Puerto Rico Business-Law: News & Articles

Destroyed evidence haunts employer’s defense

Federal regulations require that employers keep all personnel or employment records for one year. Thus, if an employee is involuntarily terminated, his/her personnel records must be retained for one year from the date of termination.  Furthermore, when the Equal Employment Opportunity Commission (EEOC) notifies an employer of a charge of discrimination, the company has the duty to preserve all records related to the matters under investigation. Failure to comply with this duty can have serious consequences for the company and make the difference between prevailing or losing a lawsuit. A Puerto Rico-based employer faced a similar situation in the case of EEOC v. Ventura Corp., Civ No. 11-1700 (PG), (DPR Feb. 12, 2013).

The EEOC enforces most anti- discrimination laws in the U.S. and at some point was investigating Ventura Corporation for same-sex discrimination under Title VII. Ventura is a corporation engaged in wholesale beauty products, jewelry and other personal care items to retailers.

The charge had been filed by a male employee who claimed he had not been offered a management position in the company. After the administrative filing, the employee was promoted but eventually fired.

The EEOC subsequently sued Ventura.  In its complaint it alleged that Ventura had engaged in a pattern or practice of refusing to recruit male staff to work as area and support managers. It also claimed that the company promoted an employee to area manager when he complained of the practice; just to set him up towards failure and eventually fire him in retaliation for his opposition to the illegal recruitment practices. Ventura denied the allegations.

During the course of litigation, the EEOC complained to the court that despite repeated warning to the company to preserve relevant information to the claim, the company had destroyed critical evidence including resumes of job applicants and important electronic communications among managers.  Arguing that the lack of information hindered their ability to process the claim,  the EEOC moved for sanctions against the company.

The employer responded by stating among other things that it could not find the resumes requested and that other electronic documents had been lost during a migration of the  computer information system.  Written and oral testimony of the HR analyst showed that certain documents from the Human Resources Department were either taken to a warehouse or shredded as a result of an office restructuring in 2009 and that no application materials were found in the boxes that were sent to a warehouse.

The Court determined that the EEOC had met its obligation to prove that relevant evidence in the hands of Ventura existed and was destroyed after it was on notice that litigation might ensue.  This action is  legally known as ” Spoliation”, a legal term to describe the failure to preserve evidence that is relevant to pending or potential litigation.

Parties to a claim must assure that relevant evidence is protected from loss or destruction or risk court-imposed sanctions. The obligation to preserve relevant evidence arises once litigation is reasonably anticipated.  Failure to comply may bring sanctions for the party.

The Party that claims spoliation must show that there is evidence that has been destroyed or not preserved.  If the court finds that evidenced has been spoiled it may impose sanctions to avoid unfair prejudice to the opposing party.  The level of sanctions will depend on the severity of the prejudice suffered. They can range from exclusion of evidence or testimony, instructing the jury on a negative inference to spoliation (whereby jury may infer that party that destroyed evidence did so out of realization that it was unfavorable) to the  dismissal of the action.

With regards to defending the claim of the discharged employee, the court precluded the company from offering evidence regarding the qualifications and number of men that applied to the positions of Zone Manager or Support Manager during the relevant periods. This was a pertinent issue because the employer had made reference to the lack of applicants and/or qualifications as a defense for not having hired one for the positions in question. The court further ruled that during trial, the jury would be instructed to infer that the content of emails lost would have been unfavorable to the Company.

Not surprisingly, the lawsuit settled. The company agreed to pay $354,250, including a payment to the terminated employee of $150,000. The remaining funds will be distributed to a class of qualified male job applicants who applied for the manager jobs with the company from 2004 to 2014 but were not consider for hire. The agreement also requires the employer to “implement a detailed applicant tracking system; actively promote supervisory accountability for discrimination prevention; provide anti-discrimination training to all company employees and anti-discrimination training specific to those Ventura managers and employees who play a role in the hiring process; and provide bi-annual hiring reports to the EEOC for three years.”

Employment at Will in Puerto Rico

Employment at will is the doctrine  that  allows an employer in the United States to terminate an employee at any time, without notice and without cause, so long as it is not prohibited by a particular law (e.g.  discriminatory reasons such as age, sex or race). Puerto Rico  employment laws are different.  Local law 80 (wrongful discharge/termination) modifies this doctrine  by including a statutory penalty in the form of a severance payment to the employee. This means that employers in Puerto Rico are free to terminate employees in similar fashion as long as they pay the severance.

The severance under Act 80 depends on the years of service.  If the individual was employed for less than five years, he/she  is entitled to the equivalent of two month’s pay plus one week of pay for each completed year of service;  for  employees who completed at least five but less than fifteen years of service, severance equals  three months’ pay plus two weeks per year of service; and if more than fifteen years of service, the individual  is entitled to receive six months’ pay plus three weeks per completed year of service.

Puerto Rico Dealers, Distributors and Sales Reps Protected by Acts 75 and 21

Businesses wishing to market their products in Puerto Rico must be aware of two important laws that regulate the commercial relationship between a principal and a distributor.  These are Puerto Rico Dealers Act Law 75 and Law 21.  The laws were enacted to protect Puerto Rico distributors, dealers and sales representatives from a manufacturer’s arbitrary termination or impairment of their commercial relationship.  Both laws are liberally interpreted in favour of those who carry out distribution activities; affording locals injunctive relief and carry stiff penalties for principals that do not comply. Whether a business is considering establishing or terminating a distributorship, sales  relationship or even a franchise, it must  take  into consideration these statutes.

