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  • Writer's pictureThe San Juan Daily Star

Fiscal board moves to nullify labor reform

The Financial Management and Oversight Board insists that the island government has still failed to prepare and provide a formal estimate of the labor reform law’s impact on revenues.

By The Star Staff

The Financial Oversight and Management Board announced Tuesday that it has authorized action to nullify Act 41 of 2022, the labor reform, arguing that the island government has not resolved its deficiencies.

The government has not said whether it will suspend the law or implement it.

In a letter to Puerto Rico Fiscal Agency and Financial Advisory Authority Executive Director Omar Marrero Díaz regarding Act 41, which repeals portions of the Puerto Rico Labor Transformation and Flexibility Act of 2017 and other labor laws, the oversight board insisted that the government has still failed to prepare and provide a formal estimate of the law’s impact on revenues.

“Even prior to the enactment of Act 41, the Oversight Board advised the Government of the Oversight Board’s concerns about the Act’s negative impact on Commonwealth revenues and the Fiscal Plan, and made extensive proactive efforts to engage with the Government on Act 41 to avoid the very situation we face today,” the oversight said in response to an Aug. 4 letter from Marrero Díaz.

Unfortunately, the oversight board said, instead of engaging in substantive analysis and discussions about the labor reform law prior to its enactment, the government enacted a law that impacts every private employer in Puerto Rico without understanding its fiscal impact, which is in violation of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).

As such, the government cannot certify under PROMESA that Act 41 is not significantly inconsistent with the certified Commonwealth Fiscal Plan, the oversight board said.

The board said it conducted its own analysis of Act 41, which the government has not contradicted. The government has failed to explain how the new law will “translate into potential greater consumer spending and increased revenue for the government.”

“Your letter goes on to propose that when negative effects are detected, the Oversight Board could adjust the Fiscal Plan to account for the Act’s negative effects on the labor market and the Commonwealth’s revenues,” the board said in the letter to Marrero Díaz. “This approach turns PROMESA on its head and is contrary to PROMESA’s purpose of achieving fiscal responsibility. New laws must fit within the Fiscal Plan, not vice versa.”

An expert consulted by the oversight board concluded that the government’s Aug. 4 letter did not offer any new evidence to change his economic analysis.

The expert reiterated to the board his initial analysis of the act’s economic impact in that it will decrease commonwealth revenues and result in a declining gross national product.

The expert dismissed assertions from the government that the law will not have an impact because it “regulates private employer relations with private employees.”

Act 41 intends to restore certain rights that had been eliminated or reduced by the 2017 Labor Transformation and Flexibility Act and, further, to create additional rights for part-timers and students. Among the many changes incorporated are: amendments to the formula for calculating severance payment and the language of the “just causes” for termination under the Unjustified Dismissal Act, the hours of work required to accrue vacation and sick leave as well as the monthly accrual rates for those benefits, meal period provisions, and Christmas bonus provisions.

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