Doing Business in Puerto Rico Blog: Business Coaching, News & Developments

RETAIL OPERATIONS NEED TO UNDERSTAND THE CLOSING LAW TO AVOID STIFF FINES

Puerto Rico’s ‘Closing law’ requires retail commercial establishments to remain closed during certain hours and days. In the case of Sundays,  an establishment may only open for business from 11:00 a.m. to 5:00 p.m. There are exceptions depending on the type of store involved, the nature of the goods sold and the number of employees.

Besides civil and criminal penalties for requiring employees to work on Sundays, a commercial establishment risks severe penalties for selling merchandise outside the allowed hours of operation.   The Department of Justice of Puerto Rico investigates and files administrative complaints against commercial establishments that fail to abide by the opening/closing schedule. 

The charges are filed before the Department of Consumer Affairs (DACO) which ultimately decides the applicable fines. The fines can later be appealed in a court of law.

Penalties are stiff- up to for $50,000 for each violation. Here are some real-life examples (some of which were later revoked):

• ELA v. Frigorifico, 2001 JTS 125: A supermarket  operation received a      $50,000.00 fine.
• Supermercado Selectos de Venus Gardens: A supermarket fined $15,000 by DACO.
• Supermercado Jardines de Caparra, 2002 JTS 103:  DACO issued a $10,000 fine to the merchant.
• Servicentro v Justicia,  PR Court of Appeals, KPE01-0823 (907): A gas station franchisee was facing  over $50,000 in fines.
• DACO v. CM Cash and Carry,2002 TCA 1574: Supermarket  sold a pack of lightbulbs to an undercover agent from the Justice Department and later was fined $5,000. When IT refused to pay, DACO obtained a court order  against the owner for criminal contempt.
• E.L.A. v. Diaz Arocho, 2000 TCA 839: In 1999 a business was fined $20,000 for violations that had occurred in 1994.
• ELA v. Farmacia La Nueva Modelo De Bayamón, 2000 TCA 1662: A pharmacy was fined $10,500 for selling to  an undercover agent three items (on Sundays before 11:00 a.m.)  totaling $6.47.
• ELA v. Fairview Service Station, Inc., 2001 TCA 486: A circle K franchisee was fined 9,500 for selling merchandize to an undercover investigator totaling .94 cents.
• ELA v. Royal Motors Corp,  98 TCA 343: Car dealer fined  $5,000 for opening on a holiday.
• ELA v. Caguas Expressway Motors, 2000 TCA 1582: Car dealership fined $10,000 for opening before 11:00 a.m. on Sundays.

The biggest danger I see for commercial establishments is that the Justice Department takes a long time to complete the complaint process.  It may gather evidence in the course of several years and then simultaneously file a dozen charges which could ultimately cripple a small business. The case also moves at a slow pace in  DACO; often taking more than a year to adjudicate a complaint.

RETAIL OPERATIONS MUST FOLLOW PUERTO RICO'S CLOSING LAW

Commercial establishments in Puerto Rico can only open to the public within a specified schedule, as provided under the law Regulating the Operation of Commercial Establishments, No. 1 of December 1, 1989 (also known as the ‘closing law’). Covered establishments operating outside the allowed schedule are subject to serious administrative civil and criminal penalties (fine, imprisonment or both). The Department of Justice (Antitrust affairs)  investigates violations pertaining to the opening of the store while the Department of Labor enforces the applicable labor laws.

Thus, a business subject to the closing provisions can breach the law by both opening a store outside the allowed time and by scheduling employees to work during such a time. In cases where the Store has both exempt and non exempt goods, it can still operate legally during the closing period if it takes all necessary precautions and refrains from selling the non exempt products. The department of Labor has issued a regulations on this issue.

Commercial establishments means “any site, store or similar place where any type of business operation or commercial activity for the sale or transfer of retail articles or which combine wholesale and retail sales are carried out”. 

