-exempt employees. Administrators, executives, professionals, computer programmers and outside sales persons, as these terms are defined by Regulation No. 13 of the PRDLHR or US Federal Regulation No. 541, are some of the 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, alternative 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 break, 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 break. The meal break can start after the second consecutive hour of work and, to avoid a meal-break work penalty, it must also be scheduled before the beginning of the sixth consecutive hour of work. If a non-exempt employee's working day consists of no more than six hours, the meal break may be waived. If the employee works for a period exceeding 10 hours per day, the employee is entitled to a second meal break. This second meal break may be waived when a working day does not exceed 12 hours, provided the first meal break was taken by the employee.
The meal break 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 break 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 break.
According to Act 379, eight hours is the length of the regular working 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 for each period of 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 on Sundays in retail establishments is no longer considered overtime work subject to premium pay.
The minimum hourly rate is US$7.25 per hour. Through company policy, employers may establish limits to the 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 break, the day of rest, 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 Alternative 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 alternative 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 and 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, he or she works 30 hours or more per week, has worked for at least one year for the employer and has not made the same request in the six months since the employer's last response to such a request. 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 make the request. Priority must be given to employees who are head of a family who have legal or sole custody of their 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 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 a worker's identity and authorisation for employment in the United States. 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 United States 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 United States 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 United States will depend on the specific employment-based visa category under which the foreign worker was authorised for employment in the United States 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 United States. 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 transferees in a managerial or executive position); and
- L1B (intra-company transferees in positions requiring specialist knowledge).
In general, Puerto Rico source income paid to a foreign worker will be subject to local income tax withholdings at source and taxes under the US Federal Insurance Contributions Act. 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 the rules of conduct in the employee handbook, and provide a copy of the rules to employees.
Although not required in general, best practice is for employers to have and distribute written basic rules of conduct, policies and procedures, as they are important tools for managing 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 laws require 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.
IX PARENTAL LEAVE
Puerto Rico Act No. 3 of 13 March 1942 (Act 3) provides for maternity leave. Under Act 3, pregnant and adopting mothers (and some experiencing a miscarriage) are generally entitled to eight weeks of maternity leave paid by the employer (four weeks before the birth and four weeks afterwards, but typically subject to change depending on the employee's ability to work and medical certifications). If a pregnant employee suffers post partum complications and is still unable to work after taking all the weeks of post partum rest, she is entitled to additional unpaid leave of up to 12 weeks, provided that before the expiry of the extended rest period, she provides the employer with a medical certificate confirming the facts. The employee is entitled to reinstatement at the conclusion of the original and the extended leaves of absence and double damages for violations of Act 3.
Act 3 prohibits discrimination in employment because of pregnancy, childbirth and related medical conditions. It makes it unlawful for an employer to dismiss, lay off, reduce the salary or affect other conditions of employment for the aforementioned reasons, or because of the diminished productivity or a decrease in the quality of work performed by an employee while pregnant. Puerto Rico Act No. 69 of 6 July 1985 also protects pregnant women from employment discrimination.
State law does not provide for paternity leave. However, the US Federal Family Medical Leave Act applies in Puerto Rico and entitles eligible employees (male and female) of covered employers to take 12 weeks of unpaid, job protected leave for specified family and medical reasons, including:
- the birth of a child and the care of a newborn child during the first year;
- the placement with an employee of a child for adoption or foster care and to care for the newly placed child for the first year of placement; and
- to care for a child with a serious health condition.
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 are able to speak, read and write English fluently.
Notwithstanding this, there is no law that requires employers to maintain employment documents in Spanish or English. Nevertheless, many employers 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.
XI 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 NLRA. The NLRA created the 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 relevant 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 subject 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 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, both within 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 and the union becomes the exclusive representative of the bargaining unit. As such, unionised employers must refrain from dealing directly with individual employees regarding terms and conditions of employment. 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 meet at reasonable times to bargain collectively in good faith with a genuine objective to reach agreements regarding mandatory subjects such as wages, hours, vacation time, insurance, and safety practices. The employer and the union may also bargain with respect to other non-mandatory subjects relating to the terms and conditions of employment. 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 for opposing union activity and questioning employees about their feelings towards 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.6 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.
XII 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 employment records and employees' private data.
ii Cross-border data transfers
Companies do not need to register for the 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 that 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 this type of information in limited circumstances with supervisors, safety personnel and government officials investigating compliance with the ADA.
