Nullified Ab Initio: What Employers In Puerto Rico Need To Know About The Decision To Nullify The New Labor Reform Bill (Act No. 41-2022)

• Law Firm: Littler Mendelson
• Subject Matter: Employment and HR, Employee Benefits & Compensation
• Author: Ms Anabel Rodríguez-Alonso and Irene Viera Matta
• Published date: 14 March 2023

• The District Court for the District of Puerto Rico has nullified Act No. 41-2022, enacted in June 2022, which had instituted significant changes to labor and employment laws in Puerto Rico.
• Employers in Puerto Rico are once again subject to the law as it was prior to the summer of 2022, when the Puerto Rico Labor Transformation and Flexibility Act, Act No. 4 of January 26, 2017 was in effect.

For the past few years, Puerto Rico's finances have been supervised by a board designated by the U.S. Government-the Financial Oversight & Management Board for Puerto Rico ("FOMB"). Its role is to revise and approve the budget and obligations of the Puerto Rico Government in compliance with a federal law mandate named PROMESA, to manage the liquidity crisis facing the island's government amid a shrinking economy and debt crisis.

On June 20, 2022, Puerto Rico Governor Pedro Pierluisi signed into law Act No. 41-2022 ("Act 41-2022"), instituting changes to labor and employment laws in Puerto Rico and extending employment rights for employees in the private sector. The FOMB's contention was that the bill is inconsistent with the fiscal plan. It therefore filed a complaint in the U.S. District Court for the District of Puerto Rico to nullify Act 41-2022. In its complaint the FOMB reiterated that Act 41-2022 is contrary to the certified fiscal plan and that its enactment adversely affects the Commonwealth's compliance with the plan. The complaint asked the court to nullify Act 41-2022 and any actions taken to implement it, ab initio¹ and that the government be permanently enjoined from taking any action to help private parties implement Act 41-2022.

Following the filing of dispositive motions, this past Friday, March 3, 2023, the district court ruled that Act 41-2022, and any actions taken to implement it, are null and void ab initio. The court further prohibited and enjoined the governor or other individuals in active concert or participation with the governor from taking any measures to help private parties implement or enforce Act 41-2022.

What does this mean for employers?

The court basically pressed the reset button and reverted Puerto Rico to a pre-summer 2022 era in which the Puerto Rico Labor Transformation and Flexibility Act, Act No. 4 of January 26, 2017 ("Act 4-2017" or "LTFA") was in effect. As further addressed below, these are the key aspects of the prior law of which employers should be aware:

Act No. 4-2017 Statute of Limitations Employment Claims ...