On January 26, 2017, Governor Ricardo Roselló-Nevarez signed into law what will be known as the Employment Transformation and Flexibility Act ("Act"). This Act will become in effect immediately.
The following are the most relevant changes included in the Act. It is not intended to be an exhaustive analysis of it:
Employment ContractsThe Act establishes a definition of what constitutes an employment contract and establishes a presumption as an independent contractor if certain criteria are met.
Employment contracts can be verbal or written unless otherwise specified by law. In addition, employment contracts can be written in any language as long as the language used is known by the employee.
Electronic signatures of acknowledgment of receipts, acceptances, and general signatures will be valid in all employment-related contracts and documents.
The statute of limitations for claims and benefits derived of the employment contract will be one year, counted from the moment the cause of action arises, unless otherwise stated by a special law or by the employment contract.
Claims that arose prior to the effective date of the Act will have the previous applicable statute of limitations.
The Act defines the term "temporary employment contract" more broadly and establishes that a contract, for a fixed term, will be presumed to be bona fide and valid if it does not exceed a term of three years.
Probationary PeriodThe Act establishes an automatic probationary period of nine months, with the exception of those exempt employees classified as executives, administrators, and professionals, pursuant to the Fair Labor Standards Act (“FLSA”), that will provide an automatic probationary period of twelve months.
The automatic probationary period will apply prospectively to the effective date of the Act.
The parties may agree to a probationary period lower than the established by the Act.
The probationary period will not limit the accrual of vacation leave.
These employees accrue vacation leave after six months of employment and will be retroactive to the date of hire.
Overtime includes the following:
a) Daily overtime in excess of eight hours a day, which will be computed based on a calendar day instead of any twenty-four hours’ consecutive period.
b) The hours an employee works in excess of forty in any week of employment.
c) The hours that an employee works for the employer during the days and hours in which the establishment should remain closed to the public by mandate of law. However, the hours worked on Sundays, when by mandate of law the establishment should be closed to the public, will not be considered overtime for the mere fact of having worked during that period.
d) The hours worked by an employee for the employer on the weekly day of rest.
e) The hours the employee works for the employer in excess of the daily maximum of hours established in a collective bargaining agreement.
For employees hired after the enactment of the law, the Act provides that the overtime pay rate is at “time and a half” the regular hourly rate, regardless of whether the employer is covered by the FLSA. The pay will remain the same for employees hired prior to the effective date of the Act and who had superior benefits for overtime pay.
The Act provides for alternative weekly schedules with workdays of up to ten work hours, so long as the hours worked during a weekly period are not in excess of forty hours. For example, a work schedule could be structured as four workdays of ten work hours each, with a day off, and no overtime would be due. However, should the workday exceed ten hours, the employer must pay any overtime work performed at a rate of “time and a half” the regular hourly rate.
The voluntary and agreed alternate weekly schedules may be amended by the parties at any time and can be unilaterally terminated by one party after one year of its adoption.
In addition, the Act allows an employee to replace work hours not worked due to personal reasons and establishes that such hours will not be considered for purposes of computing overtime if replaced during the same workweek, as long as it does not exceed twelve hours in a workday or forty hours in a workweek.
Meal PeriodThe meal period will commence not before the conclusion of the 2nd hour of work, neither after the beginning of the 6th consecutive hour of work. In those cases in which the total of hours worked by an employee is no more than six hours a day, the meal period may be waived.
For employees hired after the enactment of the Act, the meal period penalty will be paid at “time and a half” the regular rate of pay.
Those employees hired prior to the effective date of the Act will preserve their right to a higher rate of pay for the meal period penalty.
Day of RestFor employees hired after the enactment of the Act, any work done by an employee on the day of rest will be paid at “time and a half” the regular rate of pay.
Those employees hired prior to the effective date of the Act will preserve their right to a higher rate of pay for the day of rest.
Vacation and Sick LeaveThe Act provides a “grandfather clause”, by which employees hired prior to the effective date of the Act will continue to accrue vacation and sick leave previously applicable.
For employees hired after the enactment of the Act, lower accrual rates for both vacation days and sick leave are incorporated based on a new formula established by the Act.
The Act also increases, from 115 hours to 130 hours, the number of hours an employee must work in a month in order to accrue vacation days and sick leave.
Vacations will be accrued as follows:
a) ½ day during the 1st year of employment
b) ¾ day during the 2nd to the 5th year of employment
c) 1 day after the 5th year of employment, up to the 15th years of employment
d) 1¼ days after 15 years of employment
For employees hired after the enactment of the Act, sick leave will be accrued at a minimum of one day a month, for a total of twelve days a year.
Employers residing in Puerto Rico which have a payroll that does not exceed twelve employees, the monthly accrual of vacation for employees hired after the enactment of the Act will be ½ a day a month and will cease the next calendar year that the payroll exceeds twelve employees during more than twenty-six weeks in each of the two consecutive calendar years.
