On January 26, 2017, the Governor of Puerto Rico, Ricardo Roselló-Nevares, signed the Labor Transformation and Flexibility Act ("LTFA"). The LTFA is a comprehensive labor and employment reform applicable to private employers in Puerto Rico. Although most of the changes to employment benefits are only applicable to newly hired employees, the LTFA's impact extends to hiring and terminations, wage and hour provisions, and operating hours. The following is a general summary of the LTFA's most relevant provisions.
Overtime and Work Schedules
- Daily overtime will be hours worked in excess of eight (8) in a calendar day, not in any twenty-four (24) consecutive hours period.
- Overtime pay rate is uniformly established at time and a half (1 1/2).
- LTFA allows the meal period to be skipped if the working day does not exceed six (6) hours.
- Hours worked on Sundays will no longer be considered overtime.
- Changes to a 24-hour work rotation have to be notified to the employee at least five (5) days prior to such change.
- The Employer may allow for ten (10) hours workdays, for up to four (4) days a week, without being required to pay daily overtime rate.
- Employers and employees can agree on alternate and flexible work schedules without incurring in overtime.
- Employees may replace missed work hours by extending a work day from eight (8) to twelve (12) hours, subject to the employer's approval, without incurring in overtime.
- Employers are required to consider requests from employees regarding flexible working hours and change of work place. The Employer must provide a written answer to the employee within twenty (20) days explaining the reasons for denying the request.
Closing Law
LTFA repeals the Regulation of Operations of Commercial Establishment Act, commonly known as the Closing Law, which regulated the opening of certain commercial establishments dedicated to retail sales.
- Elimination of restrictions to operating hours in the retail industry.
- The LTFA provides that businesses established prior to January 26, 2017, which were required to close on Good Friday and Easter Sunday are still required to do so.
Employee Benefits
Newly hired employees will accrue vacation at lower rates.
- Vacation accrual rate begins at a half (1/2) day per month, and it is progressively increased until it reaches the actual accrual rate of one and one fourth (1 1/4) day per month.
- Regarding sick leave, the minimum accrual rate remains at one (1) day per month.
- Mandatory vacation and sick leave accrual will require one hundred and thirty (130) hours of work per month for newly hired employees, instead of the current one hundred and fifteen (115) hours per month for employees hired prior to January 27, 2017.
- LTFA increases to one thousand three hundred and fifty (1,350) hours the minimum of work hours that an employee must accumulate in order to be entitled to the Annual Christmas Bonus, and reduces the amount from six percent (6%) to two percent (2%) of the employee's salary.
- During the first year of employment, employers only have to pay fifty percent (50%) of the Christmas Bonus to new hires.
- Employees hired before the approval of LTFA will continue to accrue vacation and sick leave at the previous rate.
Probationary Period and Part-time Employees
- Newly hired employees are now subject to an automatic nine (9) month probationary period. Exempt employees under the FLSA will have a twelve (12) month probationary period.
- It is no longer required to have a written probationary contract prior to commencing employment.
- Employers may assign less than one hundred and thirty (130) hours of work per month to part-time employees.
Independent Contractors
- Independent contractors are not covered by employment laws.
- LTFA minimizes uncertainty when determining the relationship between the principal and an independent contractor.
- The LTFA establishes a non-rebuttable presumption of independent contractor if certain criteria are met.
Termination of Employment
LTFA introduces important amendments to the Puerto Rico's Wrongful Discharge Act No.80-1976.
- The formula for computing severance payment is now modified to three (3) months' salary plus two (2) weeks of pay for each full year of service.
- The severance payment is capped to nine (9) months of salary.
- The statute of limitations for wrongful termination claims are reduced from three (3) to one (1) year.
- These changes to the severance payment formula, compensation cap and statute of limitations are not applicable to employees hired before the approval of the LTFA.
Maternity Rights and Benefits
- Employers are required to provide a safe, private and hygienic space for employees to enjoy their breastfeeding leave.
- Part-time employees, working at least four (4) hours, are now entitled to a thirty (30) minutes period to breastfeed her baby or express milk.
Reasonable Accommodation and Disability
- Employees with religious beliefs may seek reasonable accommodation from their employers to attend extraordinary religious services. For this, the employee must request a leave at least ten (10) days prior to such activity.
- Employers who violate the employee's religious beliefs will be subject to a penalty of up to five thousand dollars ($5,000).
- The employment reserve period of twelve (12) months for workmen's accidents or disability was reduced to six (6) months for Employers with fifteen (15) or less employees at the time of the accident or disability.
Collective Bargaining Agreements
- Employees under collective bargaining agreements are excluded from the coverage of the following statutes and provisions:
- Puerto Rico Public Law No. 379-1948, known as Local Labor Standards Act (regarding working hours and overtime for non-exempt employees).
- Puerto Rico Public Law No. 180-1998, known as Local Minimum Wage Violations & Sick Leave Act.
- Puerto Rico Public Law No. 80-1976, known as the Wrongful Discharge Act. The LTFA provides for employees to negotiate their own probationary period under collective bargain agreements.
