The Labor Transformation and Flexibility Act dramatically changes the employment landscape in Puerto Rico. It purports to invigorate our economy through a more lax employment regime. Following is a concise guide that will give you a quick understanding of the Act’s most important aspects.
Probationary Period
Establishes a 9-month automatic probationary period for non-exempt employees; and a 12-month automatic period for exempt employees, as defined by the Fair Labor Standards Act.
Independent Contractor defined
The Act establishes a non-rebuttable presumption that a person is an independent contractor if he or she:
- Possesses or has applied for an employer identification number or an employer social security number.
- Has claimed to own his own business in his tax returns.
- The relationship with the principal arises from a written contract.
- The contract demands that he possess any required government license or permit to run his business or provide the hired services.
- At least three of the following requirements are met:
- Has control and discretionary authority over performance of the contractual assignment, except for those areas the principal needs to control in order to assure compliance with legal or contractual obligations.
- Controls the time at which the work will be performed, except when a schedule has been agreed on with the principal.
- Is under no obligation to work exclusively for the principal, except when a statute prohibits simultaneous work for more than one principal or the exclusivity agreement is for a limited time.
- Is free to hire employees for the performance of the services.
- Has invested in his business in order to perform the services, including:
- Buying or leasing tools, materials or other equipment;
- Obtaining a license or permit from the principal to access the work site; or
iii. Leasing space or working tools from the principal.
When the presumption does not apply, the nature of the relationship—employee-employer or independent contractor-principal—will be determined under the common law test, which examines the degree of control exerted over the person who claims to be an employee.
Reasonable Accommodation for Religious Observance
When an employee gives written notification of his religious observance requirements, the employer has a duty to afford reasonable accommodation. In order to deny a request for reasonable accommodation, the employer must show that the alternative chosen by the employee would impose an undue burden.
Vacation and Sick Leave
In order to accrue vacation and sick leave days, an employee has to work at least 130 hours a month. The accrual rates are as follows:
- Vacation leave:
½ day per month during the first year (6 days a year).
¾ day per month after the first and before the fifth year (9 days a year).
1 day per month after the fifth year and before the fifteenth year (12 days a year).
1 ¼ day after fifteen years of service (15 days a year).
**However, businesses with 12 employees or less will only be subjected to the ½ day per month mandatory vacation leave.
- Sick leave:
Every employee is entitled to a (1) day per month sick leave accrual.
Overtime
Overtime hours will now be defined on the basis of 8-hour calendar days, not 24 hours rolling periods.
There is a fixed rate of overtime compensation of 1.5 times normal pay for daily and weekly overtime and for work performed after the 7th consecutive day.
Workers may agree (in writing) to a 10 hours a day, 4 days a week work schedule that will not be considered overtime.
Meal Period
Meal period penalty is reduced to 1.5 times the regular rate. Meal period is eliminated in work shifts not exceeding 6 hours. The second meal period is eliminated in work shifts not exceeding 12 hours.
Flexitime
Employee and Employer may reach an agreement as to alternative schedule, work hours and place of work. The Employee must make these requests in writing and the Employer must reply within 20 days of receipt. Employer may accept requests with appropriate conditions or deny request with an explanation for such denial and alternatives, if available. Employers must attend with priority flexitime requests from employees who are heads of families with paternal authority or single custody of their minor children.
Christmas Bonus
In order to be eligible, an employee must work at least 1,350 hours during the relevant period.
If the employer entity employs more than 20 employees, the, bonus payment will be equivalent to 2% of earned wages up to a maximum of $600.00. For employer entities with 20 or less employees, the bonus cap is set at $300.00. New hires will only have right to 50% of the statutory bonus during their first year of employment.
Wrongful Termination Act (Act No. 80)
The severance pay for wrongful termination (“mesada”) of an employee is now fixed: three months of salary plus an additional 2 weeks of salary for each year of service. The total severance pay is capped; no payment will exceed the equivalent of 9 months of salary. When severance pay is judicially or administratively imposed, any payment previously made to the employee because of his termination will be credited towards the severance payment.
Severance pay under Act 80 or any other payment made because of the termination will be tax exempt. However, any amount that exceeds the severance pay as calculated under Act 80, may constitute taxable income.
Once terminated, an employee may freely settle any Act 80 claim with his employer.
There is a one-year limitations period on Act 80 claims, which starts on the effective date of the termination.
Temporary employees, as a general rule, are not protected under Act 80.
Milk Extraction Period
Extends the right to milk extraction periods to part time employees and defines the requisites of a milk extraction area in the workplace.
Closing Law
The Act repeals the Law to Regulate the Operation of Commercial Establishments under which certain businesses had to remain closed during holidays; until 11:00 am on Sundays and pay double rate to employees working on Sunday.
Contract Interpretation
In case of ambiguity, an employment contract interpretation shall be guided by the law, the purpose of the contract, productivity standards, the nature of the employment relationship, good faith and generally accepted norms of conduct in commerce. These rules of construction will apply to the interpretation of the employer’s policies and rules. However, when the employer reserves the right to interpret them, such right should be recognized, except when the interpretation is arbitrary or capricious or a special statute disposes something else.
Comment: This power will allow businesses to increase their internal control and government of human resources.
Statutory Interpretation
Puerto Rico’s laws or regulations regarding aspects of the employer-employee relationship that are also regulated by a federal law or regulation, shall be interpreted according to the federal norms, except when the Puerto Rican statute expressly demands a different interpretation.
Comment: Through this disposition, Puerto Rico parts company with a long standing judicial tradition of liberal interpretation of many of its labor laws in favor of the employee. Although federal law provides considerable protection to workers in certain respects, it is not as extensive as Puerto Rico’s caselaw has made our statutory scheme. For example, in cases of gender discrimination, officers of an enterprise could be held individually liable under the Puerto Rican statute, whereas only the enterprise could be held liable under federal law. Puerto Rican Courts now have to adapt their interpretation of our discrimination laws to the federal norm.
Statute of Limitations
There is a uniform limitations period of one year for all actions arising under an employment contract, except for actions under special statutes that expressly set a different period.
All of the foregoing rules apply prospectively. That is, only employees hired after the Act’s
enactment will work under the new statutory regime.
We’re available to assist you and your business in the compliance and administration aspects of the Act. Contact us at your convenience.
