Since the inception of Law No. 41-2022, we alerted our clients and readers of the obstacles and challenges that lay ahead with the implementation of this legislation. The Fiscal Oversight & Management Board for Puerto Rico (“the Board”) made no secret of its opposition to House Bill 1244-2022, which eventually became Law No. 41-2022, and advised the government of Puerto Rico not to repeal Law No. 4-2017, also known as the Labor Transformation and Flexibility Act. The Board also vowed to take legal action to stop any legislation that would negatively impact the labor market flexibility that Puerto Rico needs, or any action that would interfere with PROMESA’s purposes.
Thus, on July 30, 2022, a few days after the effective date of the law, the Board provided the government of Puerto Rico with an economic impact analysis of Law No. 41-2022, and asked the government to suspend voluntarily such law no later than August 4, 2022. Failure to act on the part of the government would result in legal action to nullify Law No. 41-2022. The government, however, ignored the Board’s warning and decided to go full speed ahead with the implementation of the law.
The Board made good on its promise. On September 1, 2022, it filed a complaint in federal court with two (2) counts to repeal Law No. 41-2022. On September 29, 2022, the government answered and challenged the jurisdiction of the Court. On the same day, the Board moved for summary judgment. Accordingly, on March 3, 2023, after full consideration of the parties’ arguments and positions, the Court denied the government’s motion, holding that it may exercise jurisdiction, and granted in part and denied in part the Board’s summary judgment motion.
Granting in part the Board’s summary judgment motion was sufficient for the Court to find that such entity was entitled as a matter of law to the relief sought. Consequently, the Court held that Law No. 41-2022 was null ab initio. This means that the law and all actions taken to implement it are null and void from the beginning. In other words, Law No. 41-2022 never had any legal effect.
The decision of the Court validates and gives new life to Law No. 4-2017. However, the effects on employers of this new development could still be significant. In the past few months the government of Puerto Rico took the stand that all employers in our jurisdiction had to comply with the provisions and amendments of Law No. 41-2022. Thus, many employers modified personnel handbooks, offered employment under the new rules for probationary periods, calculated hours and paid Christmas bonuses according to the new guidelines of the Puerto Rico Department of Labor, and accrued vacation for part-time employees, to mention just a few. Others are perhaps litigating or have settled cases under the changes brought by Law No. 41-2022. Now the question turns out to be what to do next. Changing rules again for the existing workforce could have unforeseeable effects, and could result in staff turnover and difficulties in attracting good candidates.
This Court’s decision is not final yet. According to some government spokespersons, including the Secretary of Labor and Human Resources of Puerto Rico, they are analyzing the legal grounds that support the decision and will determine if the best course of action is to appeal. However, given this swift action and decisive language used by the Court, in addition to the good track record of the Board in PROMESA cases, it is likely that the decision will be upheld. Moreover, the least that is needed at this moment is further confusion and instability from a government appeal. At AMG we will follow closely all development related to Law No. 41-2022 and keep you updated. For your ready reference, we are attaching our newsletter of January 27, 2017, which contains a summary of Law No. 4-2017.