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Overview (June 2004) - International Law Office

International Law Office

Employment & Benefits - Puerto Rico

Overview (June 2004)

June 30 2004

Legislative Framework
Compensation and Benefits
Time Off/Leave of Absence
Termination Issues

Layoffs/Workforce Reductions
Unfair Competition/Non-compete Clauses
Personnel Administration
Employee Injuries/Workers' Compensation

Industrial Relations

Legislative Framework

Puerto Rico has been a commonwealth of the United States since 1952. Its government is founded on a written Constitution, a bicameral legislature, an elected governor and a judicial system based on both common and civil law. Puerto Rico remains an unincorporated territory of the United States, but has been allowed by US Congress to exercise internal autonomy similar to that to which the 50 US states are entitled. Under Article IV of the US Constitution, Congress is given power to make all necessary rules and regulations regarding any territory belonging to the United States. This provision, known as the "Territorial Clause," means that Congress has legislative power over Puerto Rico. In addition, the Supremacy Clause of Article VI makes federal law supreme throughout the United States and its territories. Frequently, US Congress will state explicitly whether it intends a particular statute to apply to Puerto Rico, although federal laws will apply to Puerto Rico whenever they are not locally inapplicable.

When reviewing Puerto Rico labour law, it is important to bear in mind that federal law regulates some areas, local law other areas and both other areas.

The most important local source of labour and employment law is the Puerto Rico Constitution, approved in 1952. Article I, Section I of the Constitution protects against discrimination based on race, colour, sex, birth, social origin or condition, or political or religious ideas. Article II, Sections 17 and 18 of the Constitution affirm the rights of employees to organize, bargain collectively, strike, picket and engage in other legal concerted activities.


Just cause
The Wrongful Termination Act modifies the employment-at-will doctrine found in some states by requiring and defining just cause for termination, including employees hired for an indefinite term.(1)

Statutory claims
Puerto Rico legislation protects employees from termination and is divided into two main categories: (i) legislation that prohibits unjustified termination of an employee and allows the employee to petition reinstatement; and (ii) legislation that regulates unjustified termination when it is not prohibited, and provides economic remedies but not job reinstatement.

The following are prohibited under the first category:

  • termination based on race, colour, sex, birth, social origin or condition, or political or religious ideas, based on matrimony or because of disability;(2)

  • termination for participating in union activities;(3)

  • termination for filing a complaint against the employer or cooperating with an ongoing investigation under any labour law;(4)

  • termination of a female employee while taking pregnancy leave;(5)

  • termination for refusal to lift objects that exceed maximum weight limits established by law;(6)

  • termination for serving as a juror;(7)

  • termination for military service under the Uniformed Services Employment and Re-employment Rights Act and the Puerto Rico Veteran Bill of Rights;

  • termination for filing a complaint against the employer under the Puerto Rico Occupational Safety and Health Act;(8)

  • termination while enjoying benefits under the Non-occupational Disability Benefits Act;(9)

  • termination while enjoying benefits under the Workers' Accident Compensation Act;(10)

  • termination for refusal to alter working hours, or for claiming any right under the Closing Law;(11)

  • termination for participating in any judicial or legislative proceeding;(12)

  • termination during sports leave;(13) and

  • termination during a bankruptcy judicial proceeding.(14)

The following are prohibited under the second category: (i) termination of an employee hired for an indefinite term;(15) and (ii) termination of an employee hired for a fixed term.(16)

Article II, Section I of the Constitution guarantees employee protection against discrimination on the basis of race, colour, sex, birth, social origin or condition, and political or religious ideas.

Employment applications
Topics that would violate federal law (ie, those that elicit information about protected characteristics, such as asking about marital status or national origin) or any constitutional rights are prohibited.

Puerto Rico employers are allowed, under the Drug Testing Act, to request applicants submit to drug testing as a condition of hiring.(17)

Use of employment contracts
In Puerto Rico, the distinction between an employee hired for a fixed term and one who is hired for an indefinite term determines the legal provisions that will apply to the relationship. The general rule is that if no express written provision is made as to the type of employment, the employee will be considered hired for an indefinite term.

Employees can be hired through genuine temporary employment contracts.(18) For a temporary employment contract to be regarded as genuine, it must be in writing, and must be for a fixed term or a fixed project, or to replace a regular employee during a temporary absence. The purpose of the temporary contract and the duration of the employment period must be expressly stated in the written contract. The contract must be signed during the employee's first working day or, where the employee is hired through a temporary employment services company, within the first 10 days of work. An employment contract that does not comply with the requirements of the law will be regarded as an indefinite-term contract.

