On January 9, 2017, Governor Ricardo Rosselló-Nevárez proposed for the consideration of the legislature the Labor Transformation and Flexibility Act ("LTFA"). This Bill is a comprehensive labor reform that, in conjunction with other initiatives, aims to jumpstart the economy, increase investment and create jobs in Puerto Rico.
The Bill reduces the Christmas Bonus during the first two (2) years of employment to fifty percent (50%). Vacation accrual for new employees is reduced to half (1/2) a day per month during the first year of service of the employee and although the accrual rate increases progressively over time, new employees will not be entitled to the current accrual rate of one and one fourth (1 1/4) day per month until their fifteenth (15) year of service. Sick leave accrual is also reduced to three quarters (3/4) days per month. Mandatory vacation and sick leave accrual will require one hundred and thirty (130) hours of work per month instead of the current one hundred and fifteen (115) hours.
New employees may be subject to an eighteen (18) month probationary period instead of the current six (6) month period. During the probationary period employers are not liable under Puerto Rico's Wrongful Discharge Act. In addition, the Bill caps the severance payment under the Wrongful Discharge Act for all employees to nine (9) months' salary.
The LTFA introduces major changes to wage and hours provisions, including the reduction of overtime premium pay rates to time and a half (1 1/2); skipping meal periods if the daily work schedule does not exceed six (6) hours; and daily work of up to ten (10) hours without overtime compensation. The Bill also aims at repealing the Closing Law, eliminating limitations on operating hours and the overtime or special payment for work performed on Sundays. The Bill also allows for greater flexibility in establishing weekly work schedules and meal periods, reducing daily and weekly overtime.
If approved, the LTFA would eliminate the presumption of wrongful termination against the employer and the statute of limitations for wrongful termination claims would be reduced to one year. Employers would now be allowed to settle wrongful termination claims, any voluntary payment for reason of separation would be credited towards the severance and severance income would be considered exempt. The Bill also establishes liability caps for discrimination and retaliation claims. These changes seek to reduce litigation exposure and costs while facilitating settlement.
As noted, this Bill is part of several mayor reforms that will be introduced as part of the new Administration Plan. Although controversial, many of these changes are expected to be approved and signed into law. This Bill will result in significant changes in the workplace and reductions in labor and operating costs.