Puerto Rico: Court declares Puerto Rico Act No. 41 null

On 3 March 2023, the Federal District Court of Puerto Rico ruled that Puerto Rico Act No. 41 of 20 June 2022 (Act No. 41) was approved in violation of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).
It also stated that changes to local employment statutes provided by the Act are null and void ab initio.

As you can find in our previous news on the issue, on 20 June 2022, Puerto Rico's Governor signed into law Act No. 41-2022 (the Act), amending and partially repealing the Labour Transformation and Flexibility Act (LTFA). It introduced changes to the statutory probationary period, vacation and sick leave accrual, and the way the annual Christmas Bonus is accumulated, among other requirements.

However, implementing the law was uncertain from the outset because the Supervisory Council of Puerto Rico stated that the law did not comply with the Fiscal Plan as required by law and, therefore, could not enter into force.

For this reason, the Council first called on the government of Puerto Rico to suspend the effects of the law. Then, on 1 September 2022, the Fiscal Oversight and Management Board (FOMB) filed a lawsuit against Governor Pedro Pierluisi, challenging Law 41-2022.

Less than a year after its enactment, the Court stated that Act 41 was null for two main reasons: in detail, the Governor had (i) failed to submit an estimate of the impact, if any, that the law would have on expenditures and revenues as required by section 204(a)(2) of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"); and (ii) failed to provide a certification by an appropriate entity that the law is or is not significantly inconsistent with the Fiscal Plan for the year 2022 as required under section 204(a)(4)(B) of PROMESA.

In addition, the District Court found that Act No. 41 contradicts the Fiscal Plan 2022, which requires the government to refrain from repealing the 2017 labour reform. Therefore Act No. 41 was declared void ab initio.

In light of this decision, employers should consider that all labour statutes revert to what was established in the 2017 labour reform.

However, the Court's decision is not final, and this uncertain situation will continue for quite some time. Both the Puerto Rico legislature and the government's executive branch have announced that they will appeal the decision, which can be filed within 30 days of the ruling.