Puerto Rico law authorizes the hiring of new employees without fixed terms, on a probationary basis, subject to the following conditions:

  • The contract must be in writing;

  • The contract must be signed by the employee prior to engaging in any type of work;

  • The probationary period included in the written contract must be for a fixed period not to exceed the first 90 calendar days of employment (approximately three months); and

  • The contract must establish the specific date on which the probationary period commences and the precise date on which it ends.(19)

If the employee works any amount of time without signing the probationary employment contract, the subsequent signing of such a contract is considered null, void and unenforceable. If the employee continues working with the employer after the probationary period ends, the employment contract is considered to be for an indefinite term. If an employer hires an employee who was working under a temporary employment contract to continue working in a regular position with the same duties and tasks, the employee is entitled to probationary credit for the time worked in temporary employment, up to a maximum of one-half of the required probationary period.

A person hired as an independent contractor instead of an employee is not covered by certain labour and employment laws and benefit standards. To determine whether a person is an employee or an independent contractor, several factors must be taken into account, including the following:

  • the nature, scope and degree of control exerted by the principal;

  • the individual's degree of economic dependency on the principal;

  • the form of compensation;

  • income tax withholding; and

  • the individual's authority to hire and discharge employees, and to assign work.(20)

An individual performing work, tasks or services for another is presumed to be an employee, unless the employer proves that the individual is an independent contractor.

If an employer advertises in the newspaper or any other way soliciting for labourers or employees to fill in during a lockout or when a strike exists, the employer must clearly state so. This applies equally to owners of factory or agricultural estates. Mercantile or industrial establishments of any kind are also included, as are their agents or representatives.(21)

References/background investigations
Every employer must comply with the following record-keeping requirements established by local statutes:

  • full name of employee;

  • address;

  • birth date;

  • hiring date;
  • termination date;

  • name and address of a close relative;

  • payroll information; and

  • position.

Compensation and Benefits

Minimum wage
On July 27 1998 the Puerto Rico Legislative Assembly approved the Minimum Wage, Vacation, and Sick Leave Act.(22) Prior to the enactment of this act, Puerto Rico minimum wage provisions were contained in Public Law 96/1956, as amended by Public Law 84/1995.

The Minimum Wage Act establishes that the federal minimum wage fixed by the federal Fair Labour Standards Act automatically applies to employees in Puerto Rico who are covered by the federal act.

Although the Minimum Wage Act repealed Public Law 96/1956, it maintained a 'grandfather' clause for employees hired on or before August 1 1995 who were covered by mandatory decrees of the now-defunct Puerto Rico Minimum Wage Board, which provided for higher benefits than those provided for in the Minimum Wage Act. For example, retail employers in Puerto Rico which have employees hired prior to August 1 1995 must honour certain grandfathered rights provided by Mandatory Decrees 42 and 8.

Executives, administrators and professionals, as defined by reference to Regulation 13 of the Minimum Wage Board, are expressly exempted from the act's scope of application. For this purpose, Regulation 13 must be interpreted according to the federal Fair Labour Standards Act(23) and regulations contained in the Code of Federal Regulations.

Those enterprises or activities that do not meet the criteria of the Fair Labour Standards Act, and are therefore exempt from the federal minimum wage, must pay a minimum wage equal to 70% of the prevailing federal minimum wage. However, the Puerto Rico Labour Department has the authority to reduce the prevailing percentage upon a showing that implementation would substantially and negatively affect employment in the enterprises covered by the Minimum Wage Act.

All other Fair Labour Standards Act provisions and regulations regarding how the minimum wage is to be paid, and which employees and occupations are exempted from the federal minimum wage, are applicable in Puerto Rico.

Minimum age
No person under 16 years of age may be employed in the retail, service, farming, industrial or warehouse business.(24) This notwithstanding, a person between the ages of 14 and 16 may be employed during time away from school during the summer holidays, but only under several strict restrictions as to procedure and the nature of the work performed. Under certain circumstances, proof of age is required from the prospective employee, certifying that he or she is at least 18 years of age, and such proof of age will be certified by the Department of Labour and Human Resources.

Wage payments

The Wage Payment Act (17/1931, as amended by Law 74/1995)(25) provides that in all contracts or agreements entered into with non-exempt employees - except for those defined as administrators, executives or professionals by Regulation 13 of the Minimum Wage Board - wages must be paid at intervals not exceeding 15 days. Additionally, wages must be paid in lawful US currency, by cash, cheque, direct deposit or electronic fund transfer to the employee's savings or chequing account.

