The Commonwealth of Puerto Rico is a jurisdiction that is highly protective of employees’ rights, which are liberally interpreted in their favour. From those 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 of America, 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 are extensive to the employment context. A similar duality exemplifies Puerto Rican courts of law. Here 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 Labor and Human Resources of Puerto Rico (PRDLHR) is responsible for the administration of Puerto Rico’s 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’s) state counterpart that handles discrimination complaints.
To further facilitate their access to the judicial system, employees in Puerto Rico count on a special proceeding to file employment-related lawsuits in state courts pursuant to Puerto Rico Act No. 2 of 17 October 1961 (Act 2), 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
The labour and employment front in 2016 presented challenges to US and Puerto Rico employers alike from a wage and hour law perspective. Major regulatory changes in the US to increase the salary level of white-collar workers (i.e., administrators, professionals and executives exempt from overtime pay) were expected to apply in Puerto Rico and put the human resources management community in a state of alert. The amendments to US Department of Labour’s federal regulation (the US Federal Regulation) (29 CFR 541) under the US Fair Labour Standards Act (FLSA) (29 USC § 201 et seq.) governing overtime exemptions would have more than doubled the required salary to qualify for an exemption in Puerto Rico. Thus, they called for a revision of exempt employees’ classifications, potential reclassification to non-exempt positions paid on an hourly basis and an overhaul of their compensation. On 30 June 2016, however, Public Law No. 114-187, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) became effective. PROMESA addresses Puerto Rico’s debt by establishing a Financial Oversight and Management Board (the Board) to assist the government of Puerto Rico in administering its public finances and economic situation.
Among other provisions, PROMESA covers the applicability to Puerto Rico of the amendments to the US Federal Regulation. The amendments were set to go into effect on 1 December 2016. Under Section 404 of PROMESA, however, the US Federal Regulation shall not apply in Puerto Rico until two things occur. First, the Comptroller General of the US has to complete an assessment of Puerto Rico’s economic conditions and prepare a report to Congress assessing the impact of applying the regulation to Puerto Rico, taking into consideration regional, metropolitan and non-metropolitan salary and cost-of-living differences. The Comptroller has two years, until June 2018, to do so. Second, the Secretary of Labour, taking into account the assessment and report of the Comptroller General, has to provide a written determination to Congress that applying the rule to Puerto Rico would not have a negative impact on its economy. As of November 2016, however, the amendments to the US Federal Regulation were challenged in the US through an injunction in the state of Texas, temporarily halting its overall applicability. Puerto Rico employers should still remain attentive to developments since compensation changes may eventually be required. They should also be alert because PROMESA empowers the Governor of Puerto Rico, subject to the Board’s approval, to lower the minimum wage of employees aged 25 and younger to no less than US$4.25 per hour for no more than four years. Certain anti-retaliation provisions were also included.
A major renovation of Puerto Rico’s employment-related legislation came about on 26 January 2017, with the enactment of the Labour Transformation and Flexibility Act (LTFA). The LTFA changed numerous Puerto Rico laws relating to the hiring and contracting of personnel and independent contractors, wages and hours, overtime compensation, flexible and alternate work schedules and working conditions, leaves of absence, breastfeeding breaks, rest periods, unjust dismissals, Christmas bonuses, protection from discrimination and retaliation, religious accommodation, waivers, statutes of limitation and employment-related taxes, among other things. It also eliminated all Mandatory Decrees of Puerto Rico’s Minimum Wage Board and repealed the Closing Law, Act No. 1-1989, applicable to the operation of retail establishments. The enactment of the LTFA responded to an interest to make Puerto Rico a jurisdiction that is more competitive and attractive to do business in, increase job creation and balance the interests of employers and employees. In essence, many of the LTFA provisions will result in a reduction of new employees’ statutory benefits and protections. Its applicability to new employees and those working before the LTFA’s enactment varies. Thus, its enactment requires employers to reassess and determine if changes to employees’ compensation schemes and companies’ human resources management practices, policies, training and payroll systems are warranted. We address throughout this chapter some of the LTFA’s most salient changes.
Other significant developments in our jurisdication include the following:
- a Amendments to Puerto Rico Minimum Wage, Vacation and Sick Leave Act, Act No. 180 of 27 July 1998, as amended, (Act 180) effective 31 December 2015, require employers with 15 or more employees to allow non-exempt employees to use up to five days each year of their statutory sick leave to care for qualified family members, provided they maintain a balance of at least five sick days. ‘Family members’ include the employee’s child, spouse, mother, father, and minors, persons age 60 and above or disabled persons of whom the employee has legal custody or guardianship (RR Laws Annt. Tit. 29, §250d(n)).
