In Puerto Rico, employment relationships can be established with or without a formal written contract. However, certain agreements and terms within an employment relationship require written documentation for enforceability. Here's a breakdown of the different types of employment agreements you'll encounter in Puerto Rico:

Indefinite-Term Employment Contracts

This is the most common type of employment agreement in Puerto Rico. There is no specific end date for employment outlined in the contract or by nature of the work performed. Employers and employees have the freedom to negotiate the terms of the contract as long as they comply with labor laws, public policy, and social norms.

Fixed-Term Employment Contracts

Fixed-term employment contracts are permissible in Puerto Rico for specific projects, temporary needs, or to cover employee absences. These contracts must be clearly defined in writing with a specific end date tied to the project or purpose. They can be an exception to the "just cause" termination requirement under the Unjust Dismissal Act, meaning termination without cause may be permissible upon contract expiration.

Agreements with Specific Terms

While a formal employment contract isn't mandatory, certain terms within an employment relationship require a written agreement to be enforceable. For instance, non-competition agreements must be in writing, provide adequate consideration to the employee, and not impose unreasonable limitations on their ability to find future employment. Similarly, reduced meal periods, alternate workweeks, or work schedule agreements for non-exempt employees require a valid written agreement outlining the specific terms.

Even without a formal written contract, Puerto Rico's labor laws still provide extensive protections for employees, including minimum wage, overtime pay, vacation and sick leave entitlements, and limitations on termination without cause.

Written employment agreements, while not mandatory, offer clarity and protection for both employers and employees in Puerto Rico. Here's a breakdown of essential clauses to consider including:

Basic Information

• Parties: Clearly identify the employer and employee by name and title.
• Job Description: Outline the employee's job title, duties, and responsibilities.
• Start Date and Work Location: Specify the official start date of employment and the primary work location.

Compensation and Benefits

• Salary: State the employee's base salary, whether paid hourly, weekly, or bi-weekly.
• Overtime: Outline the policy for overtime pay, including the applicable rate and calculation method.
• Benefits: List all employee benefits offered, such as health insurance, vacation time, sick leave, and any social security contributions required by Puerto Rican law.

Term and Termination

• Employment Type: Indicate whether the employment is for a definite or indefinite term. Indefinite term contracts allow for termination by either party at will with or without notice.
• Termination Clause: Outline the grounds for termination by either party, following the principles of "just cause" where applicable.
• Severance Pay: If applicable, detail the terms for severance pay in the event of termination.

Confidentiality

• Define "confidential information" to include trade secrets, customer lists, marketing plans, and other sensitive business data.
• Specify the employee's obligation to maintain the confidentiality of such information during and after employment.
• Outline restrictions on the employee's disclosure of confidential information to unauthorized third parties.

Intellectual Property (Optional)

• If applicable, address ownership of intellectual property created by the employee during the course of employment. This may include inventions, software, or creative works.

Dispute Resolution

• Establish a process for resolving any disputes arising from the employment agreement, such as mediation or arbitration.

Governing Law

• Specify that the employment agreement will be interpreted and governed by the laws of the Commonwealth of Puerto Rico.

In Puerto Rico, the legal landscape surrounding probationary periods in employment agreements has undergone significant changes. Prior to June 2022, the functioning of probationary periods was different from the current scenario.

Changes Brought by Law 41-2022

Law 41-2022, also known as the Labor Transformation and Flexibility Act, has had a substantial impact on probationary periods in Puerto Rico. The key changes include:

• Automatic Probationary Periods: In the past, establishing a probationary period required written agreements. However, under Law 41-2022, probationary periods are automatic, thus eliminating the need for written documentation.
• Extended Length: The maximum probationary period has been increased from 90 days to:
  • 12 months for executives, administrators, and professionals (exempt employees).
  • 9 months for non-exempt employees.

Key Points to Remember

• Puerto Rico is Not "At-Will" Employment: Unlike some jurisdictions, Puerto Rico provides certain job security protections. However, employers still have the right to terminate employees at-will during the probationary period.
• Prospective Application: The extended probationary periods established by Law 41-2022 are applicable only to employees hired after the law's effective date (June 2022).

Employment agreements in Puerto Rico often include both confidentiality and non-compete clauses. These clauses are designed to safeguard the employer's legitimate business interests, but they must adhere to certain legal requirements to be enforceable.

Confidentiality Clauses

Confidentiality clauses, which are generally enforceable in Puerto Rico, restrict employees from sharing the employer's confidential information with unauthorized third parties. This information can encompass trade secrets, customer lists, marketing strategies, financial information, and business plans. The scope of the confidentiality clause should be explicitly defined in the employment agreement.

Non-Compete Clauses

Non-compete clauses, which limit an employee's ability to work for a competitor after leaving the company, are also enforceable in Puerto Rico, but with certain restrictions. For a non-compete clause to be valid, it must meet the following criteria established in case law by the Puerto Rico Supreme Court:

• Written agreement: The clause must be in writing.
• Adequate consideration: The employer must provide something of value to the employee in exchange for signing the agreement. This could be continued employment, special training, or a severance package.
• Reasonable limitations: The restrictions on the employee's ability to compete must be reasonable in terms of:
  • Time: The non-compete period cannot exceed twelve (12) months after the employee's termination date.
  • Geography: The geographic area covered by the restriction must be limited to the area where the employee worked or where the employer has a legitimate business interest.
  • Scope of activity: The restriction should only apply to similar activities performed by the employee during their employment.
• Public policy: The clause cannot unduly burden the employee's right to earn a living.

Important to Note: Even in the absence of a valid non-compete clause, all employees in Puerto Rico have a duty of loyalty to their employer during their employment. This duty prohibits them from competing with the employer's business activities.