For direct deposit or electronic fund transfer transactions, an employee's prior authorization must be valid and voluntarily obtained, and must be effective on the regular payday. The employer must pay any costs related to such transactions. Where wages are paid by direct deposit or electronic fund transfer, the employer must give the employee a voucher or pay slip which certifies that the net salary has been deposited to the employee's savings or chequing account, and that shows the date on which the deposit or transfer was made.

If an employer pays its employees' wages by cheque, and the employee is unable to cash the cheque because of insufficient funds in the employer's account, or because the account has been closed, the employee is entitled to file a claim with the Puerto Rico Labour Department requesting the employer to post a bond to guarantee the payment of wages. Each cheque that cannot be cashed by an employee for the reasons mentioned constitutes an independent criminal violation.

Puerto Rico labour and employment law authorizes a limited number of deductions to be made from the employees' wages. These include:

  • advances of wages;

  • one week's deduction of union dues; and

  • deductions for the purchase of US or Commonwealth savings bonds, credit union shares, hospital services, and company stock or stock options.

The Wage Payment Act also allows employers to deduct from wages any amount elected by an employee as a contribution to a plan subject to the federal Employee Retirement Income Security Act 1974.(26) Generally, payroll deductions must be authorized by the employee and approved by the Puerto Rico Labour Department.

Child labour
Puerto Rico has several legal dispositions regarding the employment of minors. As discussed above, the age of majority for employment purposes is generally 18 years of age, although younger employees may be allowed to work during time away from school. Employers that directly or indirectly employ a minor between the ages of 14 and 18 must limit the minor's work schedule to a maximum of 40 working hours per week, eight hours per day, and a maximum of six consecutive working days. Employers that employ minors must display a placard or other means of written communication stating the maximum amount of hours the minors can work, as well as the specific work schedule of the minors employed there.(27)

Puerto Rico law provides exhaustive guidelines for the type of employment that may be held by minors.(28) Additionally, the Bureau to Determine Dangerous Occupations for Minors(29) has been entrusted with the duty to regulate on this matter. In broad terms, the standard or criterion for determining the type of work that minors may perform is the potential for danger or harm to the minor.

Employers that fail to comply with the dispositions on the employment of minors will be guilty of a misdemeanour charge, and will be fined an amount between $25 and $100 in the case of first-time offenders, and between $100 and $1,000 for repeat offenders. Repeat offenders may also be imprisoned for a period of up to 90 days.

Health insurance
Under Puerto Rico labour and employment law, employers are required to insure their employees with the State Insurance Fund for work-related accidents or medical conditions. Employees insured under the State Insurance Fund are eligible for medical insurance, as well as disability benefits, if injured while performing work-related duties.

The Working Hours and Days Act (379/1948)(30) provides for payment of overtime for time worked in excess of eight hours in any period of 24 consecutive hours and/or for time worked in excess of 40 hours in a single working week. As a rule, every employer that employs or permits an employee to work overtime must pay the employee for each extra hour he or she works at a wage rate equal to two times the rate agreed to for regular hours. However, this legal obligation is different for employers that are covered by the Fair Labour Standards Act. In Orlando Vega v Yiyi Motors,(31) the Puerto Rico Supreme Court stated:

"In the case of employees covered by the [Fair Labour Standards Act], and not otherwise exempted therefrom, the employer has an obligation to pay for each overtime hour worked at a rate not less than one-and-a-half times the employee's regular rate of pay. This includes hours worked in excess of eight hours during any 24 consecutive hours and/or in excess of 40 hours per week."

In the case of employers or employees covered by the Fair Labour Standards Act, but exempt from the act's overtime pay requirements, employers must pay an overtime rate of not less than one-and-a-half times the employee's regular rate of pay for hours worked in excess of eight hours during any 24 consecutive hours. However, the employer is not obliged to pay overtime for hours in excess of 40 per week.

Overtime pay requirements established by either the Working Hours and Days Act or the Fair Labour Standards Act may be altered in favour of employees by a specific provision in a collective bargaining agreement, or by a mandatory decree of the Minimum Wage Board.

Working time
The Working Hours and Days Act regulates working time and rest periods for non-exempt employees. For those subject to the act, the legal and regular working day is made up of eight hours of work, and the legal and regular working week is made up of 40 hours. However, the act does not apply to administrators, executives or professionals, as defined by Regulation 13 of the now-defunct Minimum Wage Board.

On July 20 1995 the Puerto Rico Legislative Assembly passed Public Law 83,(32) which amended the Working Hours and Days Act. This amendment allows employees' schedules to be moved forward or delayed up to a maximum of three hours. The change can only occur through an agreement between the employer and the employee, and is subject to the following caveats: (i) there must be a rest period of at least 12 hours between each working shift; and (ii) the employee must work consecutive hours. An employee may not be scheduled to work split shifts under a flexible schedule agreement. Those hours worked in excess of the daily eight-hour workday or the 40-hour working week are deemed to be, and must be paid as, overtime.