The Law distinguishes between  half-day, full-day  and Sunday closing.  During  the hours during which the  establishment must remain closed, it cannot conduct any type of work done “except those tasks that are related to the continuity of its operations and maintenance”.

Half day closing allows commercial establishments to remain open from 5:00 a.m.
to 9:00 p.m. on: Monday to Saturday,  January 5, December 24 and December 31. 

Full-day closing means that establishments must be closed all day (24 consecutive hours, which begin and end at midnight). These days are:

• January 1
• January 6
• Good Friday
• Easter Sunday
• Mother’s Day
• Father’s Day
• General Elections Day
• Thanksgiving
• December 25

Sunday closing means that on sunday,  business establishments may only open to the public from 11:00 a.m. to 5:00 p.m.; except if it falls on a full or a half day, in which case it would follow the applicable schedule for the full or half day.

There are exceptions depending on the type of store involved, the nature of the goods sold and the number of employees. Employees that work on Sundays for stores covered by the Closing Law must be paid double the regular rate. Furthermore, there are restrictions as to the employees allowed to work:

§ 305. Exceptions

The following business establishments shall not be subject to the provisions on opening and closing indicated in §§ 302, 304 and 305 of this title:

(a)     Those operated exclusively by their owners or their relatives within a second degree of consanguinity or affinity.

(b)    Those that are owned by natural or juridical persons and that do not have more than fifteen (15) employees in their weekly payroll, but are subject to the provisions and penalties of §~ 307, 308 and 310 of this title.

(c)     Those located in places exclusively engaged in the development of cultural, artisan, recreational or sports activities, whose articles to be sold are connected to the activity performed in that place.

(d)    Those dedicated mainly to the manufacturing of foodstuffs and the direct sale to the public of cooked meals or other foodstuff, including restaurants, cafes, coffee shops, bakeries, pastry shops and businesses where only milk, brewed coffee, ice, ice cream, sherbets or candies are sold.

(e)     Pharmacies authorized and registered pursuant to the §§ 381 et seq. of Title 20, but whose sales are limited to prescribed medications, over the counter medications, health articles, as these terms are defined in §§ 381 et seq. of Title 20 and regulations. They may also sell baby and personal hygiene articles, perfumes, cosmetics, confections, stationery, school and photographic supplies, newspapers, books and magazines.

(f)     Gasoline stations and convenience stores located therein or business establishments of similar commercial activity, whose sales area does not exceed three hundred and fifty (350) square meters limited to the sale of groceries, household articles, novelties, toys, gifts, photography and drug­store articles, goods for outings and trips, stationary, fast foods, soft drinks, cigarettes, candy, milk, and ice, excluding alcoholic beverages; Provided, That said business establishments located in gasoline stations or establish­ments with similar commercial activity, must comply with those provisions of law and regulations applicable thereto.

(g)    Bookstores, newsstands, booths or kiosks for the sale of books, magazines, newspapers and literary or musical publications or tapes.

(h)    Galleries, workshops, centers, booths that sell Puerto Rican works of art and artisanry.

(i)    Those that operate within the premises, buildings and terminals of airports and seaports.

(j) Those that operate within hotels, inns, condo-hotels and that are part facilities that they offer their guests or visitors.

(k) Those that operate as part of the facilities of a funeral home or

(l) Marketplaces.

(m) Those located within the demarcation of an old or historic zone established or to be established pursuant to law, and those located in a zone that the Puerto Rico Planning Board has established as of tourist interest as of December 31, 1988, pursuant to the provisions of §§ 161 et seq. of  Title 23. Business establishments located in the abovementioned zones that are not dedicated predominantly to the sale of articles of tourist interest as established by the regulations of the Department of Commerce, shall comply with the provisions of §§ 306 and 307 of this title and shall be the remedies and penalties provided in §§ 308 and 310 thereof.  Furtherore, business establishments located in said zones and not dedicated predominantly to the sale of goods of tourist interest shall pay their regular employees at a rate equivalent to twice the rate agreed upon for regular working hours, during those hours they work which are established for the closing of business establishments in §§ 302, 303 and 304 of this title.

