Ferraiuoli LLC

1

GENERAL PRINCIPLES

Forums For Adjudicating Employment Disputes

As an unincorporated territory of the United States (US), Puerto Rico enjoys a dual legal system which grants 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. Both federal and local judicial forums can adjudicate employment disputes depending on the causes of action involved and the laws that support them.

In addition to judicial forums, claimants may present their causes of action before US federal and Puerto Rico administrative forums such as, among others, the Puerto Rico Department of Labour and Human Resources (PR-DOL), the US Department of Labour (US-DOL) and the US Equal Employment Opportunity Commission (EEOC). The PR-DOL, in particular, is the governmental agency responsible for the administration of public policy relating to labour and employment legislation, occupational safety, unemployment insurance benefits, re-employment services and human resources training. The divisions of the PR-DOL, with which 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 EEOC's state counterpart that handles discrimination complaints.


The Main Sources Of Employment Law

Due to its characteristic dual legal system, US federal laws and local legal provisions coexist in Puerto Rico. Thus, Puerto Rico enjoys both US and local constitutional, legal and regulatory protections in an employment context. One of the most important sources of local employment law is Act No. 4 of 26 January 2017, the Labour Transformation and Flexibility Act (LTFA), also known as the Puerto Rico Labour Reform. The LTFA amended the main local sources of employment law in Puerto Rico with the purpose to create a more flexible local employment landscape and favourable jurisdiction for employers.

Besides the LTFA, Puerto Rico has a wide array of employment laws, the main of which include, among others, Act No. 80 of 30 May 1976 (unjust dismissal), Act No. 100 of 30 June 1959 (Puerto Rico’s general anti-discrimination statute), Act No. 115 of 20 December 1991 (retaliation), Act No. 17 of 22 April 1988 (sexual harassment at the workplace), Act No. 44 of 2 July 1985 (disability discrimination), Act No. 90 of 7 August 2020 (workplace harassment), all as amended, together with several other anti-discrimination and anti-retaliation laws and provisions discussed in further detail below. Puerto Rico employment laws also expand US federal wage and hour laws and regulations, providing for vacation, sick and multiple other leaves not available at the federal level. Some of the main wage, hours, and statutory leave laws include Act No. 379 of 15 May 1948 (local wage and hours), Act No. 180 of 27 July 1998 (vacation and sick leave), and Act No. 3 of 13 March 1942 (working mothers), all as amended.

In procedural terms, one of the main employment laws in Puerto Rico is Act No. 2 of 17 October 1961 as amended, which facilitates employees’ access to Puerto Rico’s judicial system, through a special expeditious proceeding to file employment-related lawsuits in state courts. This statutory summary proceeding not only provides for the expeditious handling of claims, but also imposes strict requirements and restrictions, as well as severe consequences on employers.


National Law And Employees Working For Foreign Companies

Puerto Rico and federal employment laws apply equally to all employees working in Puerto Rico, including those working for foreign companies on the Island. Moreover, employees who work in the US or its territories are generally protected under US Equal Employment Opportunity (EEO) laws, regardless of their citizenship or work authorisation status or whether they work for a US or foreign employer.


National Law And Employees Of National Companies Working In Another Jurisdiction

Puerto Rico and US employment law will generally apply to employees who work in Puerto Rico, the US, or its territories. Moreover, there may be certain instances in which local law may apply to Puerto Rico residents that are working in another jurisdiction, where Puerto Rico law provides more benefits or is more favourable to the employee that the laws of the jurisdiction in which the Puerto Rico employees is working.


Data privacy

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. The right to privacy, nonetheless, is recognised under the Constitution. 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 employment records and employees' private data.

  • Cross-border data transfers

    • Companies do not need to register for the purposes of a cross-border data transfer of an employee's personal information. To the extent that records and information transferred include employees' 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 businessperson.

  • Sensitive data

    • Various federal and local employment laws specify the confidential information that employers must protect from public disclosure.

ADA and the Genetic Information Non-discrimination Act of 2008 (GINA), both as amended, and their local counterparts, protect employees' genetic, medical, and health-related information, and data in the employment context, or relating to disabilities or requests for accommodation (or both). 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 enquiries and medical examinations of employees, suggests that any medical information concerning employees' disabilities must be treated as confidential. Employers may share this type of 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 and its regulation prohibit employers from using an employee's 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.

Further, Puerto Rico's legislation prohibiting discrimination based on sexual orientation and gender identity requires employers to keep information of this nature 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 and/or harassment. Employers must take reasonable measures to prevent disclosure of confidential information to persons who have no need to know the information. Employers must also maintain the confidentiality of any information in respect of special statutory leave taken to tend to situations relating to domestic violence, child abuse, sexual harassment in the workplace, sexual assault, lewd acts or stalking in its grave modality.

Furthermore, Puerto Rico Act No. 59 of 2007 requires employers who carry out drug tests on job applicants and employees in the private sector to treat the test results and related data as confidential. Also, to the extent that Form I-9 for employment eligibility contains personal information about employees, the US Citizenship and Immigration Service recommends that employers provide adequate safeguards to protect it.

Finally, the privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) apply to employers who are covered entities in Puerto Rico.

  • Background checks

    • Employers can perform background checks on job applicants and current employees, subject to legal parameters established in Act No. 150 of 8 October 2019 (Act 150). To the extent allowed by Act 150, employers must also comply with the US federal Fair Credit Reporting Act of 1970 (FFCRA) by notifying the applicant or employee of the possibility of using their background report for employment decisions, getting their written permission, and certifying compliance to the reporting agency. If an employer takes an adverse employment action based on the individual's credit report or credit history, it shall provide a copy of the 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.

Furthermore, employers may perform criminal background checks on employees and job applicants. In addition, subject to limited exceptions, areas outside the scope of review include genetic, medical, and disability-related information about job applicants or current employees. Considering other categories revealed in background checks, such as filing for bankruptcy, military service, or discharge records, may expose employers to discrimination claims.

2

HIRING THE EMPLOYEE

Legal Requirements As To The Form Of Agreement

In general, an employment agreement is not required to establish the employment relationship. If one is executed, however, it will be governed by state and federal statutes, as well as the Puerto Rico Civil Code. Moreover, a written employment contract is not required since agreements in Puerto Rico can be binding regardless of whether they are in writing. Nonetheless, as a practical matter, it may be advisable 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. In addition, employment rights in Puerto Rico can stem, not only from the employment contract, but also from an employee handbook, employment offer, collective bargaining agreement or similar contract.

Employers are advised to always reserve expressly their right to interpret unclear clauses or in any of their agreements.

