Court Nullifies Puerto Rico's Law on Employee Entitlements

​Editor's Note: On Aug. 10, the 1st U.S. Circuit Court of Appeals affirmed a federal district court ruling declaring Law 41-2022 null and void.

The U.S. District Court for the District of Puerto Rico recently issued a decision declaring Law 41-2022 null and void, effectively reinstating the prior state of many of Puerto Rico's employment-related entitlements. The decision will impact employees' statutory benefits and rights, including vacation pay, sick leave, meal periods, holiday bonuses, and severance pay.

Background

On June 20, 2022, the governor of Puerto Rico signed Law 41-2022, which modified some of the statutory benefits and entitlements granted to Puerto Rico employees. The statute became effective on July 20, 2022. On Sept. 1, 2022, the Financial Oversight and Management Board for Puerto Rico, an entity created by the U.S. Congress to oversee Puerto Rico's public administration and legislation, filed an injunction in federal court seeking to stay the effects of Law 41-2022.

On March 3, 2022, the district court granted the board's request for injunctive relief, holding that Law 41-2022 was null and void and enjoining the governor of Puerto Rico and any other persons from "taking any acts to help private parties implement or enforce [Law] 41."

Based on this decision, employers in Puerto Rico may want to review and revise their employment practices and policies to comply with the state of the law prior to July 20, 2022, the effective date of Law 41-2022.

Vacation and Sick Leave

Nonexempt employees will now accrue one-half vacation day per month, if they work for employers with 12 or fewer employees and they work at least 130 hours per month. If they work for employers employing 13 or more employees, they will now accrue vacation ranging from one-half day per month to one-and-one-quarter days per month, based on their years of service. (Previously under Law 41-2022, nonexempt employees accrued vacation leave at a rate of one-and-one-quarter days per month, if they worked at least 115 hours per month and they worked for employers with 13 employees or more. Nonexempt employees who worked for employers with no more than 12 employees accrued one-half day of vacation per month.)

Now nonexempt employees will accrue one day of sick leave per month, if they work at least 130 hours per month, regardless of the number of employees employed by the employer. Previously under Law 41-2022, nonexempt employees accrued one sick day per month, if they worked 115 hours per month.

Now part-time nonexempt employees are no longer entitled to accrued vacation or sick leave. Previously under Law 41-2022, part-time nonexempt employees who worked at least 20 hours every week accrued one-half vacation day per month and one-half sick day per month, if they worked for employers with 13 or more employees – or one-quarter vacation day per month and one-half sick day per month, if they worked for employers with 12 employees or fewer.

Nonexempt employees are now only able to request payment in excess of 10 days of accrued vacation. Previously under Law 41-2022, employees were entitled to request payment for all accrued and unused vacation.

Meal Periods

The meal period for nonexempt employees now must be granted after the end of the second hour of work. Under Law 41-2022, it was after the end of the third hour of work.

The employee or the employer may now revoke the agreement to reduce the meal period from one hour to 30 minutes after the first year of employment. Under Law 41-2022, the employee or the employer could revoke the agreement at any time.

Christmas Bonuses

The court decision reverted the eligibility threshold for Christmas bonuses. It now is 1,350 hours per year for employees hired after Jan. 26, 2017, working for employers with 12 or more employees. Under Law 41-2022, the threshold had been reduced to 700 hours. The previous 900-hour threshold for employees of micro-enterprises, and small and medium enterprises, was also nullified.

Statutory Severance and Probationary Periods

The severance for employees with 15 years of service or more is reduced to three months plus two weeks for each year of service (previously it was six months plus three weeks for each year of service). The severance is subject to a nine-month cap for employees hired after Jan. 26, 2017.

The probationary period is now nine months for exempt employees and one year for nonexempt employees. Under Law 41-2022, the probationary period was three months for all employees.

The statute of limitations for causes of action related to employment contracts, vacation leave, sick leave, and unjust termination is one year (previously it was three years under Law 41-2022).

Carlos G. Colόn-Machargo is an attorney with Ogletree Deakins in Atlanta. Lina Fernandez is an attorney with Ogletree Deakins in Boston. © 2023. All rights reserved. Reprinted with permission.