Law 7/2002 once again amended the Working Hours and Day Act to provide that any employer that has implemented a flexible scheduling programme must give priority to women with small children and to single parents with sole custody of their children.

The Closing Law also regulates the work schedules of Puerto Rico employees.(33) The Closing Law covers any site, store or similar place where any type of business operation or commercial activity for the sale or transfer of retail articles, or a combination of wholesale and retail sales, takes place. The establishments covered by the Closing Law must remain closed all day to the public on January 1 and 6, Good Friday, Easter Sunday, Mother's Day, Father's Day, General Election Day, Thanksgiving and Christmas. Covered establishments may be open:

  • from Monday to Saturday (5:00 am to midnight);

  • on Sunday (11:00 am to 5:00 pm); and

  • on January 5, December 24 and December 31 (5:00 am to 9:00 pm).

During the hours that covered establishments must be closed, no work may be performed, except that related to the continuity of their operations and maintenance. Under Public Law 289/1946, every non-exempt employee working in an industry not covered by the Closing Law has the right to a full rest day after working for six consecutive days. If the employer requires the employee to work on the seventh consecutive day, it must pay for work performed during the seventh day at a rate equal to twice the rate agreed to for regular hours.

Time Off/Leave of Absence

Vacation leave
The Minimum Wage Act provides for a mandatory vacation leave for non-exempt employees.(34) Under this provision, all workers in Puerto Rico employed on or after August 1 1995, with the exception of administrators, executives and professionals, accrue vacation leave at the rate of one-and-a-quarter days for each month in which the employee works at least 115 hours. No leave is accrued for those months in which the employee works less than 115 hours.

The grandfather clause contained in the Minimum Wage Act guarantees that those employees who, as of August 1 1995, were covered by a mandatory decree that provided for a different monthly accumulation of vacation, or a vacation accrual based on fewer hours of work, will continue to enjoy their existing benefits. This provision applies as long as the employee works for the same employer.

Vacation leave is to be paid at a rate not less than the hourly wage earned by the employee in the month during which the leave was accrued. For those employees who receive commissions or other incentives, the hourly rate is computed by dividing the total amount of commissions and total incentives earned during the year by 52 weeks.

The employee may not request vacation time until completion of one year of employment. Vacation time may be accrued up to a maximum of two years. If, however, the employee is not granted the vacation leave after it has been accumulated for two years, the employer must pay for all vacation time in excess of the two-year maximum at double the employee's regular rate of pay.

Vacation leave may be split if the employee has earned at least five consecutive working days of vacation per year. In the event that the employee ceases employment, he or she must be paid for all accrued vacation leave, even if the employee has worked less than one year. At the request of the employee, the employer may cash out accrued vacation in excess of 10 days.

Sick leave
The Minimum Wage Act also provides for a mandatory sick leave benefit for non-exempt employees.(35) Any employee employed on or after August 1 1995 accrues sick leave at a rate of one day per month for each month in which the employee works at least 115 hours. No sick leave is accrued during those months in which the employee works less than 115 hours.

Unused sick leave is accumulated for successive years, up to a maximum of 15 days. The employee may use sick leave within the probationary period.

Sick leave must be paid using the hourly wage earned by the employee during the month in which the leave was accrued. For those employees who receive commissions or other sales incentives, the hourly rate is computed by dividing the total amount of incentives earned during the year by 52 weeks. An employer does not have a legal obligation to pay accrued sick leave to an employee upon termination.

Paid time off
Puerto Rico employment law also allows for the following.

Military leave
The Puerto Rico Veterans Bill of Rights Act (13/1980)(36) obliges employers to reserve a veteran's job for a period of six months after discharge from the armed forces.

Sports leave
Law 49/1987(37) provides for a paid sports leave for public and private sector employees who are certified as athletes by the Puerto Rico Olympic Committee. Any employer that violates its provisions must compensate the employee-athlete for the damage caused, plus an amount equal to double the compensation that the employee earned or would have earned during the period of leave.(38) In addition, a certified athlete who has been unjustly dismissed is entitled to reinstatement.

Law 24/2002(39) created an additional unpaid sports leave for public and private sector employees. This law does not revoke the sports leave provided by Law 49/1987, except where the two laws may conflict. The unpaid leave under Law 24/2002 covers trainers, as well as athletes, who are certified by the law's specially created board. Certified athletes and trainers who take unpaid sports leave retain their employment status, with no loss in seniority or benefits. Violations to Law 24/2002 result in double damages and reinstatement.