Law 75  protects local “dealers” from a manufacturer’s arbitrary termination or ending their commercial relationship  with the Puerto Rican distributors who had prior thereto developed a market for their products. Accordingly,  a manufacturer cannot terminate its agreement with a dealer except for “just cause.”

Law 21’s motive is to protect sales representatives who fall short of compliance with dealership status under Law 75.   It protects Puerto Rico sales representatives from arbitrary terminations after they create a market for their principals.  A sales representative  under Law 21 is as “an independent entrepreneur who establishes a sales representation contract of an exclusive nature, with a principal or grantor, and who is assigned a specific territory or market, within the Commonwealth of Puerto Rico.”

A “sales representation contract is an “agreement established between a sales representative and a principal, through which ․ the party of the first part commits himself to making a reasonable effort and due diligence in the creation or expansion of a market which is favorable for the products that the principal sells, directed at capturing clientele to offer it a product or service marketed by him in Puerto Rico, and the party of the second part is bound to comply with the commitments that may result from the sales representative’s efforts and coordination and to pay the previously-accorded commission or remuneration. 

Law 21,  provides a sales representative with a provisional remedy pending litigation to continue in all its terms, the relation established by the sales representative agreement and/or to abstain to conduct any act or omission in prejudice thereof.

A dealer’s contract under Law 75 is defined as a “relationship established between a dealer and a principal or grantor whereby and irrespectively of the manner in which the parties may call, characterize or execute such relationship, the former actually and effectively takes charge of the distribution of a merchandise, or of the rendering of a service, by concession or franchise, on the market of Puerto Rico. The `established relationship’ between dealer and principal is bounded by the distribution agreement, and therefore the Act only protects against detriments to contractually acquired rights.  Law 75, applies broadly to virtually all distribution relationships where a dealer has effectively in his charge in Puerto Rico the  distribution, agency, concession or representation of a given merchandise or service.

Act 75  prohibits termination, impairment or non-renewal of a dealer’s contract  without “just cause,” regardless of any contract provision permitting termination.  Just cause is akin to nonperformance of the essential obligations of the contract  including actions or omission that adversely and substantially affects the interests of the  principal in promoting the marketing or distribution of the merchandise or service.  Remedies under the law may include recovery of  damages,   cost of inventory, goodwill, and five years of profits.

The Three Step Audit Before Discharing an Employee

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

Why are you are terminating the worker?
If it’s for disciplinary reasons or violation of some policy, ask yourself:

  1. Can you prove that the act was committed by the worker?
  2. Is the disciplinary measure fair (and consistently applied to others)?
  3. Regardless of (1) and (2) is  the worker  protected by a specific law such as age, sex, disability, workers compensation, pregnancy, color, political views, religion, retaliation and if he/she is,  can you show  that the condition protected plays no role in the decision to terminate?

Here are some key questions you need address:

  • Is the applicable policy or rule breached in  written form?
  • Have you provided  the worker with a copy of the 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 penalty if any?
  • Do you have a specific disciplinary process? Are 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 serious 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.

If you are discharging a worker for performance, the process is similar. How clear were the objectives and goals? Were they reasonable? Can you show that the worker was aware of them?  Are they in written form?  Was the employee given ample opportunity and support to reach these goals?

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 issues you might consider include:

  • Is the worker of a foreign nationality, black, impaired, and 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?

How are you doing the termination?  There is no specific law stating how you should fire a worker and over the years, I’ve seen all sorts of procedures. From employers providing structured exit interviews and outplacement services to a simple -“you are fired” -outburst.  While there is no guarantee, I would suggest that the more diplomacy you use, the less likely you will get sued.



Puerto Rico’s Whistleblower Act

Puerto Rico’s Act No. 115, P.R. Laws Ann. tit. 29, § 194a, prohibits retaliation against certain defined whistleblowers, namely, against employees who provide testimony “before a legislative, administrative or judicial forum”.  This  broad purpose has served claimants to file a wide variety of lawsuits under numerous circumstances including attempts to bolster simple wrongful discharge claims.

The statute at issue, provides in relevant part that: “No employer may discharge, threaten, or discriminate against an employee regarding the terms, conditions, compensation, location, benefits or privileges of the employment should the employee offer or attempt to offer, verbally or in writing, any testimony, expression or information before a legislative, administrative or judicial forum in Puerto Rico, when such expressions are not of a defamatory character nor constitute disclosure of privileged information established by law.”

The statute also imposes an obligation on the employee to establish, “through direct or circumstantial evidence,” a prima facie case that he or she (a) “participated in an activityprotected by §§ 194 et seq.” and (b) “was subsequently discharged.” Id. § 194a(c).

Typical claims under this law include situations in which the employees claims the employer fired the employee after he/she sought workers compensation for a job-related accident; or went to the anti-discrimination unit of the Department of Labor or its wage and hour division.

This act cannot be treated lightly and must be considered every time a decision to discharge a person is being considered. Be aware that  “[t]he employer’s liability regarding the damages and the unearned salaries shall be double the amount determined as having caused the violation” of this provision.  P.R. Laws Ann. tit. 29, § 194a(a), (b).