Latest update: On 3 March 2022, Act No. 41-222, which amends certain provisions of the 2017 Labor Code, was declared null and void by a federal judge. The decision reinstates the employer-friendly provisions that the 2017 Labor Reform enacted. Employers should amend their employment policies and practices to ensure compliance.
Employers with 50 or fewer employees and a gross annual income of less than 10 million per year will be required to comply with the new legislation by 20 September 2022 (90 days from the Act’s entry into force). Employers with 50 or more employees were required to comply by 20 July 2022.
Key details
The most relevant employees’ rights introduced by the new legislation include the following:
Statute of limitations
The Act reinstates the pre-2017 Labor Reform statute of limitations for claims related to wages, leave, breach of contract and wrongful terminations from one year back to the previous limitation of three years.
In addition, the Act provides that ambiguous or unclear clauses in employment contracts shall be interpreted in favor of the employees.
Electronic signatures
The Act provides that electronic signatures and electronic acceptances of employment contracts are as legally binding as written signatures and acceptances.
Probationary period
The Act reduces the automatic probationary period from nine months (12 months for certain categories of employees) to 90 days for all employees. The reduced automatic probationary period may be extended an additional 90 days subject to the submission by the employer of a written notice to the Puerto Rico Department of Labor and Human Resources. When requested, the extension is automatic.
Severance payment calculation formula
In the event of wrongful termination, the calculation of severance pay will be subject to the following caps:
- For employees with fewer than 15 years of service: base of three months of pay plus two weeks’ pay for each year of service
- For employees with 15 years of service or more: base of six months of pay plus three weeks’ pay for each year of service
Vacation and sick leave accrual rules
The Act reinstates the minimum number of working hours required to qualify for paid sick leave and vacation leave to 115 hours per month (instead of the current 130 hours).
The changes to accrual rates apply to nonexempt employees who are compensated on an hourly basis, and as stipulated by the federal Fair Labor Standards Act. The change doesn’t apply to exempt employees including managerial employees, government workers and field workers.
Nonexempt employees working for employers with 12 or more employees will be subject to the following accrual rates:
- 1.25 days regardless of the date of hire for full-time employees working 115 hours or more per month. Paid sick leave accrual remains at one day per month of service.
- Nonexempt part-time employees working more than 20 hours per week but less than 115 hours per month will accrue a half day per month for annual leave and a half day per month for sick leave.
Nonexempt employees working for employers with fewer than 12 employees will have the following accrual rates:
- Nonexempt part-time employees working more than 20 hours per week but less than 115 hours per month will accrue a quarter of a vacation day and a half day of sick leave per month.
- Nonexempt full-time employees working 115 hours or more per month will accrue half of a vacation day and a half day of sick leave per month.
In addition, nonexempt employees will be able to request pay in lieu of all or a portion of their unused annual leave instead of only unused annual leave in excess of 10 days.
Christmas bonus
The Act reinstates the minimum required working hours to be eligible for the mandatory Christmas bonus to 700 hours per year, instead of 1,345 hours per year. Eligibility for the mandatory Christmas bonus for small or medium-sized employers remains at a minimum of 900 working hours per year. Eligibility for the annual Christmas bonus can vary by date of hire and company size.
Meal period
Employees will be required to take their meal period between the third and the sixth hour of work unless otherwise agreed upon between the employer and the employee. In addition, employees who work fewer than six hours per day will no longer be allowed to waive their meal breaks.
Next steps
Employers should engage with their legal counsel to review and amend their internal policies, procedures, handbooks, and contracts to ensure compliance with the amendments to the 2017 Labor Code, within the expected timeline.