(n) The establishments, that as a matter of exception, must do urgent or necessary work to avoid danger or considerable loss of money and that have authorization provided in §§ 289 and 290 of this title.

When a business establishment conducts operations covered by the of this section, together with operations subject to the provi­sions of §§ 302, 303 and 304 of this title, it may only conduct the operations exempted under said section in a continuously [sic] without being subject to established in said §§ 302, 303 and 304, and shall take all the necessary precautions to prevent the access of the consumers thereto and avoid the non-exempt operations during the closing hours provided in this chapter. The Secretary of Labor and Human Resources shall be empow­ered to surveil and require compliance of this provision and shall establish the precautions that must be observed in the cases such as the one foreseen herein through regulations.

WHEN BUYING A BUSINESS IN PUERTO RICO PAY ATTENTION TO SENIORITY ISSUES

From a labor/employment standpoint, anyone considering acquiring a business in Puerto Rico needs to take into account the "Transfer of Going business" clause under Wrongful Discharge Act No. 80 of May 30, 1976.

When a business changes ownership, the employees that remain with the new owners will be credited with the seniority they accrued under the previous owner (plus the seniority they accrue under you). This is important because under Act 80, a business must indemnify an employee who is discharged without cause and; the actual indemnity will vary depending on the years of employment. 

Under the Act every employee contracted without a fixed term, who is discharged without good cause shall be entitled to receive:

(a) The salary corresponding to two (2) months, as indemnity, if he/she is discharged within the first five (5) years of service; the salary corresponding to three (3) months if he/she is discharged after five (5) years and up to fifteen (15) years of service; the salary corresponding to six (6) months if he/she is discharged after fifteen (15) years of service.

(b) An additional progressive compensation equal to one (1) week for each year of service if he/she is discharged within the first five (5) years of employment; two(2) weeks  for each year of service between five (5) and fifteen (15) years of service and; three (3) weeks for each year of service after completing fifteen (15) years of service.

The purchaser is not obligated to keep the employees. Under the law, if the acquirer decides not to commence operations with the services of all or any of the employees and hence does not become their employer, the former employer shall be liable for the compensation provided under the Act;  “and the purchaser shall retain the corresponding amount from the selling price stipulated with respect to the business.” In case the purchaser opts to continue with the workers and later discharges them without good cause it  shall be liable for severance payment under the  Act.

While the final decision on the fate of the employees is often a point of negotiation between the parties, knowing the actual liability will help the purchaser decides the best course of action.

FOLLOW A THREE STEP AUDIT BEFORE FIRING AN EMPLOYEE

Firing an employee in Puerto Rico for misconduct has legal consequences.  It may be deemed wrongful, discriminatory, retaliatory or in violation of some other law. You need to contend with both local and federal labor & employment issues. Fines can be steep and in some cases may require job reinstatement. Before you discharge an individual, consider and resolve the following issues.  This self-audit may avoid  future wrongful discharge claims.

Why are you are terminating the worker? If its for disciplinary reasons or violation of some policy you must follow a three step process: (1) You need to prove that the act was committed by the worker; (2) the discipline imposed must be proportionate; (3) regardless of (1) and (2), make sure  the worker is not protected by a specific law such as age, sex, disability, workers compensation, pregnancy, color, political views, religion, retaliation and if he/she is,  make sure (that you can prove) that the condition protected plays no role in the decision to terminate.