In addition, although the LTFA increased flexibility in the employment relationship and reduced the need to have employment agreements in writing, there are still certain specific, employment-related obligations that can only be validly established through a written agreement. The following are some examples of agreements that still need to be executed in writing:

    1. agreements with non-exempt employees to reduce the statutory meal break, to fragment the use of vacation leave, to use non-working days as part of a vacation period, to partially liquidate and pay accumulated and unused annual leave in excess of 10 days, and to accumulate annual leave in excess of one year;
    2. non-compete agreements and some other restrictive covenants; and
    3. voluntary agreements with non-exempt employees to establish alternative, weekly work schedules to fulfil a 40-hour week in no more than 10 consecutive working hours per day, without incurring daily overtime liability.

Mandatory Requirements
  • Trial Period

    • Act No. 80 of 30 May 1976, as amended (Act 80), authorises the hiring of new employees for an indefinite term on a probationary basis. Employees properly classified as executives, professionals or administrators are subject to an automatic 12-month trial period. All other employees are subject to an automatic nine-month trial period unless a shorter period is agreed between the employee and the employer. Generally, during the trial or probationary period, the employer may discharge, or terminate the employment of an employee without just cause and without responsibility for the severance payment established under Act 80. The termination, however, cannot be for discriminatory reasons.

  • Hours Of Work

    • Wage and hours coverage in Puerto Rico for non-exempt employees is governed by the US Fair Labour Standards Act (FLSA) as well as local laws. Act No. 379 of 15 May 1948, as amended (Act 379), coexists with the FLSA and, together with its regulation, controls hours and days of work, overtime compensation and a mandatory meal break for non-exempt employees. Administrators, executives, professionals, computer programmers and outside salespersons – as these terms are defined under Regulation No. 13 of the PR-DOL or US Federal Regulation No. 541 – are some of the occupational classifications excluded from the application of the FLSA and Act 379, as well as other wage and hour provisions.

    According to Act 379, eight hours is the length of the regular working day in Puerto Rico, and 40 hours is a regular working week. In addition, pursuant to Act No. 289 of 9 April 1946, as amended, non-exempt employees are entitled to one day of rest for each period of six consecutive days of work. For these purposes, one day of rest is considered to comprise 24 consecutive hours.

    Under Act 379, non-exempt employees are entitled to a one-hour unpaid meal break. This break can start after the second consecutive hour of work and, to avoid a meal-break penalty, it must also be scheduled before the beginning of the sixth consecutive hour of work. If a non-exempt employee's working day consists of no more than six hours, the meal break may be waived. If the employee works for more than 10 hours per day, the employee is entitled to a second meal break. This second meal break may be waived when a working day does not exceed 12 hours, provided the first meal break was taken.

    The meal break may be reduced to 30 minutes, and in some cases to 20 minutes, by means of a written stipulation. The agreement to reduce the meal break will be effective indefinitely and cannot be terminated unilaterally until one year after its effective date. In other words, before one year expires, both parties must consent to the termination and after one year expires, either the employer or the employee can terminate the agreement unilaterally to reduce the meal break.

    With respect to overtime, the LTFA established a new uniform rate of pay for non-exempt employees hired after 26 January 2017. The rate, which is equal to the rate established by the FLSA, consists of one and half times the regular rate of pay for hours worked in excess of eight hours during any calendar day (daily overtime), hours worked in excess of 40 hours in a week (weekly overtime) and hours worked during the meal break, the day of rest, when a commercial establishment is required to remain closed to the public, or when provided by a collective bargaining agreement.

    Non-exempt employees hired prior to the enactment of the LTFA maintain superior benefits to which they were already entitled, which may include 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.

    Through company policy, employers may establish limits to the overtime work they will allow employees to perform. However, any work employees perform for the benefit of the employer, generally requires compensation even when unauthorised.

    Finally, the LTFA now provides for three flexible-work arrangements for non-exempt employees. These flexible working arrangements encompass alternative work schedules, compensatory time, and modified working conditions.

  • Special Rules For Part-time Work

    • Part-time work is not directly regulated in Puerto Rico; but certain legal provisions may grant different entitlements depending on whether the employee works on a full-time or part-time basis. For instance, under Act No. 427 of 16 December 2000, as amended, working mothers are entitled to a one hour leave period for breastfeeding or to express milk, while mothers working part-time and who have a daily shift that exceeds four hours, are entitled to 30 minutes for each period of four consecutive hours of work.

  • Earnings

    • Generally, the federal minimum wage for non-exempt employees, as established under the FLSA (currently US$7.25 per hour), will automatically apply to Puerto Rico. For employers not covered under the FLSA, local Act 180 requires them to pay non-exempt employees a minimum wage of at least 70% of the applicable federal minimum wage. Different minimum wages may be applicable to federal contractors. Also, per the FLSA, employees who work for tips may be compensated at an hourly wage of no less than US$2.13 per hour in direct wages. If tips are not sufficient to bring wages to minimum wage, the employer shall pay the difference to the tipped employee. On the other hand, exempt employees must be compensated with a salary of at least $455 per week to maintain their exempt classification of employment.

  • Holidays/Rest Periods

    • Besides the meal period discussed above, Puerto Rico Act No. 289 of 9 April 1946 grants the right to one unpaid day of rest for every six days of work to every employee of any operating for profit or not-for-profit. Working on the day of rest will be considered overtime. This overtime pay requirement applies only when the employee works any period of time for the six consecutive days that make up that workweek. In addition, per the LTFA, work performed in certain retail establishments on Good Friday and Easter Sunday is subject to premium pay.

    Non-exempt employees are entitled to a statutory vacation leave for every month in which they work at least 130 hours. Government employees, executives, administrators, and professionals, as defined under Regulation No. 13 of the PR-DOL, and employees covered by a collective bargaining agreement are excluded from this vacation leave entitlement.

    Minimum leave accrual rates vary depending on when the employee was hired. Those hired before 26 January 2017, maintain the minimum accrual provided under Act 180 of at least 1 ¼ day of vacation leave for each month in which they comply with the minimum hourly requirement. Those hired on or after 26 January 2017, accumulate vacation leave based on the years of employment: ½ a day during the first year of service; ¾ of a day after the first year of service until five years of service; one day after five years of service until completion of 15 years for service; and 1¼ after completion of 15 years of service. As an exception, employees hired on or after 26 January 2017, who work for Puerto Rico employers with 12 or less employees, are entitled to a minimum monthly accrual of ½ day per month without variations for several years of service.

    Employees may not claim vacation leave until they have been accruing it for a year. Vacation leave should be granted annually; and the employer has discretion to schedule or approve the employees’ vacation, so as not to disrupt business operations. Generally, vacation leave should be enjoyed consecutively; however, by agreement between the employer and the employee, vacation leave may be fractioned as long as the employee enjoys at least five consecutive working days of vacation leave during the year.

    By agreement between employee and employer, vacation leave may be accrued for up to two years at the end of which the employer will have to pay off the amount of vacation leave accrued. If more than two years are accrued, the employer will be obligated to pay twice the amount of the accumulated days in excess of two years.