- b On 1 July 2016, Act No. 254 of 31 December 2015, became effective to regulate the nursing profession, establish a New Board of Nurse Examiners, regulate the issuance of licences or certificates, and establish penalties, among other things. Per Act 254, employers must comply with multiple requirements regarding recordkeeping, the recruitment, supervision of their nursing professionals, among other responsibilities.
- c Amendments to the Act Against Stalking in Puerto Rico, per Act No. 99 of 28 October 2016, expanded the protection of victims of domestic violence to allow employers to seek a court order to protect employees who are victims of stalking and similar criminal conduct defined by the law that occurs at work or its surroundings. Employers must inform victims of their intent to obtain the order.
III SIGNIFICANT CASES
i Employers’ obligations to provide proper breast-feeding facilities and breaks
In Jacqueline M Siaca v. Bahía Beach, 2016 TSPR 11, the Supreme Court of Puerto Rico pressed upon the employer’s duty to provide employees who are breastfeeding an appropriate, private, hygienic and secure space to express breast milk during required breaks. Failure to do so now clearly constitutes a violation of the employee’s constitutional right to privacy and Puerto Rico’s Breastfeeding in the Workplace Law, which has a high price tag for employers.
ii Employers’ immunity under the Puerto Rico Workers Compensation Act
In Ortiz Jiménez v. Rivera Nuñez, 2016 TSPR 50, Puerto Rico’s Supreme Court interpreted the ‘statutory employer’ concept and its applicability when using the independent contractor business model for certain professional services contracts. In essence, the Court concluded that when a legal nexus exists between the actual employer and the one invoking immunity similar to that of an employer–employee relationship, the statutory immunity under Puerto Rico law may be extended to all employees along a contractual chain, no matter how extensive the contractual chain is.
iii Summary proceeding of employment claims
In Patiño Chirino v. Villa Antonio Beach Resort, 2016 TSPR 200, and in Medina Nazario v. McNeil Healthcare LLC, 2016 TSPR 36, Puerto Rico’s Supreme Court held that parties in cases filed pursuant to the summary proceeding of employment claims cannot file motions for reconsideration of judgments, orders or interlocutory determinations because they are not compatible with the expedited nature of the proceedings.
iv Statute of limitations for Act 80 and Act 100 claims
In Meléndez Rivera v. Corporación del Fondo del Seguro del Estado, 2016 TSPR 64, Puerto Rico’s Supreme Court clarified that the one-year statute of limitations applicable to discrimination claims under Puerto Rico Act No. 100 of 30 June 1959, as amended (Act 100), is tolled (or frozen) from the time the claimant-employee files a claim before the ADU, and starts running anew from either the notification of the resolution of the original claim or the resolution of a request for reconsideration, whichever happens last.
In Díaz Santiago v. International Textiles Products of Puerto Rico, 2016 TSPR 136, Puerto Rico’s Supreme Court clarified that filing an Act 100 discrimination claim before the ADU does not automatically toll (freeze) and restart the three-year statute of limitation applicable to unjust termination claims under Act No. 80 of 30 May 1978, as amended (Act 80) at the end of the administrative proceedings, because there is no identity of purpose between ADU proceedings under Act 100 and Act 80 court claims. The notification of the discrimination claim filed at the ADU, however, can toll Act 80’s statute of limitation if it complies with requirements of an extrajudicial claim, but will start to run anew from the time the qualified claim is notified, not from the time the ADU notifies the claim’s resolution.
v Liquidation of accrued and unused sick leave balances upon termination of employment
In Zayas Rodríguez v. Puerto Rico Telephone Co, 2016 TSPR 118, Puerto Rico’s Supreme Court held that Act 180 does not require private employers to liquidate accrued and unused sick leave balances to non-exempt employees upon their termination of employment, unless the employer provided such benefits in a voluntary policy.
vi Failure to exhaust administrative remedies
In González Méndez v. Acción Social de Puerto Rico, 2016 TSPR 180, Puerto Rico’s Supreme Court held that an employee must exhaust administrative remedies and file a claim before the EEOC or the ADU prior to filing a discrimination claim in court under the Age Discrimination and Employment Act of 1967, as amended. If the employee fails to do so, the court lacks subject-matter jurisdiction.
