In an effort to become more competitive in the face of a flagging economy, an attractive jurisdiction for establishing businesses and creating employment opportunities, and to increase talent acquisition and retention locally, Puerto Rico is overhauling its employment law regime through the enactment of the Labor Transformation and Flexibility Act (the Act). Puerto Rico’s new governor, Ricardo Rosselló, signed the Act into law on the morning of January 26, 2017. The Act dramatically alters the currently very employee-friendly labor and employment landscape in Puerto Rico, making it both more attractive for employers, while also increasing flexibility for employee schedules. Key changes include:

• The law now expressly defines the term “employment contract”, and there is a non-rebuttable presumption that an individual is an independent contractor, as opposed to an employee, provided that certain requirements are met.
• A probationary period of nine months will automatically apply to newly-hired non-exempt employees (12 months for executives, administrators, and professionals) during which time the employer may terminate the employment relationship without incurring severance pay liability.
• The severance pay formula provided by Act No. 80, Puerto Rico’s wrongful discharge statute, has been amended and capped at nine months of salary; previously, no such cap applied, allowing for exorbitant severance payments for long-term employees.
• The definition of “just cause” for termination under Act No. 80 has been amended to, among other things, clarify what constitutes poor performance for a termination for “just cause,” and there is no longer a presumption that a termination is without “just cause.” Therefore, employees now bear the burden of proving that their employment terminations were without “just cause.”
• Punitive and compensatory damages for discrimination and retaliation claims have been capped at different levels depending on the size of the employer’s workforce.
• In all lawsuits under Act No. 80, a mandatory settlement hearing must be held within 60 days from the date of filing of the employer’s answer to the complaint, encouraging employees to settle reasonably.
• With limited exceptions, to accrue vacation and sick leave time, eligible employees hired after the enactment of the Act must now work 130 hours per month, increased from 115 hours per month. The accrual rate for vacation, which currently may vary depending on the employer’s industry, will now be based on years of service, and for employees, regardless of industry, will generally range from.5 to 1.25 days per month. Sick leave will accrue at a rate of one day per month.
• The Regulation of Operations of Commercial Establishments Act, also known as the Closing Law, has been repealed, eliminating restrictions and special pay requirements for particular retail establishments open for business on Sundays and certain holidays.
• Daily overtime is now based on a calendar day and not a rolling, 24- hour period, substantially reducing the time period in which overtime hours worked will accrue.
• Prior to the enactment of the Act, overtime rates would vary based on the employer’s industry. Under the Act, a new standard rate of overtime compensation of 1.5 times an employee’s normal rate of pay has been implemented for all non-exempt employees, regardless of industry, and existing overtime provisions in mandatory decrees have been revoked.
• A voluntary, flexible work schedule may be implemented (provided it is agreed to in writing) allowing employees to work up to 10 regular hours per day, four days per week, without triggering overtime liability for the employer.
• The right to a safe, private, and hygienic place to nurse or extract breast milk has been extended to part-time female employees who work more than four hours per day. Previously, the benefit was for full-time employees only. A penalty of at least $3,000 USD has been established for violations of the Law to Regulate the Period to Breastfeed or Express Breast Milk.
• The number of hours employees must work to earn the statutory Christmas bonus has been increased, and the statutory minimum amount of this bonus has been reduced.
• Finally, the statute of limitations applicable to both unjust dismissal and wages and hours claims has been reduced from three years to one year.