  • Minimum/Maximum Age

    • The employment of minors in Puerto Rico is regulated through Act No. 230 of 12 May 1942 (Act 230), which establishes the specific requirements and obligations employers must follow to employ minors. Specifically, Act 230 permits minors between 14 years of age and less than 16 years of age to work, provided they have a special permit issue by the Secretary of the Puerto Rico DOL. There is no maximum age limit for employees to be able to continue to work.

  • Illness/Disability

    • Puerto Rico and federal laws provide several benefits and protections to ill and/or disabled employees. In addition, there are about three laws that offer benefits for occupational and non-occupational accidents and illnesses, as discussed below.

    Act 180, for instance, grants non-exempt employees one day of sick leave for each month in which they work 130 hours. If an employee does not use their sick leave, they may accumulate it up to a maximum of 15 days per year. Act 180 also grants employees who work for employers with 16 or more employees the right to use up to five days of their balance for the care and attention of their children, spouse, parents or minors, elderly, or handicapped persons over whom they have custody or legal guardship. To benefit from this caregiver leave, employees must maintain at least five days of sick leave for their own use.

    In addition, because of the COVID-19 pandemic, Puerto Rico Act No. 37-2020 amended Act 180 to provide for an additional five working days for non-exempt employees to be used during declarations of state of emergency decreed by Puerto Rico’s Governor or its Secretary of Health. Non-Exempt employees are eligible to use this special sick leave if they are infected, or are suspected to be infected, with the disease or epidemic that caused the declaration of emergency. Eligible employees may only use this special sick leave if they remain sick after they have exhausted their accrued sick leave and any other accrued leaves of absence to which they are entitled.

    Under Act No. 28 of 21 January 2018, certain Puerto Rico employees also enjoy a special paid leave for a maximum of six working days per year if they suffer from one of the Serious Disease of Catastrophic Character listed by the Special Coverage of the Health Insurance Administration of Puerto Rico and by other applicable regulations. This leave is available to employees who have worked for their employer for at least 12 months.

    In terms of protections, Act 60-2018 prohibits employers from using properly justified sick leave as a criterion for the evaluation of non-exempt employees’ efficiency or to justify disciplinary actions such as suspensions or dismissals. These absences cannot be taken into consideration when granting raises or promotions in the company, or for the imposition of disciplinary measures.

    Also, Act No. 44 of 2 July 1985, as amended (Act 44), prohibits the discrimination in the employment by reason of physical, mental, or sensory physical impairment, solely based on such impairment. This prohibition extends to recruitment, compensation, fringe benefits, reasonable accommodation facilities and accessibility, seniority, participation in training programs, promotion and any other term, condition, or privilege of employment. Act 44 specifically prohibits the use of job application forms to inquire about present or past physical, mental, or sensory impairments. Doing so will trigger the presumption that the employer is discriminating based on a disability, and the employer will have the burden of proof to prove the contrary if a complaint is ever filed. An employer may inquire whether the candidate has an impairment only when the position has been offered and accepted, and only to be able to offer reasonable accommodations. As an exception, employers can inquire about impairments only if all applicants are required to take a performance test to qualify for the position applied for.

    Act 44 also states that the government, its municipalities, and all private companies with fifteen or more employees are required to make reasonable accommodations to ensure that qualified persons with disabilities are allowed to work effectively to the maximum extent possible.

  • Location Of Work/Mobility

    • Among the flexible-work arrangements established under Act 379, non-exempt employees may request changes of schedule, working hours or work location. An employee is entitled to make the request if it is in writing, he or she works 30 hours or more per week, has worked for at least one year for the employer and has not made the same request in the six months since the employer's last response to such a request. There are other requirements applicable to the response the employer must provide. Employees are not automatically entitled to a change in work conditions just because they make the request. Priority must be given to employees who are head of a family or have legal/sole custody of their minor children.

  • Pension Plans

    • Employers in the private sector may voluntarily establish pension and/or retirement plans for the benefit of its employees and their beneficiaries. Most of these voluntary benefit plans are subject to the provisions of Puerto Rico Internal Revenue Code of 2011, as amended, and the US federal law titled Employee Retirement Income Security Act of 1974, as amended (ERISA), and regulations issued thereunder.

  • Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)

    • Puerto Rico Act No. 3 of 13 March 1942 (Act 3) provides for maternity leave. Under Act 3, pregnant (and some experiencing a miscarriage) are generally entitled to eight weeks of maternity leave paid by the employer (four weeks before the birth and four weeks afterwards, but typically subject to change depending on the employee's ability to work and medical certifications). Adopting mothers of children aged six years or older are generally entitled to five weeks of maternity leave from the date the minor child joins the family. If a pregnant employee suffers post-partum complications and is still unable to work after taking all the weeks of post-partum rest, she is entitled to additional unpaid leave of up to 12 weeks, provided that, before the expiry of the extended rest period, she provides the employer with a medical certificate confirming the facts. The employee is entitled to reinstatement at the conclusion of the original and the extended leaves of absence and double damages for violations of Act 3.

    Act 3 prohibits discrimination in employment because of pregnancy, childbirth, and related medical conditions. It makes it unlawful for an employer to dismiss, lay off, reduce the salary, or affect other conditions of employment for the aforementioned reasons, or because of the diminished productivity or a decrease in the quality of work performed by an employee while pregnant. Puerto Rico Act No. 69 of 6 July 1985 also protects pregnant women from employment discrimination.

    Puerto Rico law does not provide for paternity leave. However, the US Federal Family Medical Leave Act (FMLA) applies in Puerto Rico and entitles eligible employees (male and female) of covered employers to take 12 weeks of unpaid, job-protected leave for specified family and medical reasons, including the birth and caring of a new-born child within one year of birth; the placement with an employee of a child for adoption or foster care within one year of placement; or to care for a child with a serious health condition.

  • Compulsory Terms

    • There are generally no compulsory terms required in an employment agreement. The above notwithstanding, agreements that must be in writing, as indicated in the previous section, must contain the minimum requirements established by law.

  • Non-Compulsory Terms

    • The contracting parties may establish all covenants, clauses, terms, and conditions that they deem appropriate provided that they are not contrary to law, morale, or public order. In this sense, the agreed terms may never be less favourable than the minimum requirements established by the applicable legal provisions.


Types Of Agreement

Individuals in Puerto Rico may enter into any contracts they deem appropriate, so long as the arrangement is not contrary to law, morale, or public order. Consequently, employers may execute multiple types of agreements with their employees or other individuals such as independent contractors. In that respect, there are multiple types of agreement in the employment context such as, employment agreements for an indefinite term, fixed-term employment agreements (contracts for a specific period of time or for a particular project), independent contractor agreements, confidentiality agreements, non-competition agreements, and non-solicitation agreements, among others.