Leave for jury duty
Law 281/2003 provides for payment of wages during jury duty for employees of private employers, except when an employee is already enjoying a paid leave of absence for any other reason. Private employers must provide a maximum of 15 working days of paid leave per year, in addition to any other daily compensation to which the employee is entitled. Whenever the employee is required to appear as a juror in excess of 15 days, the excess may be charged to accrued vacation time.
Employers which dismiss, suspend, reduce the salary of or impose unduly harsh working conditions on an employee for the sole reason of serving as a juror will be liable to pay double the damages caused to the employee or $1,000, whichever is the greater. Employers may also be compelled to reinstate dismissed employees.

Family and other medical leave
The Family and Medical Leave Act 1993 is applicable to the Commonwealth of Puerto Rico.(40)

Prenatal and post-partum maternity leave
The Working Mothers Protection Act (3/1942)(41) grants pregnant employees the right to take maternity leave of four weeks before childbirth and four weeks after childbirth. This right applies to any pregnant employee who is working, enjoying regular vacation or sick leave, or under any other type of special leave or rest authorized by law, during which the employment relationship remains in effect. The leave allowed by the act is independent from, and in addition to, any other type of leave to which the pregnant employee may be entitled under other laws (eg, the federal Family and Medical Leave Act 1993).

The pregnant employee may choose to shorten her prenatal leave period to one week before the scheduled date of childbirth and, consequently, extend her post-partum leave to seven weeks. In this case the employee must provide to the employer a medical certificate evidencing that she is able to work, and that there is no risk to her health. The law also provides for an extension of the post-partum leave if the employee gives birth prior to the completion of her prenatal leave, for a period equal to that which she failed to enjoy during the prenatal period. When the probable date of childbirth is mistakenly estimated, and the pregnant mother has enjoyed four weeks of leave without having given birth to her child, the prenatal leave must be extended until the actual date of birth.

If the employee suffers post-partum complications and is unable to return to work after the four weeks of post-partum leave, the employer must extend the leave for a period not to exceed 12 additional weeks. This additional leave is without pay. In order to benefit from this additional reserve, the employee must present to the employer a medical certificate confirming the complications. This certificate must be provided to the employer before the expiration of the extended leave period.

A working mother may request to be reinstated to her employment within two weeks of the date of childbirth if a medical certificate is presented to her employer certifying that she is able to work. In this case the employee is considered to have waived the remaining leave to which she otherwise would have been entitled.

During the period of maternity leave, including any prenatal extensions, the employer is obliged to pay the employee her regular salary or compensation. (Law 425/2000 amended the Working Mothers Protection Act to make it obligatory for employers to pay the employee her full salary instead of the half-salary required under prior law.) This maternity leave payment must be paid in full at the time the employee commences her prenatal leave period. In computing maternity leave pay, the average salary received by the employee during the six months immediately preceding the commencement of leave is used as the basis for payment.

Maternity and pregnancy-related medical conditions
Maternity and pregnancy-related medical conditions are included in the definition of 'disability' under the Social Security for Chauffeurs Act (428/1950)(42) and the Non-occupational Disability Benefits Act (139/1968).(43) Under these laws, maternity and related medical conditions may be considered a disability and entitle the pregnant employee to benefits. A pregnancy-related disability may extend the job reservation period from 20 weeks up to one year.

Adoption leave
With the enactment of Law 54/2000, the Puerto Rico legislature amended the Working Mothers Protection Act to extend the benefit of the eight weeks of maternity leave to include adoption. The adoption leave benefit covers working mothers who adopt a child younger than five years of age that is not attending nursery school or daycare.

Adoption leave begins on the day that the minor starts to live with the adoptive family. The employee must notify the employer at least 30 days in advance of her intention to adopt a minor and take advantage of the adoption leave, and of her plans for returning to employment. The employee also must submit to the employer evidence of the adoption proceedings issued by the proper entity.

Workers' compensation
Under the Workers' Accident Compensation Act (45/1935)(44) employers are obliged to reserve the job of an employee disabled in a work-related accident. Moreover, employers are required to reinstate the employee, subject to the following conditions:

  • The employee must request reinstatement within 15 days of the date he or she is discharged from treatment, provided that the demand is made within 12 months of the date of the accident;

  • The employee must be mentally and physically fit to fill the job at the time he or she requests reinstatement; and

  • The job must still exist at the time the employee requests reinstatement.

