House Bill PC 3 (“Bill PC 3”), which would repeal the Labor Transformation and Flexibility Act (“Act 4-2017”), was recently sent to Governor Office for his signature. If signed into law, Bill PC 3 will change the relationship between employers and employees in the private sector.
Among the relevant changes introduced by the Bill PC 3 is the formula to calculate the severance payment of employees dismissed without just cause under Act 80-1976. The current formula introduced by Act 4-2017 has a nine (9) month salary cap. Bill PC 3, however, proposes to revert it to the old formula, as follows:
- 2 months’ salary plus 1 week of pay for each full year of service, if the employee has worked for the employer up to 5 years,
- 3 months of salary plus 2 weeks of pay for each year of service, if the employee has worked more than 5 and up to 15 years,
- 6 months of salary plus 3 weeks of pay for every year of service, if the employee has worked for more than 15 years.
Bill PC 3 also proposes to extend the statute of limitation to file a claim for unjustified dismissal under Act 80-1976 to three (3) years after the termination date, repealing the one (1) year statute established by Act 4-2017.
Another important proposed change is the probationary period. Before the enactment of Act 4-2017, all employees in Puerto Rico had a three (3) month probationary period, but only if agreed upon in writing prior to the beginning of the employment relationship. Act 4-2017 changed that term and established an automatic probationary period of twelve (12) months for executives, administrators and professionals -as these terms are defined by the FLSA and local regulations issued by the Puerto Rico Department of Labor and Human Resources- and nine (9) months for all other employees. Now, Bill PC 3 proposes to reduce the probationary period for executives, administrators and professionals to nine (9) months, and to reinstate the three (3) month probationary period for all other employees.
Vacation and sick leave for non-exempt employees are regulated by the Puerto Rico Minimum Wage, Vacation and Sick Leave Act (“Act 180-1998”), as amended by Act 4-2017. Act 4-2017 requires employees hired as of January 26, 2017 to work one hundred and thirty (130) hours per month to be able to accrue the following vacation leave:
- half (1/2) a day during the first year of service;
- three fourth (3/4) of a day after the first year of service until completing five (5) years of service;
- one (1) day after five (5) years of service until the fifteenth (15) year of service; and
- one and one quarter (1 ¼) of a day after completing fifteen (15) years of service.
Non-exempt employees hired as of January 26, 2017 must also work one hundred and thirty (130) hours each month to be able to accrue sick leave at a rate of one (1) day per month.
Bill PC 3 proposes to reinstate the previous vacation accruals to one and one quarter (1 ¼) day per month, after working at least one hundred fifteen (115) hours each month, without taking years of service into consideration. Sick leave is to remain at an accrual rate of one (1) day per month, but after working hundred fifteen (115) hours instead of one hundred and thirty (130).
These are only some of the most important changes proposed by Bill PC 3 to Act 4-2017. We will continue to monitor the status of Bill PC 3 and Governor Pierluisi’s ultimate decision to either sign it or reject it.
Update: On March 4, 2022 Governor Pierluisi vetoed Bill PC 3. Governor Pierluisi asked the Legislature to review the bill and address his concerns regarding overtime pay and other drafting errors.
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