“White Collar” Overtime Exemptions Stayed in Puerto Rico as the Result of the Enactment of PROMESA
The Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) was signed into law as Public Law No 114-187 on June 30, 2016. PROMESA’s principal purpose is the establishment of a seven-unpaid-member Oversight Board to address Puerto Rico’s current economic crisis. PROMESA also creates an eight-member congressional task force with the power to make economic growth recommendations for Puerto Rico. Other key features of the Act include express statements that PROMESA holds supremacy over any inconsistent territorial law and regulations.
The Oversight Board is vested with overseeing Puerto Rico’s economic decision-making, with power to institute reorganization proceedings for the territory and a territorial covered instrumentality in U.S. District Court. Among other matters, the Oversight Board is empowered to force the sale of government assets, consolidate agencies and reduce workforce; conduct hearings, request information and issue subpoenas; prevent the execution of legislative acts, executive orders, regulations, rules and contracts that undermine economic growth initiatives or violate the Act; institute special reorganization proceedings under Title III of the Act; and hire an executive director and staff, as well as outside professionals. Although it may not be considered as a Chapter 9 for Puerto Rico, Title III of PROMESA adopts many provisions of Chapter 9 and other sections of the Bankruptcy Code.
PROMESA was introduced on May 18, 2016 in the U.S. House of Representatives as H.R. 5278 by Representative Sean P. Duffy (R-Wis.), with the support of House Natural Resources Committee Chairman Rob Bishop (R-UT), House Speaker Paul Ryan and the White House. The U.S. House of Representatives approved (297 AYES / 127 NOES / 11 NV) the measure on June 9, 2016. The U.S. Senate bill on PROMESA (S. 2328) was introduced on November 19, 2015 by Sen. Roger F. Wicker (R-MS), cosponsored by Senators Brian Schatz (D-HI), Dan Sullivan (R-AK) and Maria Cantwell (D-WA). S. 2328 was approved (68 AYES / 30 NOES / 2 NV) on June 29, 2016.
Pursuant to Section 404 of PROMESA, the final rule published by the U.S. Department of Labor’s Wage and Hour Division on May 18, 2016, which updates the Fair Labor Standards Act (“FLSA”) regulations governing the “white collar” overtime exemptions, “shall have no force or effect in the Commonwealth of Puerto Rico” until the Comptroller General of the United States conducts an assessment and issues a report to examine the impact of the rule’s application on Puerto Rico’s economy. The said report, which must be completed within two (2) years from PROMESA’s enactment, shall consider “regional, metropolitan, and non-metropolitan salary and cost-of-living differences.” Additionally, the Secretary of Labor, taking into account the assessment and report of the Comptroller General, shall provide a written determination to Congress that applying such rule to Puerto Rico would not have a negative impact on the economy of Puerto Rico.
Section 403 of PROMESA amends the FLSA and allows employers in Puerto Rico to pay employees aged 25 or younger, who are employed initially after the enactment of PROMESA, a wage which is not less than $4.25 an hour. However, the Governor of Puerto Rico must determine, subject to the approval of the Oversight Board, a time period not to exceed four (4) years during which employers in Puerto Rico may do so. An employee may not be displaced (including partial displacements, such as reduction in hours, wages, or employment benefits) for purposes of hiring individuals at the $4.25 rate. Such an action is deemed a violation under the non-retaliatory provisions found in section 15(a)(3) of the FLSA.
Resultantly, employers in Puerto Rico are not subject, for now, to the new overtime rule, which takes effect on December 1, 2016. However, since a decision will be made on the application of the new overtime rule in Puerto Rico no later than June 30, 2018, employers do need to be aware of these facts and plan ahead to figure in the economic impact the overtime rule may have as part of their future operations’ costs.