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 whether or not they are in writing. Under certain circumstances, it may be 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, reducing the need to have employment agreements in writing, there are still certain specific, employment-related obligations; however, that can only be validly established through a written agreement. For example, it is no longer a requirement to execute in writing temporary, termed and probationary employment agreements. The following, however, 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:
- a 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 vacation leave in excess of 10 days and to accumulate vacation leave in excess of one year.
- b Notice to pay the statutory Christmas bonus in advance of the 15 November to 15 December period or to credit towards the Christmas bonus any other bonus previously paid by the employer to the employee.
- c Non-competition agreements and some other restrictive covenants.
- d 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 in daily overtime liability.
ii Probationary periods
The laws of Puerto Rico authorise the hiring of new, indefinite term employees on a probationary basis. Prior to the enactment of the LTFA, probationary employment contracts had to be in writing and signed by the employee prior to engaging in any type of work. They also had to be for a fixed period not exceeding 90 calendar days and had to establish the specific dates when the probationary period commenced and when it ended. The LTFA created an automatic probationary employment period applicable to employees hired after 26 January 2017, of a 12-month duration for employees classified as executives, professionals or administrators, and of a 9-month duration applicable to all other employees, unless a shorter period was agreed. Except in the case of pregnant workers, during the probationary period, in general, the employer may discharge or terminate an employee without cause and without having to incur in the severance payment established by Act 80. The termination, however, cannot respond to discriminatory reasons.
iii Establishing a presence
A foreign company may not hire employees in Puerto Rico without being officially registered in 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 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 on a case-by-case basis 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 Puerto Rico Internal Revenue Code.
Effective 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, such 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.
Statutory benefits in Puerto Rico are vast and include those relating to wage and hours previously discussed, as well as a statutory Christmas bonus; unemployment insurance, workers accidents and non-occupational disability compensation; and, leaves of absence for maternity, adoption, breastfeeding, jury duty, renewal of a driver’s licence, participation in Olympic games, 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 Supreme Court:
- a They 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 those activities similar to the ones the employee performed during his employment.
- b The duration of the prohibition shall not exceed one year after termination of employment.
- c The object of the prohibition must be limited to activities similar to those performed for the employer.
- d 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.
- e The employee must receive adequate consideration in exchange of the prohibition.
- f 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.
There is no legislation controlling this type of agreement, except that the LTFA now expressly recognises the employee’s obligation not to compete with the employer’s business activity, unless it is otherwise provided by law or in an agreement with the employer.
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 our jurisdiction are entitled to more benefits than those provided by the FLSA. These benefits include payment for the following concepts:
- a hours worked in excess of eight or daily overtime;
- b hours worked in excess of 40 or weekly overtime (also recognised under US federal law);
- c hours worked during the meal period;
- d hours worked during the seventh consecutive day or day of rest;
- e statutory entitlement to vacation leave under Act 180; and
- f statutory entitlement to sick leave under Act 180.
Puerto Rico Act No. 379 of 15 May 1948, as amended by the LFTA, 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 Number 541, are occupational classifications excluded from the application of Act 379 as well as other wage-and-hour provisions.
Under Act 379, non-exempt employees are entitled to a one-hour, unpaid meal period. Per the LTFA, now the meal period can start after the second hour of work and 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, in some cases to 20 minutes, for the convenience of the employee, by means of a written stipulation.The agreement to reduce the meal period will be effective indefinitely; however, the employee and the employer may agree to restore the one-hour meal period after one year has elapsed from the execution of the written stipulation to reduce it.
Per Act 379, eight hours of work is the regular work day in Puerto Rico, while 40 hours is a regular work week. Employees are guaranteed a rest period of not less than 12 consecutive hours from the end of the work shift on the previous day and the beginning of the work shift the following day. 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 a period of 24 consecutive hours. With the passing of the LTFA and the repeal of Act No. 1 of 1 December 1989, as amended, also known as the Closing Law, work performed during Sundays in retail establishments is no longer considered overtime work subject to premium pay.
The current minimum hourly rate in Puerto Rico is $7.25 per hour. By virtue of company policies, 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 whether or not it was authorised.
The LTFA established a new uniform overtime rate of pay, equal to the one established by the FLSA, for non-exempt employees hired after 26 January 2017, at one-and-a-half times the regular rate of pay for hours worked in excess of eight hours during any calendar day (daily overtime) or hours worked in excess of 40 hours in a week (weekly overtime). Also, this uniform rate will apply to the hours worked during the non-exempt employees’ meal periods, days of rest and hours worked when the establishment is required to remain closed to the public.