Secrecy/Confidentiality

Under the Trade Secrete Protection Act of Puerto Rico, Act No. 80 of 3 June 2011, any person who misappropriates a commercial secret is liable for damages to the owner of the trade secret. Available relief includes money damages, injunctive relief, and attorney fees. Employers can establish confidentiality policies, as well as execute restrictive covenants such as confidentiality and nondisclosure that oblige the employee to keep the confidentiality of certain information from the employer to which they have or had access during their employment relationship. In doing so, employers must ensure the restrictions do not unduly impede employees from exercising their rights under the National Labour Relations Act of 1935 (NLRA). Among others, the NLRA grants employees the right to engage in protected, concerted activities to address or improve working terms and conditions.


Ownership of Inventions/Other Intellectual Property (IP) Rights

Ownership of inventions or copyrightable material, both as defined under federal law (the Patent Act and the Copyright Act of 1976, as amended, respectively) govern exclusively the vesting of inventor or author rights by employees. In the case of inventions, those will vest in the employee’s favour unless there is a written agreement in the contrary, indicating that the employee assigns all rights to inventions made during the term of employment to the employer. In the case of author rights (copyrights), those will vest under one of two scenarios, absent a written agreement to the contrary.

If the employee is creating an original work of authorship, subject to copyright protection, as part of his duties as an employee, then the work will vest in favour of the employer as a work made for hire. In this case, it is crucial for the employee to be exercising his/her role, and not create the work in something unrelated to his/her duties. This exception does not apply to independent contractors. If the employee creates a work but is not one that falls under the employee’s duties, then the work will vest in favour of the employee and not the employer.

When there is a written agreement indicating that the work created is a work made for hire, the work will accrue to the employer by virtue of that written agreement. Likewise, an employer can have an employee sign an assignment agreement where all works created by them are assigned to the employer.

In the case of trademark rights, those will not vest in favour of the employee since it is crucial for a trademark right to exist, that the mark is to be used in commerce. Therefore, in such a case, it would never be the employee using it in commerce, but rather the employer.


Pre-Employment Considerations

In Puerto Rico, the principle of equal opportunity in employment prevails. As consequence, employment decisions must be based on an individual’s qualifications and capabilities to perform the essential functions of a particular job and business needs, without regard to age, citizenship, race, colour, sex, sexual orientation, gender identity, disability, pregnancy, social or national origin, social condition, credit history (as applicable), political affiliation, political ideas, religious ideas, marital status, genetic information, actual or former military status or current or former service in the United States Armed Forces, being a victim or being perceived as a victim of domestic violence, sexual assault or stalking, and/or any other category protected by state and/or federal law (collectively, “Protected Categories”). Further, various federal and local statutes contain provisions regulating the information an employer can obtain and/or request from a candidate during the recruitment process. Likewise, several federal and local statutes or judicial expressions have limited the scope of the information to be obtained and the permissibility of its use.

For instance, Act No. 16-2017, also known as the local Equal Pay Act, prohibits employers from asking an applicant or inquiring to his/her current or former employer about the applicant’s current salary or salary history. However, the potential employer may obtain such information (i) through the employee’s voluntary disclosure and confirm the same; or (ii) if a compensation rate has already been negotiated and an offer of employment was extended.

Pre-employment background checks are permissible in Puerto Rico as long as they are done in compliance with the applicable legal requirements some of which are summarised in the Data Privacy section above. In addition, one of the most common pre-employment background checks in Puerto Rico is a criminal background check. This verification is done by requesting a certificate of good conduct issued by the Police Department. Aligned with the EEO principle, however, employers should abstain from making employment decisions based on a criminal background check when doing so would cause a disproportionate impact on any of the Protected Categories. Notwithstanding the foregoing, recently, the Puerto Rico Supreme Court held that an individual's prior criminal conviction does not entitle him to protection from discrimination under the categories of origin or social condition.

An employer can also verify the educational, licensing and work-experience credentials of an employment candidate when such credentials are required qualifications for the job in question or are taken into consideration in assessing candidates. The verification of drivers' licenses and records is lawful for those employees who either must drive as a part of their jobs or are given a company car. Finally, pre-employment physical examinations or requirements for genetic, medical and/or disability-related information will only be permissible when narrowly tailored to determine the fitness required to perform the specific job that is being offered.


Hiring Non-Nationals

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, applies in Puerto Rico and requires employers to complete Form I-9 to confirm that hired workers (citizens and non-citizens) are authorised to work in the US. Through the verification process, hired workers must furnish, and their employer verify, documentation that confirms a worker's identity and 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 authorized 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.

Although there are no limits on the number of foreign workers a company may have, there is a limit on the 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 authorized for employment in the US and whether the visa category permits extensions of stay.

An individual may seek an immigration classification that permits him/her to live temporarily in the US. The employer, or potential employer, must file a petition for non-immigrant worker before the US Citizenship and Immigration Services on behalf of the beneficiary worker under one of the employment-based visa categories.

The most common non-immigrant visa categories are:

    1. H1B (workers in a specialty occupation);
    2. H2B (temporary non-agricultural workers);
    3. L1A (intra-company transferees in a managerial or executive position); and
    4. L1B (intra-company transferees in positions requiring specialist knowledge).

In general, Puerto Rico source income paid to a foreign worker will be subject to local income tax withholdings at source and taxes under the US Federal Insurance Contributions Act. Foreign workers are fully protected under local and federal employment laws, including discrimination based on citizenship or immigration status.


Hiring Specified Categories Of Individuals

The employment of minors in Puerto Rico is regulated by Act 230, which establishes the specific requirements and obligations employers must follow to employ minors between 14 years and less than 16 years.


Outsourcing And/Or Sub-Contracting/Temporary Agency Work

Companies in Puerto Rico are free to outsource work, subcontract and/or hire through a temporary employment agency. The LTFA codifies the requirements for determining whether a person is duly contracted as an independent contractor. It states that there is an incontrovertible presumption that the person is an independent contractor when four basic criteria are met and at least three of five additional criteria. To be presumed as contracted as an independent contractor, the contractor must:

    1. possess or have requested an employer identification number or employer social security number;
    2. filed income tax returns as an independent business or as self-employed;
    3. have a written contract to establish the relationship between themselves and the principal; and
    4. have the licenses or permits required by law to operate the business or provide the agreed services.

In addition to the four criteria mentioned above, the independent contractor must comply with at least three (3) of the following:

    1. maintain control over how the agreed work will be performed, except for the exercise of the necessary control by the principal to ensure compliance with any legal or contractual obligation;
    2. maintain control over when the work will be performed, unless there is an agreement with the principal about when the work should be complete, parameters about the schedules to perform the work, and in the case of training, the time in which the training will take place;
    3. that the independent contractor is not required to work exclusively for the principal, unless the law prohibits it or, if there is an exclusivity agreement, it is only for a limited amount time;
    4. the contractor is free to hire employees to assist in the rendering of the services; or
    5. the contractor made an investment in order to provide the services, such as purchasing or renting tools, equipment, or materials, obtained a license or permission from the principal to access the principal's place of work to carry out the agreed work, and rented a space or equipment of the principal to be able to carry out the agreed work.

