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Labor Reform on the Governor's Desk

On January 23, 2017, the House of Representative approved House Bill 453 as amended by the Senate. The process before the legislature has concluded. Soon the final version of the Labor Transformation and Flexibility Act will be in the Governor’s desk for his signature. When enacted the Act will provide the following:

Employment Agreements.

  • The Act creates an incontrovertible presumption that an independent contractor agreement is valid if it complies with various requirements.

  • The statute of limitations for breach of an employment contract claims will be reduced to 1 year. Claims based on facts that occur before the approval of the Act will maintain the previous statute of limitations.

  • Fixed-term employment contracts with a duration of no more than 3 years, including any extensions, will be presumed valid. As before, employees under a fixed-term agreement are exempt from Act 80.

  • The Act clarifies that employment contracts may be written in any language and that a signed agreement creates a presumption that the employee knows the language and content of the agreement.

Retaliation and Discrimination Claims.

  • The protections under anti-retaliation and anti-discrimination statutes will remain unchanged. However, the burden of proving a discrimination claim will changes. HB 453 will eliminate the presumption of discrimination when the employers’ acts are unjustified. If signed into law employees will bear the full obligation of proving their case.

  • Additionally, a damages cap is created similar to the cap included in Title VII of the Civil Rights Act. If approved, the following cap will apply to all discrimination and retaliation claims:

No. of Employees Damages Cap

1-100 $50,000

101-200 $100,000

201-500 $200,000 501 or more $300,000

  • The Act will require employers to accommodate the religious practices of the employees when given written notice. Employers may refuse to provide the accommodation if it causes an undue hardship.

Terminations and Transfers of Business.

Employee rights under the Unjust Dismissals Act, P.R. Act 80-1976, will suffer major changes.

  • An automatic probationary period of 12 months will apply to exempt employees (“executives”, “administrators” and “professionals”) and 9 months for the rest of the workforce. As before, employees terminated with or without just cause within the probationary period do not have a right to the severance payment under Act 80, commonly referred to as “mesada”. Current employees are not eligible for the amended probationary period.

  • The computations of the severance payment will be simpler and in some cases substantially lower. The proposed compensation is composed of a base of 3 months salary regardless of years of seniority and an additional indemnity of 2 weeks salary for each year of service. The severance payment will be capped at 9 months salary; maxing out after 3 years of service. The severance payment for current employees will be calculated based on the current computation.

  • Additionally, the employee data (years of service and wages) needed to compute the severance payment will be calculated differently. The “years of service” will be calculated excluding periods previously worked for the employer if there is a break in service for 2 or more years. Employees’ salary will not include benefits and other types of compensation.

  • If HB 453, is approved, the P.R. Supreme Court decision in Orsini v. Secretario de Haciendas, 2009 TSPR 190, will be overturned. Employers will be able to settle unjust dismissal claims without having to pay the entire severance payment amount as decided by the Supreme Court. Additionally, payments made to the employee at the termination stage will be deducted from any future severance payment.

  • The portions of Act 80, that regulate workforce reductions will also suffer changes. Previously, employers could deviate from the strict seniority requirement considering only the efficiency or capacity of the workers. Under the proposed amendments, employers may also consider employees’ conduct record.

  • Act 80, currently grants the courts authority to require employers to post a bond, at the initial stages of the litigation, covering the severance payment plus attorney’s fees. The Act will eliminate that section.

  • Portions of Act 80, regulating the transfer of an ongoing business remains largely unchanged. However, the Act adds a new definition of “transfer of an ongoing business” term that may limit its applicability.

  • The statute of limitation for unjust dismissal claims will be reduced from 3 years to 1 year. Claims based on facts that occur before the approval of the Act will maintain the 3 years statute of limitations.

Wage and Hours.

  • Daily overtime will be redefined from, time worked in excess of 8 hours in any 24-hour period to time worked in excess of 8 hours in a calendar day or the 24-hour period defined by the employer.