Termination Issues

Wrongful termination claims
Wrongful termination claims are regulated by the Wrongful Termination Act (80/1976).(45) The Wrongful Termination Act modifies the employment-at-will doctrine found in some states by requiring and defining just cause for termination.

Article 2 of the Wrongful Termination Act defines what constitutes just cause for termination as follows:

  • a pattern of improper or disorderly behaviour on the part of the worker;

  • the employee's failure to perform his or her work in an efficient manner, or doing it belatedly, negligently or in violation of quality standards;

  • repeated violations of reasonable rules and regulations established by the employer, if a written copy has been duly furnished to the employee;

  • total, partial or temporary closure of the establishment's operations;
  • technological change or reorganization, as well as changes in the style, design or nature of the product produced or handled by the establishment, or changes in the services provided to the public; or

  • workforce reductions made necessary due to an anticipated or prevailing drop in volume, production, sales or earnings at the time the employee is discharged.

Discrimination claims
Article II, Section 1 of the Constitution declares:

"The dignity of the human being is inviolable. All men are equal before the law. No discrimination shall be made on account of race, colour, sex, birth, social origin or condition, or political or religious ideas. Both the laws and the system of public education shall embody these principles of essential human equality."(46)

Employees have a constitutional protection against discrimination in employment, based on this provision. An employee who is subject to any of the forms of discrimination prohibited by the Constitution may request an injunction against the employer to cease the discriminatory action.(47)

The Anti-discrimination in Employment Act (100/1959)(48) prohibits an employer from discharging, laying off or discriminating against an employee on the basis of age, race, colour, sex, social or national origin, social condition, and political or religious beliefs. Under the act, the term 'employer' includes any natural or artificial person employing labourers, workers or employees, as well as the chief, official, manager, officer, managing partner, administrator, superintendent, supervisor, overseer, agent or representative of such natural or artificial person. Covered employers also include any agencies and instrumentalities of the government of Puerto Rico that operate as private businesses and enterprises.

The Anti-discrimination Act expands protection under federal law to include social origin and marriage.

As amended by Law 10/1991, the Anti-discrimination Act establishes that an employer may not discriminate against an employee because he or she is married to another employee in the same enterprise or business. This protection is applicable to persons who are applying for employment, as well as those already employed in the company who marry a co-worker.(49)

The Anti-discrimination Act covers employees from the minimum age at which they are allowed by law to work, which in most instances is age 16. Thus, the statute can be construed as protecting not only older workers, but younger workers as well.

The Puerto Rico Supreme Court has consistently interpreted Article 3 of the Anti-discrimination Act to mean that if an alleged discriminatory action is taken without just cause, it is presumed to be discriminatory.(50) Once the plaintiff-employee establishes the presumption, the defendant-employer must defeat the presumption by proving that the discharge was not discriminatory, but for other reasons. Remedies under the Anti-discrimination Act include double all damages that have economic value, such as backpay, and emotional and psychological damages, as well as reinstatement and injunctive relief.

In addition to the Anti-discrimination Act, Puerto Rico has provisions to protect the following additional discrimination claims:

  • The Sex Discrimination in Employment Act (69/1985)(51) specifically prohibits employment discrimination for reasons of sex;

  • The Disability Discrimination Act (44/1985),(52) a statute very similar to the federal Americans with Disabilities Act, prohibits discrimination in employment because of physical or mental disability. The Disability Discrimination Act is applicable to employers with 15 or more employees; and

  • The Working Mothers Protection Act prohibits discrimination against pregnant working mothers by making it an unlawful practice for an employer to dismiss, lay off, reduce the salary or discriminate in any form against a female worker by reason of a reduction in the quality and/or quantity of her production while she is pregnant.

Severance pay
The Wrongful Termination Act provides for a mandatory severance payment to any employee who is discharged from employment without just cause. Severance payments are computed as follows:

  • an indemnity equal to one month's salary, if the employee has been employed for less than five years;

  • two months' salary if the employee has been employed for between five and 15 years; or

  • three months' salary if the employee has been employed for more than 15 years.

This is in addition to a progressive indemnity equal to one week's pay for each completed year of service.

An employee has up to three years from the date of employment termination to file a claim with the courts under the Wrongful Termination Act. If an employee's claim is limited to unjust termination, the severance pay provided by the Wrongful Termination Act is the exclusive remedy.(53)

During the probationary employment period, an employer may terminate an employee without just cause and without having to incur the severance payment established by the Wrongful Termination Act. However, an employer may not discharge a pregnant employee without just cause during her probationary employment period. Diminished productivity in quantity or quality of work, caused by or related to the pregnancy, does not constitute just cause for termination.