If these requirements are not met, a “common law test” will be used to determine whether there is a relationship of employment or that of a principal and an independent contractor, unless a special law requires the application of the “economic reality test”. The "common law test" will take into consideration the totality of the circumstances based on criteria like: The principal’s degree of control over the way in which the person is working, the necessary skills to complete the work, the form of compensation, ownership of the equipment and physical facilities, among others.

On the other hand, Act No. 26 of 1992 governs the employment of temporary employees through temporary service companies and establishes the scope of responsibility of the temporary service company and the client company ― which will generally be considered as joint employers― for claims brought by employees under different labour statutes.

It is of the essence to highlight that hiring temporary employees through temporary services agencies may not be used for the following purposes:

    1. as a method or mechanism for destroying or keeping labour unions out of the workplace;
    2. to perform any act of discrimination prohibited by law;
    3. as a means of evading compliance with the Unjust Dismissal Act (Act 80); or
    4. as a means of breaking, weakening or interrupting strikes or work stoppages.

3

MAINTAINING THE EMPLOYEE RELATIONSHIP

Changes To The Contract

Changes in the employment contract may be made by mutual agreement of the parties. Unilateral amendments may generally be allowed to the extent that it serves a legitimate business reason, which may include, for example, financial difficulties faced by an employer that may require unilateral changes to the employment terms and conditions.


Change In Ownership Of The Business

Act 80 specifies the protections granted to employees and the obligations of employers when going concern is transferred. In that respect, under Act 80, a former employer and seller is responsible for paying severance to employees who are not retained by the seller or hired by the buyer in the transfer of a business as an ongoing 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 towards discharged employees if deemed a 'successor employer'. A similar rule applies by virtue of case law to other employment-related liabilities towards discharged employees (e.g. unpaid wages or illegal acts or omissions by the former employer).

If a transferred employee is later dismissed without just cause, the successor employer is responsible for the severance payment, as provided by Act 80. The total years of service of the employee under the former employer and the successor employer will be considered in calculating the payment.

None of the foregoing legal doctrines will apply when a business completely ceases operations, and all its employees are discharged. However, in certain instances of plant closings and mass layoffs, employers may be required to comply with the federal statute titled WARN Act (as described below).


Social Security Contributions

Puerto Rico is covered under the US Social Security System, which is financed through a payroll tax paid by both employers and employees of six-point two percent (6.2%) each of wages up to the taxable maximum of $142,800 (in 2021).


Accidents At Work

Act No. 45 of 18 April 1935, as amended (Act 45), requires public- and private-sector employers in Puerto Rico to insure their employees for work-related accidents through the State Insurance Fund (SIF). In the case of independent contractors, the foregoing requirement may be omitted if the contractor is already insured. Generally, insured employers will enjoy full immunity from suits arising from work-related accidents or illnesses, and all medical treatment, disability, and administrative expenses related to the occupational accident or illness will be fully covered by the SIF. However, intentional torts or criminal acts will not be covered by the statutory immunity provision.

All work-related accidents must be reported to the SIF within five (5) days of their occurrence. If the SIF orders the employee to take a leave of absence, the employee is entitled to have his or her position reserved and to be reinstated; provided that the employee makes this request to the employer within 15 days after being discharged from medical treatment so long as this request is made within 12 months (or six (6) months if the employer has 15 or less employees) following the occurrence of the accident or illness. The employee will also be protected against retaliation for seeking the benefits under the provisions of Act 45.

Act No. 56 of 1 June 2020 amended Act 45 to make COVID-19 a compensable occupational illness under the locally mandated workers' accident compensation insurance policy. Act 45 also expands workers' compensation benefits to employees who are first responders and healthcare industry workers who contract COVID-19 as a consequence or in the course of employment and other workers as it may be determined based on the circumstances.


Discipline And Grievance

Considering that Puerto Rico is not an at-will jurisdiction and therefore employees hired for an indefinite term that have completed the probationary period can be terminated with just cause or otherwise the employer is required to pay the statutory severance under Act 80, employers are highly advised to implement progressive discipline measures to employee’s prior termination of employment.

As such, employers are free to establish and provide in writing to their employee’s reasonable policies and standards of conduct to govern the workplace, as well as the disciplinary mechanisms to be applied in case of non-compliance. Moreover, under the LTFA, employers may reserve the right to interpret their own rules and policies, provided they do so in writing. If an employer reserve such right, courts shall not substitute their own interpretation for the employer’s as long as the employer’s interpretation is a reasonable one.

The employer’s policies and standards will complement the basic duties of the employees as established in the LTFA and the employment agreement, if any. In addition, although a progressive disciplinary process is favoured, employers can identify misconduct that could result in immediate termination of employment, even on the first offense. The analysis will necessarily require an abstraction of the effects of the personnel action on the employee, however, deference will be given to the employer's own interpretation of its rules and regulations.


Harassment/Discrimination/Equal pay

Discrimination and harassment are prohibited under both federal and local law. Federal anti-discrimination laws applicable in Puerto Rico include Title VII of the Civil Rights Act of 1964 (Title VII), which prohibits employers from discriminating against applicants and employees on the basis of race, colour, religion, sex, and national origin (including membership in a Native American tribe) with respect to all terms, conditions, and privileges of employment. It also prohibits employers from retaliating against an applicant or employee who asserts his/her rights under the law. Further, Title VII makes it illegal to harass someone on the basis of one of the protected categories under the act. The Pregnancy Discrimination Act (PDA) amended Title VII to make it illegal for employers to discriminate on the basis of pregnancy, childbirth, or a related medical condition (including those related to miscarriage or termination of a pregnancy).

Another federal anti-discrimination law is the Age Discrimination in Employment Act of 1967 (ADEA), which prohibits discrimination based on age against employees who are at least 40 years old, as well as retaliation against an applicant or employee for asserting his/her rights under the ADEA. The Americans with Disabilities Act of 1990 (ADA) prohibits employers from discriminating in any aspect of employment against people with disabilities or related to or associated with someone who has a disability. The Equal Pay Act (EPA) requires employers to give men and women equal pay for equal work. IRCA prohibits employers from discriminating against applicants and employees on the basis of their citizenship or national origin. The Genetic Information Non-discrimination Act (GINA) prohibits employers from using an applicant's or employee's genetic information as the basis for employment decisions and requires employers to keep genetic information confidential.

Most of the above federal laws have local equivalents which establish protections against discrimination and harassment based on any of the Protected Categories. Some local anti-discrimination laws include Act No. 100 of 30 June 1959 (Puerto Rico’s general anti-discrimination statute), as amended through Act No. 22 of 29 May 2013 (sexual orientation and gender identity discrimination); Acts Nos. 44 of 2 July 1985 (disability discrimination), 69 of 6 July 1985 (discrimination because of sex), 17 of 22 April 1958 (sexual harassment in employment) and 3 of 13 March 1942 (the Working Mother’s Protection Act); and the Puerto Rico Equal Pay Act, among others, all as amended. In addition, Act No. 130 of 8 May 1945, as amended (the Puerto Rico Labour Relations Act), prohibits discrimination based on certain labour-related activities and recognises employees’ right not to be discriminated or retaliated against based protected categories.