Non-exempt employees hired prior to the enactment of the LTFA are entitled to superior benefits, including 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.
Because of its technical nature and combination of regulatory and statutory requirements, computation and payment of daily and weekly overtime is somewhat complex. Also, with the enactment of the LTFA, the determination of which overtime rate applies is not as clear, since it will depend on whether non-exempt employees were hired prior to or after the enactment of the law.
iii Alternate weekly work schedules, compensatory time and modified working conditions
The LTFA established three flexible-work arrangements. 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 in daily overtime liability. Work in excess of 10 hours per day will be considered overtime. Second, the LTFA also allows for compensatory time. That is, the employer may grant an employee’s request to make up for hours not worked in a workweek as a result 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 establishes a process by which employees who work 30 hours or more per week and have worked for at least one year for an employer, may request in writing changes of schedule, working hours or work location. There are requirements applicable to the response the employer must provide. Priority is given to employees who are heads 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 Form I-9 (Employment Eligibility Verification Form) to confirm that hired workers (citizens and non-citizens alike) are authorised to work in the US. 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 employment in the US and whether the same 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 (USCIS) on behalf of the beneficiary worker under one of the employment-based visa categories. The most common non-immigrant visa categories are:
- a H1B (workers in a speciality occupation);
- b H2B (temporary non-agricultural workers);
- c L1A (intracompany transferee in managerial or executive positions); and
- d L1B (intracompany transferee in positions utilising specialised knowledge), among other categories.
In general, Puerto Rico source income paid to a foreign worker will be subject 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, among other rights.
VIII GLOBAL POLICIES
The rules of conduct in an employee handbook play a significant role in our jurisdiction. The provisions of an employee handbook and other written norms, policies or benefits are considered part of the employment contract. Employees are not required to approve rules, but once 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. Thus, employers usually include 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 conducts, policies and procedures, since 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.
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).
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, Spanish and English are the official languages in Puerto Rico. Spanish is the native tongue of the vast majority of Puerto Ricans. Although English is taught as part of the academic curriculum in Puerto Rico schools, according to estimates, a low percentage of residents in Puerto Rico are able to speak, read and write English fluently.
Notwithstanding, 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, as well as documents pertaining to employees’ personnel records, among others, in Spanish. This recommended practice reduces the risk of employees subsequently challenging their obligations, employer’s 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 certified translator. The Puerto Rico court system permits the filing of documents in Spanish or English. Documents filed in cases before the United States District Court for the District of Puerto Rico must be in English or translated by a certified translator in order to be relied upon.
X EMPLOYEE REPRESENTATION
In Puerto Rico, employees have a constitutional right to organise and bargain collectively through representatives. These rights are also regulated through local and US federal laws.
The principal law governing relations between unions and employers in the private sector is the US National Labor Relations Act (NLRA) of 1935, as amended. The NLRA created the National Labor 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.
Puerto Rico Act No. 130 of 8 May 1945, as amended (known as Puerto Rico’s Labor 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 Labor 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, among others.
There is no fixed ratio of representatives to employees.
Either the Puerto Rico Regional Office of the NLRB or the PRLRB oversee union representation elections. A labour organisation interested in becoming an exclusive representative of a group of employees has to 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 held only as to appropriate bargaining units of employees. To form such a unit, employees must have common interests, that is, be subjected to similar policies, 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 of 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; questioning employees about feelings toward union activity.
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. Thus, companies are not required to register with such agency. The right to privacy, nonetheless, is recognised under the Constitution of the Commonwealth of Puerto Rico. 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 employee 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 Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA), as amended, and their local counterparts protect employees’ genetic, medical or health-related information and data relating to disabilities or requests for accommodations. 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 inquiries and medical examinations of employees suggests that any medical information concerning employees’ disabilities 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, Puerto Rico Act No. 207 of 27 September 2006, prohibits employers from using employees’ 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 due to sexual orientation and gender identity also requires employers to keep information about a 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 need to know.
Furthermore, Puerto Rico 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 employers to provide adequate safeguards to protect it.
iv Background checks
In Puerto Rico, 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 Supreme Court of Puerto Rico 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 Federal Government to promote removing from employment applications the check box or inquiries about applicants’ criminal records (a campaign also known as ‘ban the box’), Puerto Rico does not have such prohibition.
