Puerto Rico Department of Labor’s Circular Letter on the nullity of the 2022 Puerto Rican labor reform – key takeaways

On March 10, 2023, Puerto Rico Department of Labor and Human Resources Secretary Gabriel Maldonado-González (the Secretary) published Circular Letter No. 2023-01, which details the department’s position on the Puerto Rico Federal District Court’s recent nullification of Act No. 41-2022.

As discussed in a recent client alert, the Court declared Act No. 41-2022 void ab initio for failing to comply with the procedural requirements of the Federal PROMESA Act.

In addition to summarizing the Department’s stance on the ruling, the Secretary’s Circular Letter provides next steps for private-sector employers in Puerto Rico and sets out certain guidelines (the Opinion).

In this alert, we take a quick look at the letter’s key components.

Suggested courses of action

The Secretary’s Opinion begins with an acknowledgement that the Federal District Court’s decision took immediate effect over Puerto Rican law, but that the decision is not final and remains appealable – that is, Act No. 41’s validity could well be recognized and reinstated at the appeal level.

Given the continuing uncertainty, the Secretary’s Opinion sets out key steps for employers within the private sector. For example, in acknowledgement of Puerto Rico’s competitive labor market, the Secretary suggests that employers should continue providing their employees greater labor benefits than are required by Puerto Rican law, as they might have done while Act No. 41’s validity was being litigated in the District Court.

The Secretary also reminds employers that they must abide by their contractual obligations. For instance, if employers expressly included any of Act No. 41’s benefits in their labor contracts, they are contractually obligated to afford those benefits despite Act No. 41’s nullity.

The Secretary added that employers should be cautious in reversing employment benefits they had afforded in compliance with Act No. 41. The Opinion adds that such reversals may be cause for litigation if Act No. 41 is declared valid in later judicial decisions.

Monetary recoveries

Some employers may be reevaluating payments they made to their employees when Act No. 41 was believed to be valid (eg, greater annual bonuses or increased paid vacation time). The Secretary’s Opinion reminds employers that non-exempt employees’ salaries may not be retained in order to recover excess payments. Meanwhile, exempt employees may voluntarily agree to such paycheck retentions – for instance, their employment contracts may provide for this.

Because Act No. 41 had increased the minimum amount for annual employment bonuses, employers may be left wondering whether their employees’ 2022 bonuses may be used as credit for their 2023 annual bonuses. The Secretary clarified that this would only be the case for employers who, within five business days of payment, had notified their employees in writing that any excess amounts paid in employees’ 2022 bonus would be credited to the employees’ future annual bonus.

Going forward

Because the District Court’s decision on Act No. 41 is not yet final, the Secretary concludes that employers on the island should continue to offer greater benefits to their employees than Puerto Rican law currently requires, as they may have done while Act No. 41’s enactment was being litigated before the Court.

Additionally, the Puerto Rican legislature has introduced a bill which is substantially similar to Act No. 41 and may be validly enacted if it complies with PROMESA’s procedural requirements. The future of this bill remains uncertain. Employers may consult the Puerto Rican Department of Labor and Human Resources with questions regarding the Opinion. To this end, employers can write to consultas@trabajo.pr.gov or procuradordeltrabajo@trabajo.pr.gov.

For more information regarding this Opinion or the uncertainty surrounding actions to be taken in light of Act No. 41, please contact Janine Guzmán or your DLA Piper relationship attorney.