On August 7, 2020, the Governor of Puerto Rico signed into law Act No. 90-2020 (Act 90) to prohibit workplace harassment, a more generic type of workplace harassment, not necessarily associated with a category protected from discrimination or retaliation, as defined by law.


Compulsory Training Obligations

Act No. 22 of 29 May 2013 (Law Prohibiting Sexual Orientation and Gender Identity Discrimination) and related guidance established employer obligations to conduct employee trainings and notify employees of the rights and prohibitions under the Act. Similarly, Puerto Rico Act No. 217 of 29 September 2006, requires employers to establish, promote and implement a protocol to address any situation of domestic violence, whether it be in the workplace or at home workspaces. Other federal statutes such as the Occupational Safety and Health Act of 1970 (OSHA) explicitly require the employer to train employees in the safety and health aspects of certain jobs. In addition, employers in Puerto Rico are required to have in place a Covid-19 Exposure Control Protocol and to train employees with regard to the protocol adopted by the employer.


Offsetting Earnings

Act No. 17 of 17 April 1931, as amended (Act 17-1931) prohibits deductions from the salaries of non-exempt employees. As an exception, Act 17-1931 lists the limited circumstances where an employer may deduct or offset an employee’s earnings. Such situations may arise due to certain permissible deductions expressly authorised by the employee in writing and permitted under Act 17-1931. Permissible deductions include, but are not limited to, the employee's contribution or payment towards any type of plan not covered by ERISA or a tax debt payment plan, or to cover salary advances, provided the deduction does not exceed the salary for the week in which the advance was made.

Exempt employees, on the contrary, must be paid on a salary basis regardless of the amount or quality of the work they perform for a given week. Certain deductions are permissible, however, when the exempt employee is absent from work for one (1) or more full days for personal reasons other than sickness or disability; for absences of one (1) or more full days due to illness or disability (including work-related accidents) if the employer has a bona fide plan, policy or practice of providing compensation for salary lost due to such illness or disability (e.g. paid sick time policy, short-term disability benefits etc.); to offset amounts employees receive as jury or witness fees, or for military pay (however deductions due to full or partial day absences for serving as a juror or witness, or taking temporary military leave are not permitted); for penalties imposed in good faith for infractions of safety rules of major significance; or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace misconduct.


Payments For Maternity And Disability Leave

Act No. 3 of 13 March 1942 (“Maternity Leave”), further discussed in the “Parental rights (pregnancy/maternity/paternity/adoption)” section, provides paid maternity leave for a pregnant employee for the birth of a child or for mothers who adopt a child. The Maternity Leave also provides for paid leave in certain instances for women who experience a miscarriage or have an abortion.

In addition to workers’ compensation discussed above, the Temporary Non-Occupational Disability Insurance (SINOT, by its Spanish acronym) pays benefits to insured workers who have lost their wages because of a non-work-related illness or injury, which may include pregnancy. Similar benefits are provided under the Chauffeurs' Social Security Act for employees who are not covered by SINOT.


Compulsory Insurance

There are four (4) compulsory insurance obligations for Puerto Rico employers. First, as discussed above, public, and private employers in Puerto Rico must insure their employees against work-related accidents through the SIF. Second, under Act No. 139 of 26 June 1968 (SINOT), employers must also be insured under a government or privately administered benefits program for employees disabled because of a non-occupational illness or injury. Third, the local Chauffeurs’ Social Security Act (Chauffeurs Insurance) requires employers to insure any non-exempt employee whose work requires the employee to drive a "motor vehicle" as part of that employee's regular duties. The Chauffeurs Insurance will be provided to the employees in lieu of SINOT. Lastly, employers must also be insured and make contributions on behalf of its employees for purposes of Unemployment Insurance administered by the PR-DOL.


Absence For Military Or Public Service Duties

Both military and veteran employees are protected under federal and local statutes. Federally, the Uniformed Services Employment and Reemployment (USERRA) provides for an unpaid leave for members of the Armed Forces of the United States (Army, Marine Corps, Air Force, and Cost Guard, as well as its reserves), National Guard, the Commission of the United States Public Health Services and others designated by the president of the US when called to serve voluntarily or involuntarily. USERRA prohibits discriminatory acts against employees, former employees, or employment candidates because of their service in the military, as well as hostile environment and retaliation. It also assures that employees hired for an indefinite amount of time, who abandoned their positions to serve, can be reinstated when they request it. The employee's seniority and benefits will remain as if the employee had continued to work uninterruptedly.

Locally, the Puerto Rico’s Military Code protects members of its Military Forces, namely, the Puerto Rico's National Guard and the Puerto Rico's State Guard by prohibiting employers from obstructing or not permitting members of Puerto Rico’s Military Force to be absent when they are training or are called to serve. Also, it provides an unpaid leave and prohibits the dismissal and discrimination of employees because of said absence. Employers are also prohibited from preventing members from being hired or dissuading them from enlisting.


Works Councils or Trade Unions

Employees have a constitutional right to organise and bargain collectively through representatives. These rights are regulated through local and US federal laws. The principal law governing relations between unions and employers in the private sector is the NLRA, the law that created the National Labour 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 certain private sector employers whose businesses engage in activities affecting interstate commerce.

Puerto Rico Act No. 130 of 8 May 1945, as amended (Puerto Rico Labour 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. Like the NLRA, Act 130 created the Puerto Rico Labour 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.


Employees’ Right To Strike

The right to strike is protected under the NLRA, however, the legality of the strike will depend on its object or purpose as well as on any applicable restrictions. In that respect, if the employees are striking for a lawful object such as for economic reasons or to protest unfair labour practices, the strike would generally be considered a protected concerted activity. On the contrary, strikes because of an unlawful object or purpose, such as, for example, a strike in support of a union unfair labour practice, are not protected under the NLRA. Similarly, if there is a governing collective bargaining agreement in place with a "no-strike" clause, the strike would generally be illegal for being a violation to the “no-strike” covenant. Strikes can also be unlawful because of timing, misconduct of strikers, endangerment of employer’s property and being prohibited strikes such as sit-down strikes, among others.

In addition, under Article II, Section 18 of the Constitution of the commonwealth of Puerto Rico, employees of private companies, businesses, and employers, as well as those employees of government agencies or instrumentalities that function as private companies or businesses, have the right to strike, establish pickets and carry out other legal concerted activities. Consequently, government employees, with the limited exceptions indicated above, are not guaranteed the right to strike or engage in similar protests. In particular, Act No. 45 of 25 February 1998, known as the Labour Relations Law for the Public Service of Puerto Rico, as amended (Act 45-1998) expressly prohibits any individual person or a trade union organisation to participate, decree or induce the members of a trade union organisation or any other group of public sector employees, to decree or participate in a strike.


