Litigation over Puerto Rico Act No 41 creates more uncertainty for employers

As discussed in our prior client alert, Puerto Rico Act No. 41 of June 20, 2022 (Act No. 41) introduced several changes to labor laws in Puerto Rico, in many cases reversing the changes introduced by the 2017 Labor Reform. 

The statute became effective on July 20, 2022 for large businesses, and on September 18, 2022 for micro, small and medium businesses (SMEs).

The Puerto Rico Fiscal Oversight Board, however, has repeatedly stated its opposition to the enactment of Act No. 41, asserting that it is not consistent with the government’s Fiscal Plan and should be repealed. 

Background

On September 1, 2022, the Puerto Rico Fiscal Oversight Board filed a complaint against Puerto Rican Governor Pedro Pierluisi to invalidate Act No. 41, pursuant to section 204(a)(5) of  the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). The Honorable Rafael Hernandez-Montanez, Speaker of the Puerto Rico House of Representatives, also filed a motion to intervene as a defendant in the case, which was granted on October 5, 2022.

Both parties have since filed motions for summary judgment. On September 29, Governor Pierluisi moved for judgment on the pleadings on the basis that the Title III Court lacks subject matter jurisdiction over the Complaint. If the motion for judgment is granted, the Puerto Rico Fiscal Oversight Board is likely to file a claim in the Federal District Court regarding this issue.

Also on September 29, 2022, the Oversight Board moved for summary judgment in order to nullify Act 41 on the basis that the enactment of Act 41 violates PROMESA and that impairs and/or defeats the purpose of PROMESA in numerous ways. If this motion is granted, Act 41 will be repealed.  

Key takeaways

As mentioned, Act No. 41 has technically taken effect for large employers and SMEs. However, the Board’s legal action to nullify Act No. 41 creates uncertainty for employers. In the meantime, employers are urged to consider implementing those provisions of Law No. 41 that went into effect immediately, including changes related to employee compensation, leave accruals, hiring terms and probationary periods.

For more information, please contact the authors or your DLA Piper relationship attorney.