Here are some key questions you need to ask yourself:

• Is the applicable policy or rule written?
• Have  you provided  the worker with a copy of the rules or  policy?
• Do you have evidence of having provided a copy (such as  a signed acknowledgment form)?
• Is the violation contained within the rule or policy? What is the penality if any?
• Do you have a specific disciplinary process? Will you follow it?
• How serious is the  breach of conduct? Is it a first offense? A discharge for a first offense is unjustified unless it's of a grave nature and puts the business at risk.
• Have you calculated the amount of the indemnity under Puerto Rico's Wrongful Discharge Act No. 80 ? It is a wise idea to know what is your legal exposure under the law in case you are not able to prevail in a wrongful discharge claim.

Is the Worker protected by a specific law? In Puerto Rico, employers can discharge workers at will but must pay an indemnity if the discharge is without cause. However the employer must be careful not to breach other  employment laws that prohibit employment discharges for a specified reason. Example of these laws include firing a person for his/her age, color, gender, national origin, religious beliefs,  disability, retaliation and enjoying protected leaves.  While a  discharge for cause may be an adequate defense in many cases, a initial analysis of the applicability  of these laws is a wise precautionary measure. Typical questions you might ask include:

• Is the worker of a foreign nationality, black, impaired, professes a particular religion?
• Is the worker currently under a particular leave?
• Is the worker older than most? Older than 40?
• Is the worker the only woman? Has she been harassed?
• Is the worker disabled or perceived to be disabled?
• Is the worker a victim or perceived to be a victim of domestic violence?
• Is the worker currently under a protected leave such as pregnancy, Family-Medical, jury, military or workers compensation?
• Is there any protected condition that the worker may invoke to sidetrack the case from a simple discharge to a major discrimination claim?

Difference Between Federal and Local Sexual Harassment Laws

I was asked recently what was the main difference between the federal and Puerto Rico law on sexual harassment. I would say that the key difference is that under Puerto Rico law, sexual harassment by supervisors implies absolute responsibility of the employer, whereas responsibility under federal law is based on agency considerations. Also, the Puerto Rico statute provides for a wider range of remedies, including criminal penalties, double the amount of all compensatory damages, including back and/or front pay and mental pain and suffering, plus reinstatement and attorney's fees. 

KEY EMPLOYMENT LAWS ENACTED DURING 2006

Here are five of the most notable employment laws enacted in Puerto Rico during 2006.  They apply to private companies and employers:

WORKERS COMPENSATION

# 284 12/22/2006: Amends Puerto Rico's Workers Compensation Law, No. 45  of April 18, 1935, to include under the definition of employee those that work for their employers from their homes.

SEXUAL HARASSMENT

# 252 11/30/2006:  Amended the Island's sexual harassment statute.  It broadened the definition of sexual harassment to include acts committed via Internet and  all electronic means including email.  See my 12/23/06 entry.

WORKPLACE VIOLENCE

# 217 09/29/2006: Requires all employers in Puerto Rico to adopt an internal process ("Protocol")  to deal with domestic violence  in the workplace. See my 12/05/06 entry.

BREASTFEEDING

# 239 11/06/2006: Amends Act 427 that regulates the period to breastfeed or to express breast milk to increase the period to one hour (which can be  further subdivided in two 30- minute or three 20- minute periods). Private employers that fall under the definition of Small Business, as defined by the Small Business Administration (SBA), need only provide half an hour per  shift. The definition of what constitutes a small business, varies from industry to industry (generally based on number of employees or average annual receipts ) so, employers need to do some homework with the SBA or consult their attorney. I do not understand why did the legislature chose such a needlessly complicated definition as opposed to  providing a cut-off number based on  payroll, for example. Regardless, I suspect the majority of private employers in Puerto Rico will fall under the SBA  exemption.

PRIVACY

# 207  09/27/2006: To restrict private employers from using the Social Security number as a means of identifying  employees.

SEXUAL HARASSMENT BY EMAIL

The law in Puerto Rico now recognizes that sexual harassment in the workplace can be perpetrated through emails. Act No. 252 of November 30, 2006, amended the Island's sexual harassment statute.  It broadened the definition of sexual harassment to include acts committed via Internet and  all electronic means including email.