Employees On Strike

Under the NLRA, employees on a legal strike based on unfair labour practices cannot be fired or permanently replaced (although the employer may hire a replacement employee for the duration of the strike). Once the strike ends, the employer must reinstate the employee to his/her job. Employees may generally lose the foregoing protections if they engage in unlawful strikes under the NLRA. With respect to public-sector employees, under Act 45-1998, those employees who participate in a strike may be dismissed in accordance with the regulatory provisions on disciplinary actions promulgated by the pertinent government agency.


Employers’ Responsibility For Actions Of Their Employees

Under the Puerto Rico Civil Code of 2020, public or private employers may be vicariously liable for damages caused by the fault or negligence of their employees. Other local laws, such as Act No. 17 of 22 April 1988, (anti-sexual harassment) and Act 90 (workplace harassment), may contain provisions imposing vicarious liability on the employers for the unlawful acts committed by supervisors, agents, non-supervisory employees, or even third parties such as visitors and contractors, directed at its employees in the workplace.

4

FIRING THE EMPLOYEE

Procedures For Terminating the Agreement

Termination provisions may be set by the employer in an employee handbook or other company policy or may be set forth in the employment agreement. Nonetheless, as stated above, employers in Puerto Rico are required to have a just cause to discharge employees hired for an indefinite period of time and who have completed the probationary period. Act 80 contains other requirements on how to undertake terminations in specific contexts such as closings, workforce reductions, reorganisation, and technical changes. In these cases, Act 80 requires employees to retain their most senior employees. However, at the time of the dismissal, when there are reasonable clear differences in regard to capacity, productivity, performance, competence, efficiency, or conduct history of the employees when compared, the employer may engage in a selection process based on said criteria.


Instant Dismissal

Instant dismissal is not favoured except in cases of gross misconduct such as physical violence, fraud or stealing under certain circumstances, among others.


Employee's Resignation

Under the LTFA, one (1) of the reasons for the legal termination of the employment agreement is the voluntary resignation of the employee. Generally, employers will not have any liability in such circumstances. However, under Act 80, an employee’s resignation of employment motivated by actions of the employer aimed at inducing or forcing an employee to resign, such as imposing or attempting to impose more onerous working conditions, reducing his/her salary, lowering him/her in category or subjecting him/her to humiliation in fact or word, may be considered as a constructive dismissal, when resignation was the only reasonable alternative left to the employee. In these cases, an unjustified dismissal would be configured, and the employer may be required to pay the severance payment (mesada) under Act 80.


Termination On Notice

Generally, neither employers nor employees are required to give notice of termination. However, in case of a termination by the employer, a written and well documented progressive disciplinary process is highly recommended.


Termination By Reason Of The Employee's Age

Termination of employment by reason of the employee’s age is prohibited in Puerto Rico by both US federal laws, such as ADEA, and Puerto Rico local law, Act 100. There are no special regulations regarding the attainment of the statutory retirement age.


Automatic Termination In Cases Of Force Majeure

Employment agreements may provide for the termination of employment in cases of force majeure. Otherwise, if employment must be terminated due to unexpected conditions the termination may be subjected to the just cause standard pursuant to Act 80 (if applicable to the employment relationship).


Collective Dismissals

When an employer is to conduct collective dismissals because of business necessities envisioned under Act 80 such as closings, reductions in force, reorganisations or technological changes, special statutory requirements will apply. In such cases, an employer must determine who is to be discharged based on each worker's employment seniority within the affected occupational classification or their performance, efficiency, or capacity. Certain rules apply to employers with multiple establishments. Act 80 also provides recall rights for six (6) months following the collective dismissal if the same or similar work is needed during that time.

With respect to notices, Puerto Rico has no law setting requirements for group lay-offs. The US Worker Adjustment and Retraining Notification Act (WARN), however, requires most employers with 100 or more employees to give notification of 60 calendar days before a plant closure or mass lay-offs. For purposes of WARN, a plant closure occurs when there is a permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single worksite, which results in the termination of employment of 50 or more employees (excluding certain part-time employees) during any 30-day period. A mass layoff, on the other hand, occurs when there is a reduction in force which results in the loss of employment at a single worksite during a 30-day period for (i) at least 500 employees (excluding certain part-time employees); or (ii) 50 or more employees (excluding certain part-time employees) if the laid off employees comprise at least 33% of the employer’s workforce (excluding certain part-time employees). Notice must be given to employees, employees' representatives, the local chief elected official and the state dislocated worker unit.


Termination By Parties’ Agreement

Under the principle of contractual freedom, the parties may convene contractually on the conditions for termination, provided such terms are not contrary to law, morale, or public order.


Directors Or Other Senior Officers

There are no specific statutory requirements to be observed when terminating directors or other senior officers. The conditions of such a termination of employment will generally be regulated through the employment agreement or Act 80 (if applicable).


Special Rules For Categories Of Employee

There are no special rules for terminating certain categories of employees. Termination of employment of special categories of employees is governed by the provisions of the employment contract or Act 80 (if applicable). It is unlawful to dismiss women due to pregnancy, childbirth, and related medical conditions (please see the “Parental rights/pregnancy/maternity/paternity/adoption” section).


Specific Rules For Companies in Financial Difficulties

Companies facing financial difficulties that must downsize by terminating employees must comply with the dispositions stated in Act 80 and/or the federal statue WARN, where applicable.


Restricting Future Activities

Non-compete clauses in employment contracts are valid in Puerto Rico and must comply with requirements established by the Supreme Court of Puerto Rico. There is no legislation controlling this type of agreement except that the LTFA expressly recognises employees' obligations not to compete with the employer's business activity unless it is otherwise provided by law or in an agreement with the employer.

The requirements applicable to non-compete clauses set forth by the Supreme Court of Puerto Rico generally are that:

    1. Non-compete clauses must relate to a legitimate interest of the employer, such as the protection of the business from the adverse effects of competition by a former employee. The prohibition cannot be extended beyond what is necessary to protect the former employer's legitimate interests
    2. The prohibition shall not last for more than 12 months following the termination of employment;
    3. The object of the prohibition must be limited to activities similar to those performed for the employer;
    4. The non-compete agreement must specify the geographical boundaries within which 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 prior to the termination of employment or during a period immediately before the termination, and who were still customers of the employer when the employee's employment ended;
    5. The employee must receive adequate consideration in exchange for the prohibition; and
    6. The essential elements of consent, object and cause must 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.

To the extent that non-disclosure agreements may limit an employee's freedom to compete, they should be evaluated under the above requirements. Furthermore, they may not (1) prohibit the employee from using the general knowledge or skills acquired during his/her tenure or training with the former employer, (2) prohibit the disclosure of information that is not confidential because it is public knowledge, nor (3) prohibit the disclosure of information properly provided to the employee by third-party sources.


