Hire in Puerto Rico​

In Puerto Rico, employees can be hired on indefinite or definite terms. Act 80 defines the “temporary employment contract” and the “term employment contract.” If valid, these contracts for fixed periods form an exception to the “just cause” requirement of the Unjust Dismissal Act. Though a written contract is not required it remains advisable.

A temporary employment contract is required if the engagement is to perform a specific project, a certain work, to replace an employee during a leave of absence, or to carry out extraordinary or short-term tasks.

A term employment contract is required if the engagement is to be for a fixed term. The contract must expressly state the purpose of the temporary contract and the duration of the employment period.

There are specific limits on the maximum duration of term contracts. A term employment contract will now be presumed valid and bona fide if it is for a term not exceeding three years in its initial term or in the aggregate of its renewals. Although the contract can be renewed, if the practice, circumstances and frequency of the renovations are of such that they tend to indicate the creation of an expectation of indefinite continuity of employment, it will be understood that employment is established without a defined term.

Regulation No. 13 of the Puerto Rico Minimum Wage Board defines the administrative, executive and professional exemptions to overtime requirements, as long as employees make at least $455 USD weekly. This mirrors the current regulations under the US Fair Labor Standards Act (FLSA). Regulation No. 13 also recognizes the outside sales exemption and that certain computer professions may qualify for the professional exemption and all exemptions under the FLSA.

The probationary employment period will be set for an automatic term of 9 months for non-exempt employees or 12 months for exempt employees. During this period, employment can be terminated at-will with no notice required. After this period, employees are protected from unjust termination by Act 80.

In Puerto Rico, the average working day is eight hours long and the workweek is 40 hours long.

An employer and employee can agree in writing to set up an alternate work week in which the employee works ten regular hours over four days each week without the employer having to pay daily overtime. The four days do not need to be consecutive. However, if an employee works more than ten hours per day under the alternate working week schedule, the employee is owed overtime. Agreements about alternate work weeks must be voluntary and made in writing.

There are specific rules about meal breaks in Puerto Rico. Non-exempt employees must be given a set meal break of at least one hour. By written agreement, a shorter break of at least 30 minutes is possible for certain professions (e.g., nurses, security guards and croupiers). The meal break must happen between the third and sixth hours of work. The employer and employee can agree in writing that the meal break will come after the second hour of work.

Employees who work less than six hours a day can no longer skip their meal breaks. Those who work more than ten hours have a right to a second meal break. If the total hours worked do not add up to more than 12 hours, the second meal break can be disregarded as long as the worker agrees in writing and has his or her meal during the first break.

Employees who are not exempt from overtime pay and work beyond 40 hours per week or 8 hours on a given day, must receive payment for their overtime hours. Alternatively, the employer can choose to establish a 24-hour cycle other than a traditional calendar day, as long as it meets specific requirements. Overtime also applies on the seventh consecutive day of work, regardless of the day of the week or of how many hours of work were completed on the previous six days.

Employees who work overtime are paid 1.5 times their regular rate. Employees cannot contractually waive the right to overtime pay.

Timesheets are required to be kept for non-exempt employees, which include identifying information about the employee, hours worked, wages earned, etc.

The Puerto Rico Equal Pay Act prohibits employers covered under the Act from asking a job applicant or the applicant’s current or former employer about the applicant’s current or past compensation rate. This restriction is subject to the following exceptions:

• If a job applicant voluntarily discloses their current or past wages, the potential employer may confirm or allow the applicant to confirm the information.
• The potential employer may inquire into or confirm an applicant’s current or past wages if it negotiated the compensation rate with and offered employment to the applicant.

Employers in Puerto Rico can perform background checks (including criminal and credit checks) on job applicants. This must be done in line with federal regulations, including the Fair Credit Reporting Act, and recent guidance from the Equal Employment Opportunity Commission concerning the potential disparate impact of background checks.

Employers with over 20 employees must provide employees who worked at least 1,350 hours from October 1 to September 30 of the following year a bonus equivalent to 2% of their annual salary, capped at $600.

Employers with fewer than 20 employees for the same 12-month period must provide employees who worked at least 1,350 hours within that period a bonus equivalent to 2% of the annual salary, capped at $300.

During the first year of employment, the required bonus payment is 50% of the above amount.

The total amount of the bonus must not exceed 15% of the annual net profit of the employer. The bonus is to be paid typically between November 15 and December 15 of each year.

Puerto Rico law requires that employers have “just cause” to terminate the employment of an employee hired for an indefinite period of time after the probation period. If it is determined that there is no just cause, the discharged employee is entitled to a statutory severance under Act 80 known as the mesada. “Just cause” refers to those reasons affecting the good and normal operations of the employer, including improper conduct on the employee’s part and the following “business necessity” reasons:

• Full, temporary or partial closing of the operations of the employer;
• Technological or reorganization changes;
• Layoffs are made necessary by anticipated reduction in production, sales or profits or with the purpose of increasing competitiveness.

If an employer decides to terminate an employee based on any of the three aforementioned reasons, they must retain employees who have higher seniority, unless there is clear evidence that comparable employees are more competent.

All employment terminations are assumed unjust and termination is discriminatory if there is no just cause. The employer has the burden of proving that dismissal was fair according to the standard set by the Puerto Rico Unjust Dismissal Act and that the job was terminated for legitimate business reasons that did not involve discrimination. In addition, under the Act, employees have one year to file a lawsuit for wage, vacation and sick leave claims or a breach of an employment contract.

The US Worker Adjustment and Retraining Notification Act (WARN) applied in Puerto Rico requires written notice at least 60 days before a plant closing or mass layoff to affected workers or their representatives. For other termination scenarios on the employer’s part, there is no formal “notice period” requirement.

Under WARN, pay in lieu of notice may be provided in certain circumstances. Puerto Rico does not have a local WARN statute.

The statutory severance is three months of salary plus two weeks for each completed year of service. This is capped at nine months.

For calculating statutory severance, if there was an interruption in service of more than two years, prior tenure does not count.

Severance payments are free of income tax up to the statutory severance amount. Excess is subject to taxation.

For a non-compete clause to be enforceable in Puerto Rico, it must meet the following general requirements:

• It must be in writing and voluntary.
• The duration of the covenant should not exceed one year.
• Adequate consideration is required. Continuing to work is not enough of a reason for an employee to agree to the restriction. Instead, the employee must get something else in return for agreeing to the new condition.
• The restriction must be clearly necessary to protect the legitimate interests of the employer.
• The geographic area must be specified and limited to those needed to prevent true competition between the employer and the employee.
• Any client limitations must be specified and should be limited to those previously serviced by the employee.

The Constitution of Puerto Rico guarantees the right to privacy for all individuals, including employees of private companies. This means employers are required to maintain the confidentiality of employee files, as stated in Articles 1, 8 and 16 of the Constitution.

However, when it comes to the obligation to provide notice, US federal law is applicable. For instance, before implementing an employee surveillance program, employers are required to provide prior notice to their employees.