Puerto Rico Governor Signs Controversial Labor Reform Bill

Puerto Rico Governor Signs Controversial Labor Reform Bill

Puerto Rico’s new governor Ricardo Rosselló signed a bill last week that comprehensively reforms the commonwealth’s employment laws as part of a strategy to revitalize the Puerto Rican economy by lowering the cost of doing business there, the Associated Press reported:

The law approved on Thursday implements flexible scheduling, cuts the amount of a mandatory Christmas bonus, reduces vacation days and overtime pay from double time to time-and-a-half, and implements a nine-month probation period for most workers. It also strikes down a previous law that authorized extra pay for those working on Sundays and allowed businesses to remain closed from 5 a.m. to 11 a.m. on Sundays. …

The law implements some of the changes sought by a federal control board created by Congress last year that said Puerto Rico regulations tied to employee retention, severance pay, flexible scheduling and mandatory vacation days and pensions should reflect U.S. standards.

The new law now allows private employees to work 10 hours a day for four days without earning overtime, and it increases unemployment benefits from a maximum of $133 to $240 a week. However, concerns remain as the island of nearly 3.5 million people struggles to emerge from a deep economic crisis and battles a 12 percent unemployment rate, compared with a U.S. average of nearly 5 percent.

Critics of the law say it will drive skilled professionals to the mainland US and impoverish working-class Puerto Ricans, but economist Gustavo Velez told the AP that even with these changes in place, Puerto Rico would still provide more generous employee benefits under the law than any US state. The change is part of a series of pro-market reforms and austerity measures being enacted by Rosselló to try to pull the island out of compound fiscal and economic crises.

At the National Law Review, attorneys Juan Felipe Santos, Sara E. Colón-Acevedo, and Maralyssa Álvarez-Sánchez from Jackson Lewis’s San Juan office explain in detail what the new law means for employers. One point of interest is that it appears to open up more opportunities for contingent or gig work by making it easier to hire independent contractors:

  • The concept of an “employment contract” is defined expressly to exclude from the employment relationship the services provided by independent contractors, among others.
  • The establishment of a non-rebuttable presumption of independent contractor relationship status, provided specific requirements are met. It also provides that, unless required by a federal law applicable to Puerto Rico, the “economic reality” test should not be used to evaluate whether an independent contractor relationship exists.

Perhaps the most significant change is the overhaul of wage-and-hour law, which a group of Littler Mendelson attorneys describe in another in-depth post at Lexology:

[The reform bill] [s]ubstantially modifies Puerto Rico wage-and-hour legislation by redefining the concept of overtime hours and workweek, eliminating 24-hour overtime and, in a significant departure from what has been the standard in Puerto Rico, permitting alternative 40-hour work schedules and the make-up of time not worked due to personal reasons. The Act establishes a procedure for employee requests to change work shifts, working hours and place where work is performed, and identifies specific time frames for the employer to respond to the same. The Act defines the concepts of “tips” and “service charges” and, under Puerto Rico law, expressly excludes from the definition of “wages” any such amounts received in excess of those used to comply with the payment of the legal minimum wage. Further, the Act implements important changes to the timing of meal periods and the payment of meal period penalties, and eliminates the need for a written agreement in cases where the second meal period can be obviated.