Sick leave will be accrued at a minimum of one day a month, for a total of twelve days a year.
The Act establishes that the statute of limitations for wage and hour claims will be one year instead of three years, as previously applicable.
Christmas BonusFor employees hired after the effective date of the Act, every employer who employs more than twenty employees during more than twenty-six weeks within the twelve months comprised between October 1st to September 30th of the subsequent calendar year, will have to pay each employee who has worked at least 1,350 hours or more within the stated period a bonus equivalent to 2% of the amount earned, up to $600.00.
In cases where an employer employs twenty or less employees for more than twenty-six weeks within the twelve months comprised between October 1st to September 30th of the subsequent calendar year, will have to pay each employee who has worked at least 1,350 hours or more within the stated period a bonus equivalent to 2% of the amount earned, up to $300.00.
In addition, the required bonus will be 50% of the amount herein stated during the 1st year of employment.
The Christmas Bonus should be paid normally between November 15th to December 15th of each year.
The Act establishes that other bonuses paid to employees during the year in question may be accrued and deducted from the Christmas bonus, so long as the employee is informed in writing by the employer.
Right to Participate in Religious ServicesThe Act establishes a "reasonable accommodation" for employees and employment candidates who, as part of their religious freedom or equivalent, request to participate in religious services.
The employee must give the employer prior written notification in order for the employer to make the necessary adjustments in the workplace.
Employers are not allowed to penalize, harm or in any other way, deny employees the right to assist to religious services.
Employers are only allowed to deny said accommodation based on undue hardship.
Unjust DismissalFor employees hired after the enactment of the Act, the severance payment for unjust dismissal established in Act No. 80 of May 30, 1976, is amended as follows:
a) an amount equivalent to three months' salary as long as the employee has complied with the automatic probationary period of nine months, or the different probationary period that the parties may have stipulated; and
b) a sum equivalent to two weeks of salary for each completed year of service. In no case the indemnification required by Act No. 80 will exceed the salary corresponding to nine months. This nine months' limit will not be applicable to employees hired prior to the effective date of the Act. The severance payment for employees hired before the effective date of the Act will be computed based on the previous formula established by Act No. 80.
Any severance payment or indemnification provided by this law, in addition to any voluntary payment equivalent to the severance payment paid by the employer due to the dismissal of an employee, will be exempt from the payment of income tax. Any amount paid in excess of the severance payment will be subject to the payment of income tax.
The Internal Revenue Code of Puerto Rico is amended to exclude from the definition of “gross income” the following: the compensations and indemnifications received by an employee due to dismissal, without it being necessary to determine just cause, up to a maximum equivalent to the severance payment that an employee may receive pursuant to Act No. 80 of May 30th, 1976.
The statute of limitations for the filing of unjust dismissal claims will be one year after the effective date of the dismissal. If the employment termination occurred prior to the enactment of the Act, the applicable statute of limitations remains three years.
Breastfeeding Mothers’ ActThe Act clarifies, pursuant to the applicable case law, that the designated place for the extraction of milk must guarantee a breastfeeding mother's privacy, safety, and hygiene, and the place must have power outlets and ventilation.
The Act grants part-time employees the right to extract milk. If the employee works part-time and the daily work shift exceeds four hours, the period for the extraction of milk will be thirty minutes for each period of four consecutive hours of work.
The period for the extraction of milk for mothers who work in excess of 7½ hours a day remains unchanged.
Worker’s Compensation (“FSE”) and SINOTThe Act establishes that the saving of employment for both FSE and SINOT will be for six months for those employers with fifteen or less employees at the time of the accident. For those employers with more than fifteen employees, the saving of employment for both FSE and SINOT will be for twelve months.
Discrimination and Retaliation ClaimsThe Act eliminates the presumption of discrimination in unjust dismissals.
The Act standardizes the amount of damages for compensatory and punitive damages that an employee may recover for illegal discrimination and retaliation in the employment, based on the number of employees, as stated in the Title VII of the Civil Rights Act and the Americans with Disabilities Act:
a) Less than 101 employees: $50,000
b) 101 to 200 employees: $100,000
c) 201 to 500 employees: $200,000
d) 501 employees or more: $300,000
The double penalty of damages provision in Puerto Rico employment discrimination statutes remains unchanged.
The Closing LawThe Closing Law, which required certain retail establishments to be closed on determined dates, was repealed. Also, the premium rates previously applicable to employees working on Sundays were repealed. An exception to this law is those retail establishments which prior to the enactment of the Act were required to close on Good Friday and Easter Sunday will be required to remain closed.
Should you have any questions regarding any of these changes or need a detailed analysis on how it applies to your particular business, please contact Atty. Lizette Vélez-Rivé at 787-289-9250 or by email at email@example.com.