Additionally, Act No. 207 of 27 September 2006 and its regulation prohibit 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.
Further, Puerto Rico's legislation prohibiting discrimination based on sexual orientation and gender identity requires employers to keep information of this nature 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 confidential information to persons who have no need to know the information.
Furthermore, Act No. 59 requires employers who carry out drug tests on job applicants and employees in the private sector to treat the test results and related data as confidential. Also, to the extent that 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 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 on job applicants and current employees, subject to legal parameters in Section II of Act 150. Employment decisions that consider the results of background checks cannot have an adverse effect 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.
To the extent allowed by Act 150, 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 genetic, medical and disability-related information about job applicants or current employees. Considering other categories revealed in background checks, such as filing for bankruptcy, military service or discharge records, may also expose employers to discrimination claims.
XIII DISCONTINUING EMPLOYMENT
Act 80, known as the Unjust Dismissal Act, regulates employment termination of employees 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 Act 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;
- the employee's lack of competence or inability to perform the reasonable requirements of the employer;
- 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 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 a dismissal to the employee in question 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 circumstances, 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 or 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, redundancies in Puerto Rico are regulated by Act 80 and local and federal anti-discrimination and anti-retaliation statutes. 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 situations.
Employers must also comply with Act 80 when there are group lay-offs because of any of the following:
- a full, temporary or partial closing of operations;
- technological or reorganisation changes;
- changes to the style, design or nature of products;
- changes in the services being rendered to the public by the employer; and
- necessary employment reductions because of reduced production, sales or profits, or with the purpose of increasing 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 each 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 closure or mass lay-offs. Notice must be given to employees, employees' representatives, the local chief elected official and the state dislocated worker unit.
XIV TRANSFER OF BUSINESS
Act 80 specifies the protections granted to employees and the obligations of employers when a business is transferred. 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 towards discharged employees if deemed a 'successor employer'. A similar rule applies by virtue of case law to other employment-related liabilities towards discharged employees (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. If a transferred employee is later dismissed without just cause, the successor employer is responsible for the severance payment, as provided by Act 80. The total years of service of the employee under the former and successor employer will be considered in calculating the payment.
Neither of the foregoing legal doctrines will apply when a business completely ceases operations and all its employees are terminated. Also, see Roldan Flores v. M Cuebas.7
Puerto Rico's employment law panorama has continued to evolve since the enactment of the LTFA in January 2017. 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. While some state courts and government agencies are embracing change, some others, influenced by years of employee-friendly interpretations, continue to have a hard time adopting the new legislative objectives of flexibility sought by the LTFA. We continue to see the dichotomy between the more lenient, legislative intent of the LTFA and new regulations and guidelines approved by the PRDLHR. This will continue to generate employment-related litigation that will affect and most likely transform employment law practice in the coming years.
Nothing has had a greater effect, however, than the changes to the workplace and litigation following Hurricanes Irma and Maria, which hit Puerto Rico in September 2017 within two weeks of each other, the effects of which will take a long time to heal. 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, reduced litigation, operational closures, reductions in forces 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, contracting with the US federal government, and personal investments and entrepreneurship.
We have continued to adapt and transform legal services because of these major natural and legislative events. This transformation, resilience and swift adaptation to change must be long term as the country prepares for other significant events and situations, including:
- a historical movement that resulted in removing its governor in summer 2019;
- earthquakes rocking the south-west of Puerto Rico in 2020;
- an election year locally and in the United States;
- a struggling economy and a recovering 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 had 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 domestic violence; and
- the uncertainty of the legitimacy of the medical cannabis industry.
There is no doubt that preventive consulting, and revising and updating employee handbooks and workplace policies and practices will continue to be a priority, as will management training in this transformed era of labour law.
1 Katherine González-Valentín and María Judith (Nani) Marchand-Sánchez are capital members, Patricia M Marvez-Valiente is a special counsel, Gregory J Figueroa-Rosario is a senior associate and Gisela E Sánchez-Alemán and Nicole G Rodríguez-Velázquez are associates at Ferraiuoli LLC.
2 2019 TSPR 79.
3 2019 TSPR 126.
4 2019 TSPR 133.
5 2019 TSPR 19.
6 Janus v. AFSCME, Council 31, 138 S. Ct. 2448, 2459.
7 199 DPR 664 (2018).