The Sexual Harassment in Employment Act (17/1958)(54) prohibits sexual harassment in the workplace toward any employee, and imposes severe financial liability on any person or employer responsible for sexual harassment, as defined in the act. The act applies to all employees, exempt and non-exempt, and includes situations of same-sex sexual harassment.

The Sexual Harassment Act:

  • imposes strict liability when an agent conducts the harassment or the supervisor of the employer;

  • protects against co-employee and third-party harassment; and

  • confers a cause of action to whistleblowers and to employees who do not advance in their jobs at the same rate as employees who do submit to sexual requests.

When sexual harassment is alleged and proven, the corporate or governmental employer may not be the only liable defendant. The Sexual Harassment Act allows the actual harassing agent, official, administrator or supervisor to be considered an 'employer' and thus personally liable for damages. In addition, the marital partner of the harasser could be liable for damages if the harasser does not own sufficient assets.(55)

Under the Sexual Harassment Act, all persons (individual or corporate) who engage in sexual harassment are liable for double the amount of damages caused to the employee or applicant, or for a sum of not less than $3,000 where pecuniary losses cannot be determined. Other remedies include equitable relief, such as an order for employment, promotion or reinstatement, as well as cease and desist orders.

Layoffs/ Workforce Reductions

Advance notice
Puerto Rico has no local statute regarding advance notice relating to workforce reductions. Consequently, the federal Worker Adjustment and Retraining Notification Act is applicable to the Commonwealth of Puerto Rico.

Essentially, this law requires employers with 100 or more employees to give 60 days' advance notice of shutdowns affecting at least 50 employees, and of layoffs that would last more than six months and affect one-third of the employees at the site. Penalties for violation of this statute include back pay and benefits to each employee for each day of violation, and a fine of $500 for each day of failure to give advance notice.(56)

According to the Labour Department's final rule interpreting provisions of this act, notices of plant closings or mass layoffs must be 'specific'. This is taken to mean that the following must be included in the notice:

  • a statement as to whether the planned action is expected to be temporary or permanent, and whether the entire plant will be closed;

  • the expected date when the plant closing or mass layoff will begin, and the expected date when the individual employee will be separated;

  • an indication as to whether 'job-bumping' rights exist; and

  • the name and telephone number of a company official to contact for further information.

Required notices to unions must additionally include:

  • the name and address of the employment site where the plant closings or mass layoffs will occur;

  • the job titles and names of affected employees;

  • the expected date of the first separation; and

  • the anticipated schedule for making separations.

Rather than using the term 'redundancy', Puerto Rico generally uses terms such as 'downsizing' and 'reorganization'. In Puerto Rico, an employer may be justified in dismissing an employee or group of employees for economic reasons in certain situations. The Wrongful Termination Act (80/1976)(57) defines these situations as follows:

  • Total closure of operations - this occurs where an employer completely discontinues its business operations and, as a result, decides not to retain any of its employees. This circumstance constitutes just cause for discharge under the Wrongful Termination Act.(58)

  • Partial closure of operations or partial reduction of employees - these are treated similarly under Puerto Rico law. Both situations involve a reduction in business operations and a resulting termination of employees, while the employer continues operations and retains a number of employees. When a partial closing of operations or a partial reduction of employees is to take place, the employer must take into account employees' relative seniority and their ability or efficiency.(59)

  • Temporary closure of operations - this occurs when operations are going to be suspended or reduced for a determined or fixed period of time, after which operations will resume. For employment law purposes, temporary closings may be total or partial, and are divided into the following categories:

    • less than three months - the law does not require the employer to consider the employees' seniority, ability or efficiency, because this type of suspension is not regarded as a termination;(60)

    • three to six months - the employer must follow the order of seniority in dismissing employees. Upon restarting operations or hiring new personnel, employers must give priority to those employees who previously were suspended because of the temporary closing. This requirement applies where the positions to be filled by the employer are the same or similar to those occupied by employees before they were suspended or dismissed. If the employer observes seniority requirements when suspending or dismissing employees, but fails to follow seniority in the process of rehiring, a cause of action for unjust termination arises once the employer rehires employees with less seniority; and

    • more than six months - the employer must follow the order of seniority in suspending or dismissing employees. However, the employer has the liberty to recruit employees of its choosing, without any restrictions of seniority when hiring or rehiring new employees.

  • Reorganization or technological changes, or changes in the style, design, or nature of products or services - the employer may dismiss those employees who do not possess the knowledge or skills required after a reorganization or implementation of a technological change. If an employee can acquire the required knowledge or skill through a simple and cost-efficient training programme, then the employer must provide such a programme.