  • The standard workweek of 168 hours will start each Monday at 12:01 a.m. instead of Monday at 8:00 a.m. as previously regulated.

  • The previous flextime agreement under P.R. Act 379-1948, is eliminated since there is no need for it under the new definition of daily overtime. A new flextime agreement will be created allowing employees to work a 40-hour week in up to 10-hour days in without incurring in overtime.

  • Employers may allow an alternate work schedule of up to 12 hours in a day as long as the hours worked are not weekly overtime and are worked in the same week of the absence to make up for personal absences without incurring in overtime.

  • The Act eliminates the different overtime rates between employers covered by the Fair Labor Standards Act (FLSA) and those not covered by the Act. A single overtime rate of 1½ times the rate for regular hours is established. Current employers will keep their overtime rate.

  • A somewhat formal process will be created requiring employers to formally respond to employees’ request to change their work schedule, the number of hours in their schedule or their worksite.

  • The range of time in which the meal period should be enjoyed will be extended by one hour. In general terms, meals period may be enjoyed during the 3rd, 4th, 5th and 6th hour of work. When employees work 10-hour days, the employers will be obligated to provide 2 meal periods. The meal period penalty for work performed during such time will be reduced from 2 times the rate for regular hours to 1½ times the rate for regular hours. Current employee will keep the original meal period penalty rate.

  • The hourly rate for time worked during the 7th consecutive day of work within the same workweek is reduced to 1½ times the rate for regular hours. Current employers will keep their meal period penalty rate.

  • P.R. Act 1-1989, known as the Closing Act will be repealed. Therefore, the hourly rate of $11.25, for time worked on Sundays is eliminated along with the holidays for retail sector except for Holy Friday and Easter Sunday.

Christmas Bonus.

  • Employees hired after the Act takes effect, will have to work a total of 1,350 hours from October 1 to September 30 of the year in which the bonus should be paid to be entitled to the following bonus:

No. of Employees Bonus

1-20 Up to $600

21 or more Up to $300

  • During the first year of employment, employees are entitled to only half the applicable bonus.

Leave of Absences.

  • A grandfather clause is included allowing employees to keep their current sick and vacation leave benefits as long as they are employed by the same employer they will have when the Act is signed into law.

  • A cause of action is created for employees that are terminated by their employers so they can benefit from the new accumulation rates by rehiring them or others.

  • The accrual of sick and vacation leaves will be altered by raising the hours requirement to 130 hours per month and by reducing the accumulation rates. Sick leave will be accrued at a rate of 1 day a month for a total of 12 days in a year. Vacation leave will be accrued as follows:

Years of Service Accumulation Year Total

0-1 ½ day 6

1-5 ¾ day 9

5-15 1 day 12

15 or more 1¼ days 15

  • Employers with 12 employees or less will accrue vacation leave at a rate of ½ days a month regardless of the employees’ years of service.

  • The non-occupational disability leave (SINOT) under P.R. Act 139-1968, will be amended for employers with 15 or fewer employees by reducing the protected leave to 6 months. For employers with more than 15 employees, the protected leave is also reduced from 365 days to 12 months or 360 days.

  • The leave for occupational accidents (Fondo) under P.R. Act 45-1935, will be amended for employers with 15 or fewer employees by reducing the protected leave to 6 months.

  • The employment relationship will automatically end when the employees’ absence exceeds a protected leave of absence.

  • The statute of limitation for wage, sick leave or vacation leave claims will be reduced from 3 years to 1 year. Claims based on facts that occur before the approval of the Act will maintain the 3 years statute of limitations.

  • Lactating leave will be extended to part-time female employees. They will be entitled to a 30-minute leave for every 4 hours of work.

We will continue to monitor the legislative process. To further discuss these changes and any other labor and employment law matter, contact our offices at 787.504.1115.


The information herein is meant for informational purposes and it shall not be construed as a legal opinion. Specific situations and questions should always be discussed with one of our attorneys.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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