Whistleblower Laws

Various federal and local laws prohibit adverse employment actions against whistle-blowers. Some of these laws include federal OSHA, its Puerto Rico equivalent and Act. No 17 (anti-sexual harassment), among others. Moreover, Puerto Rico Act No. 115 20 December 1991, as amended (anti-retaliation) (Act 115), prohibits employers from discharging, threatening or discriminating against employees because they offered or attempted to offer, orally or in writing, any testimony, statement or expression before a legislative, administrative or judicial forum in Puerto Rico or as part of the employer’s internal procedures when what has been expressed is not defamatory in nature or constitutes disclosure of privileged information.


Special Rules For Garden Leave

Garden leave is not common in Puerto Rico and there no special rules set forth by local law.


Severance Payments

Act 80 regulates employment termination of employees 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 service and a statutory formula.

Act 80, as amended, defines just cause for dismissal of an employee as:

    1. engagement in a pattern of improper or disorderly conduct;
    2. failure to work efficiently, working belatedly and negligently, or in violation of quality and security standards of the product handled by the establishment;
    3. a lack of competence or inability to perform the reasonable requirements of the employer;
    4. being the subject of complaints received from clients;
    5. 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;
    6. full, temporary, or partial closure of the establishment's operations. If the employer has more than one office, factory, plant, or branch, the full, temporary, or partial closure of the operations of any of the establishments where the employee works will constitute just cause for termination, subject to additional considerations established by law;
    7. technological changes or reorganizations, including 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
    8. reductions in employment made necessary owing to a drop in the volume of production, sales, or profits, anticipated or prevalent at the time of the discharge or with the sole purpose of increasing competitiveness or productivity.

Violating a workspace’s regulations can also be considered just cause when the:

    1. violation of the regulations is repeated;
    2. rules and regulations are reasonable;
    3. written copy of the rules and regulations is provided in a timely manner; and
    4. termination is not done at the mere whim of the employer or without a reason related to the establishment.

It bears noting that 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 on torts, violation of constitutional rights or arising from other legislation prohibiting discriminatory employment and retaliation. In those circumstances, employees may be entitled to job reinstatement and other remedies for damages.

To calculate the mesada, the highest salary earned by the employee in the three (3) years prior to the employee’s termination and the number of years employed will be taken into consideration. If the employee has worked up to five (5) years, their mesada is the equivalent of two (2) months’ salary and one (1) week of pay for every full year in service. If the employee has worked for that employer between five (5) to fifteen (15) years, they will be entitled to receive three (3) months of salary and two (2) weeks of pay for each year of service. Employees who have worked for their employer for more than 15 years are entitled to receive six (6) months of salary plus three (3) weeks of pay for every year of service.

However, employees hired on or after 26 January 2017 and who are terminated without just cause, are entitled to a severance payment that consists of a three (3) months’ salary, and an additional amount equal to two (2) weeks of salary for each full year of service. The total severance payment is subject to a cap equivalent to nine (9) "months" of the employee’s salary.

Act 80 allows the settlement of the severance payment once the termination of employment has occurred or the intention to terminate has been notified. The settlement must be made pursuant to a valid settlement transaction agreement that complies with legal requirements.


Special Tax Provisions And Severance Payments

Severance payments up to the amount set forth in Act 80 paid by an employer to an employee by reason of their dismissal shall be exempt from payment of income tax. However, if the severance pay provided exceeds the amount that Act 80 provides, the excess will be subject to income tax.


Allowances Payable To Employees After Termination

Employers are not required by law to pay allowances to employees after the terminations. However, in certain instances, employees may be entitled to receive unemployment insurance benefits after the termination of employment.


Time Limits For Claims Following Termination

The time limits for filing for claims following termination may vary depending on the law underlying the claim. Generally, the cause of action under Act 80 (unjust dismissal) is subject to a 1-year statute of limitation counted from the date of the termination.

5

GENERAL

Specific Matters Which Are Important Or Unique To This Jurisdiction
  • Statutory Christmas Bonus, Act 148 of 1969:

    • In Puerto Rico, employees in the private sector may be entitled to receive the statutory Christmas bonus. In summary, under the Christmas Bonus Act, employers are required to pay an annual bonus to each employee that worked either, 700 hours or more (for employees hired before 26 January 2017) or 1,350 hours or more (for employees hired after 26 January 2017), during the period of 12 months comprised between 1 October of one year and 30 September of the next year. The Christmas bonus must generally be paid between 15 November and 15 December of each year. The amount of the bonus may vary depending on (i) the number of employees the employer has; (ii) the salary earned by the employee and (iii) whether the day of hire was before or after 26 January 2017. There are certain circumstances of a financial nature that could lead to an exemption from the requirement to pay the Christmas bonus in whole or in part:

      1. Workplace Harassment, Act 90 of 2020: Act No. 90-2020 (Act 90) was enacted to prohibit workplace harassment, a more generic type of workplace harassment, not necessarily associated with a category protected from discrimination or retaliation, as defined by law. As such, Act 90, and its related guidelines, impose on employers the obligation to take necessary measures to eliminate or reduce workplace harassment by adopting and implementing internal policies, promptly investigating all allegations of harassment, and imposing appropriate disciplinary actions. Employers must adopt these guidelines on or before 3 August 2021.

        2. Under Act 90, employers will be held liable for the actions of their supervisors, other employees and/or third parties in violation of the Act’s prohibition against workplace harassment, if it knew or should have known about such actions, unless the employer can prove that it took immediate corrective measures, and the affected employee unreasonably failed to take advantage of the preventive or corrective measures provided by the employer. In multi-employer (joint employer) settings, all employers involved are required to investigate allegations of workplace harassment, regardless of whether or not they are the direct employer of the employee claiming harassment.

      2. Victims of Domestic or Gender Violence, Child Abuse, Sexual Harassment, Sexual Aggression, Lewd Acts or Stalking, Act 83 of 2019: Act. 83 of 1 August 2019 establishes a Special Leave Absence for employees, whether or not there is a police complaint, if they or a family member are facing a situation of domestic or gender violence, child abuse, sexual harassment in the workplace, sexual aggression, lewd acts, or serious stalking.


Search by:
Need more information?
Contact a Contributing Author:
Katherine González-Valentín
Ferraiuoli LLC
Puerto Rico


María Judith (Nani) Marchand-Sánchez
Ferraiuoli LLC
Puerto Rico


Patricia M. Marvez-Valiente
Ferraiuoli LLC
Puerto Rico


Gregory J. Figueroa-Rosario
Ferraiuoli LLC
Puerto Rico


Gisela E. Sánchez-Alemán
Ferraiuoli LLC
Puerto Rico


Nicole G. Rodríguez-Velázquez
Ferraiuoli LLC
Puerto Rico


Disclaimer:

© 2021, Ferraiuoli LLC. All rights reserved by Ferraiuoli LLC as author and the owner of the copyright in this chapter. Ferraiuoli LLC has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the How to Hire and Fire Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: August 2021