Transfers of undertakings/severance pay
The Wrongful Termination Act states that in the event of a transfer of an ongoing business, if the new employer continues to use the services of the employees who were working with the former employer, the employees must be credited with the time worked under the former employer.(61) In the event that the new employer chooses not to continue with the services of all or any of the employees, and hence does not become their employer, the former employer is liable for any applicable severance pay. In case the new employer discharges employees without good cause after the transfer, the new owner is liable for any legal obligation to the discharged employees, and a lien may be placed on the business to answer for the claim.

Unfair Competition/Non-compete Covenants

In Puerto Rico, there is no implied obligation to refrain from competing against a prior employer. Thus, restrictions on competitive activity after termination of employment are a matter of contract. In essence, the case law attempts to balance the Puerto Rico Civil Code principle of freedom of contract(62) with the constitutional right to engage in the trade or occupation of choice. The prevailing principle is that a non-compete covenant will be enforced if it has sufficient consideration, if it is justified by a legitimate interest of the employer, and if it is reasonable in the restrictions it contractually imposes on an employee.

An employer has a constitutionally protected right to protect its property, including its trade secrets, confidential business information, client lists and other important proprietary business information and assets. This provides a legitimate basis not only for confidentiality agreements that limit disclosures, but also for non-compete covenants.(63)

The Puerto Rico Supreme Court has established what are and are not reasonable restrictions to obtain gainful employment from competitors of a former employer, in spite of a contractually agreed non-compete covenant.(64) In Arthur Young & Co v Vega III the court voided a non-compete covenant which established that, for a period of two years, Vega could not directly or indirectly solicit or perform without the consent of Arthur Young & Co any auditing, accounting, tax or management services for anyone who was a client of Arthur Young & Co and for whom Vega had provided these services. Following this ruling, the court stated that in order for a non-compete covenant to be enforceable it must contain the following elements:

  • It must be in writing.

  • The duration of the covenant should not exceed one year;

  • If a covenant is to be imposed on a current employee, there must be adequate quid pro quo. That is, the employee must receive additional compensation as consideration for agreeing to the new restrictive condition;

  • If the covenant is part of the recruiting conditions for employment applicants, no additional consideration is required. The job itself is deemed sufficient quid pro quo;

  • It must be clearly necessary in order to protect a legitimate interest of the employer. If the employee poses no real threat of harmful competition, the covenant may not have a legitimate basis to support it;

  • It should not impose an excessively onerous burden on the employee by making it practically impossible or exceedingly difficult to engage in gainful employment in the employee's habitual career;

  • It should not unduly affect the public by unfairly limiting the services that a former employee could offer;

  • The geographic area must be considered and limited to the area in which the former employee was working prior to termination; and

  • The prohibited clients should be limited to those previously serviced by the employee.

Any clause that violates these principles will void the agreement without the possibility of modification.

Personnel Administration

Required training
All employers are recommended to require that their employees be trained in at least the following employment-related topics:

  • hiring/discharge;

  • sexual harassment; and

  • equal employment opportunity.

Training and continued education in these areas and others arising from the employment relationship can reduce the number of claims and assist in the defence of those which do inevitably arise.

Personnel records
Personnel records belong to the employer. Nonetheless, employees in Puerto Rico have the right to inspect their records at reasonable intervals and at reasonable times. They also have a right to a copy of any document they were required to sign.

Meal and rest periods
Article 15 of the Working Hours and Days Act establishes that all non-exempt employees must be allowed a fixed meal period of not less than one hour during regular and overtime working hours. However, a shorter period of at least 30 minutes may be allowed, provided the shorter period benefits the employee, and a written agreement has been signed by the employee and the employer. An employer that employs or permits a non-exempt employee to work during the statutory or reduced meal period must pay for such time at a rate equal to twice the rate agreed to for regular hours. This is considered premium pay, and is computed in addition to overtime.

During regular working hours, the meal period must generally start between the conclusion of the third consecutive hour of work and the beginning of the sixth, so that employees are not required to work for more than five consecutive hours without resting or eating. As an exception, the meal period may be taken between the second and third consecutive hours of work, provided that the employee and the Puerto Rico Labour Department agree to this arrangement.

If the employee works overtime beyond the regular workday, a second meal period must be scheduled. Non-exempt employees should not be allowed to work for more than five consecutive hours without pausing for a meal period (four hours if the employee is a minor). However, the employer and the employee may agree to waive the second meal period if the employee does not work more than two hours beyond the regular workday (ie, no more than two hours of daily overtime).

Every employer is obliged to make, keep and retain payroll records, stating the term, regular hours and overtime hours worked by each employee. These records must be kept for a minimum of four years.

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