Employers must also comply with the Fair Credit Reporting Act of 1970 by: (1) notifying the applicant or employee of the possibility of using their background report for employment decisions; (2) getting their written permission; and (3) 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 such 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
Puerto Rico 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 after the enactment of the law. 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:
- a the employee’s engaging in a pattern of improper or disorderly conduct;
- b the employee’s failure to work efficiently, working belatedly and negligently, or in violation of quality standards of the product handled by the establishment. This also includes lack of competence and inability to perform the reasonable requirements of the employer and complaints received by clients;
- c 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;
- d full, temporary or partial closing of the establishment’s operations. In cases in which 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;
- e 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
- f reductions in employment made necessary due to a drop in the volume of production, sales or profits, anticipated or prevalent at the time of the discharge discharge, or with the sole purpose to increase business’ competitiveness or productiveness.
Unless the employee engages in gross misconduct (e.g., threats or 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. Generally, employers are not required to give written notice to the dismissed 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, color, marriage, 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 federal laws also prohibit retaliation.
Act 80 expressly prohibits waivers of its rights and declares void any agreement in which an employee waives the severance payment under it. Puerto Rico courts and the PRDLHR, however, have allowed settlement agreements that include Act 80 waivers for sums lower than the required severance payment and it is common practice to include this statute in release of claims agreements. Under the LTFA, the severance payment can now be settled if the legal elements of a settlement agreement are present.
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 US Age Discrimination in Employment Act, which applies in Puerto Rico, has important provisions to protect employees over age 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 a full, temporary or partial closing of operations;
- b technological or reorganisation changes;
- c changes to the product’s style, design, or nature;
- d changes in the employer’s services rendered to the public; and
- e necessary employment reductions because of reduced production, sales or profits.
Because the above circumstances are considered “just cause” to terminate employment, no compensation or offers of alternative employment are required.
Under Act 80, 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 his or her 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 60 calendar days before a plant closing or mass lay-offs. Notice is due 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 nor 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, such buyer 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.
Like in the United States, changes in Puerto Rico’s government administration will continue to bring significant changes in employment law as new political advocates assume public office. An extended and uncertain time frame for a proper recovery of Puerto Rico’s economy will continue to place a burden upon employers who will still have to consider workforce reorganisations, reductions of personnel or adopt trending practices (e.g., telecommuting, employees using their personal devices for work, reduced and more flexible work schedules) to achieve savings and increased employee engagement, retention and work–life balance. This uncertainty, along with the impact of the LFTA, however, may also create a potential of increased litigation in the employment context as a result of job losses and reduced employee morale. With time, nonetheless, relief to employers should come about through initiatives by the new US and Puerto Rico government to deregulate employment relationships to incentivise job creation, establishment of new businesses and economic stability in different industries.
Retaliation claims in Puerto Rico should continue to be a common cause of action as a result of increased whistle-blower protections at the US federal level, EEOC recent guidance, the recent amendments to Act 115 and the fact that multiple other local and US federal statutes provide such protection. To prevent exposure to such claims, employers should bolster policies and provide training to supervisors and management to create awareness and understanding about effects of these laws in the workplace. From a procedural perspective, in defending employers from allegations of retaliation under the amended Act 115, it will be crucial for defence counsel to persuade Puerto Rico courts to apply the evidentiary standard already adopted by the US Supreme Courts, which is more favourable to employers.
With heightened awareness of diversity issues concerning women’s equality and inclusion in decision-making positions, sexual orientation, gender identity and other minorities, and an active policing role of the EEOC, employers must also be eager to create more opportunities and innovative initiatives, as well as benefits targeting the retention and advancement of these groups. Proper training and updated and forward-thinking policies continue to be essential. This welcoming and proactive mentality can also be conducive to finding ways to engage, retain and intertwine the multiple generations converging in today’s workplace, which now include an ageing workforce, a large number of millennials and the oldest members of generation Z starting to work.
Also, as US and international investors are becoming increasingly attracted to Puerto Rico’s tax incentives, the new wave of smaller employers subject to local and US federal laws grows. The new medical cannabis industry has also made its local debut, generating an emerging area of legal practice that presents new challenges to employers. The authorised used of medical cannabis is already requiring employers to revisit policies and protocols on the drug-free workplace, disciplinary actions and whether to accomodate for employees who use it to treat debilitating conditions.
1 Katherine González-Valentín and María Judith (Nani) Marchand-Sánchez are partners, Luis O Rodríguez-López is a member, Tatiana Leal-González is a senior associate and Gregory Figueroa-Rosario is an associate at Ferraiuoli LLC.