On March 3, 2023, U.S. District Court Judge Laura Taylor Swain, presiding over Puerto Rico’s bankruptcy, issued an opinion declaring Act 41-2022 (Act No. 41) null and void ab initio.
Law 41-2022 Amendments
Act No. 41, which took effect in June 2022, amended several employment regulations that had been established by the 2017 Labor Transformation and Flexibility Act (LTFA). As previously reported, Act No. 41 sought to broaden several labor rights applicable to employees in the private sector. Specifically, the Act provided the following employment benefits:
- Limited the probationary period to a maximum of three months;
- Increased accrual of vacation and sick leave;
- Extended the statute of limitations for workers to claim benefits derived from an employment contract to three years;
- Required bonuses for eligible employees;
- Mandated severance pay, calculated based on years of service, for employees dismissed without just cause from positions for an indefinite term;
- Provided for ambiguous provisions to be interpreted in favor of the employee;
- Directed employers to provide meal periods based on number of hours worked; and
- Established that certain employees were entitled to one day of rest for every six days worked.
March 3, 2023 Decision
On September 1, 2022, Puerto Rico’s Financial Oversight and Management Board filed the present lawsuit, seeking nullification of Act No. 41. The Board claimed the objectives of the Act directly contradicted the island’s fiscal plan and violated the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).
Judge Swain’s opinion found the Oversight Board was entitled to relief as a matter of law due to the Governor’s failure to comply with several statutory requirements, including failing to provide an estimate of the impact on revenues and expenditures and “certification that Act 41… [either] is or is not consistent with the entire period of the 2022 Fiscal Plan.”
The Opinion and Order further “permanently prohibits and enjoins the Governor or any other persons who are in active concert or participation with the Governor from taking any acts to help private parties implement or enforce Act 41.”
This breakthrough decision impacts all private sector employers and employees in Puerto Rico and establishes an important precedent. With the nullification of Act 41, the 2017 Labor Transformation and Flexibility Act is reinstated. Notably, the statute of limitations for violations of employment contracts, including wrongful termination, wage and hour claims, and accrual and payout of vacation time, is now reverted to one year.
We will continue to monitor and report on this important development.
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