Businesses in Puerto Rico need to reexamine their email  and sexual harassment policies to take into consideration these changes.

TEN REASONS A BUSINESS NEEDS TO CONSULT AN EMPLOYMENT ATTORNEY BEFORE FIRING ANYONE

It used to be that in Puerto Rico if a business  wanted to discharge a worker, it only had to pay the indemnity provided by the Wrongful Discharge Act,  No. 80 of May 30, 1976 as amended; which by the way was quite modest. Things have changed over time and now it pays enormously to consult an employment attorney before you decide to fire someone. 

Here are 10 reasons why:

1. IT'S HOW YOU FIRE: Even if there is cause for a discharge; the business may turn the case into a wrongful discharge by terminating the worker the wrong way. For example, under certain circumstances, external libelous communications by a business about the worker to third parties may result in liability. Also, an improperly conducted investigation may raise issues of fault and negligence and related causes of action.

2. DISCRIMINATION: The worker may belong to a protected class and the discharge may create a presumption of discrimination bringing additional legal exposure. For example, the worker is over the age of 40; of a foreign country; or disabled.

3. EMPLOYMENT RESERVE: The worker may be protected by laws that require employers to hold the job for workers under particular circumstances such as workers' compensation, maternity leave, SINOT and ACCA.

4. STRENGTH OF YOUR CASE: While analyzing the case, the attorney will look over the worker's file, the business' employment procedures, rules of conduct and manuals.  This will enable the attorney to give the employer a good idea of its chances of prevailing in an eventual claim.  Many good cases are lost for lack of proper evidence.  In Puerto Rico employers bear the burden of proof.

5. PLAN: The attorney can advise the business in terms of what's the better course of action and how to accomplish it- terminate, don't terminate, terminate at a later time following a plan; negotiate a settlement,  among other alternatives.

6. ALTERNATIVES: If the attorney recommends the business not to terminate the worker, he may be able to develop a strategy to either lawfully terminate the worker or remedy the situation.

7. PREPARATION: The attorney will prepare the company for any future litigation in a way that it will more likely prevail in an eventual claim.

8. INFORMATION: The business will gain valuable information that will be useful in future termination.

9. COST BENEFIT: The initial expense for consultation and planning far exceeds the exposure, liability and legal fees associated with defending a case in court. Experienced employment attorneys- particularly those who also litigate cases know what it takes to win a case and most zealously defend their clients' interests as if it was their own.

10. LEARNING CURVE: The more the business consults and follows the labor attorney's advice, the less it will need him/her.

EMPLOYERS MUST PREPARE FOR DOMESTIC VIOLENCE IN THE WORKPLACE

Act No. 217 of September 29, 2006 requires all employers in Puerto Rico to adopt an internal process to deal with domestic violence  in the workplace  This  odd law  presuposes that there is a likelihood that domestic violence will spill into the workplace.  Therefore legislators expect employers to be prepared for chaos at work by outlining managerial responsibilities and enacting specific procedures in a written document called - 'protocol'.  Employers are advised to contact an employment attorney to discuss this new legal requirement.

You can access a copy of the law here Download protocol_domestic_violence_in_the_workplace.pdf

 

Restrictions on Social Security Number Use Now Extended to Employers

I had reported earlier that the government of Puerto Rico had enacted legislation on September 1, 2006  banning all educational institutions from using the Social Security as an identification number. A similar law was enacted on September 27, 2006- Act No. 207- covering   private employers (and public corporations).  It prohibits the use  social security numbers in identification cards, routine documents or other  documents of general circulation.  The Department of Labor is charged with enforcing this law.

An earlier law, Act, No. 187 enacted on September 1, 2006,  imposes similar requirements on entities that do business with the government or receive funds or donations.

Similarly, laws governing the purchase of property in PR eliminated the requirement to include in the deed of purchase the social security number of the parties to the agreement.