On September 1, 2022, the Puerto Rico Financial Supervisory and Management Board (“Oversight Board”) – an entity created by Congress to oversee the finances of the government of Puerto Rico and restructure its public debt – filed a federal lawsuit to overturn Act 41, a law that reverses parts of the 2017 labor law reform. Act 41 went into effect on July 20, 2022 for many employers in Puerto Rico. The changes introduced by Law 41 come into force on September 18, 2022 for certain small and medium-sized businesses, however, as defined in the new law.
In the lawsuit, the Oversight Council argues that Law 41 violates several provisions of PROMESA, a federal law passed in 2016 to allow Puerto Rico to restructure its public debt. Specifically, the Oversight Council alleges that Law 41 violates Article 108 of PROMESA, which prohibits the government from adopting, implementing or enforcing any law, resolution, policy or rule that would undermine or go against the against PROMESA’s objectives, as determined by the Supervisory Board. . The recently filed lawsuit argues that Law 41 violates this provision because it would negatively affect Puerto Rico’s government revenue and slow economic growth, which in turn would affect Puerto Rico’s ability to pay the newly restructured public debt. The Oversight Council further contends that Law 41 violates Puerto Rico’s Certified Fiscal Plan, a document approved exclusively by the Oversight Council as part of its duties to restructure public debt and grow Puerto Rico’s economy. Rico. The Oversight Council also argues that Law 41 violates PROMESA Article 204, which requires the government to submit certain information to the Oversight Council for any newly enacted law. The Supervising Entity argues that the government has failed to explain how Bill 41 does not violate the Certified Fiscal Plan and how the negative economic impacts of the law would affect government revenues and expenditures.
The lawsuit was filed in federal court in Puerto Rico and will be argued before District Judge Laura Taylor Swain, who since 2017 has overseen all matters related to Puerto Rico’s bankruptcy proceedings provided by PROMESA. The complaint calls for the repeal of Law 41 for violating PROMESA and a permanent ban on the government from taking action to implement the law.
In the past, the Supervisory Board and the government have engaged in disputes over the validity of newly enacted laws in the context of PROMESA. In all previous cases, the Supervisory Board has succeeded in obtaining judgments against the government. The standard of review under PROMESA is extremely deferential to the Supervisory Board. To prevail, the government of Puerto Rico must prove that the Oversight Council’s conclusions regarding Law 41 are “arbitrary and capricious”.
Employers in Puerto Rico should monitor the case to determine what action to take once a decision is made. It is important to note that, until the Court orders otherwise, Bill 41 is still in force. A court decision is expected in the coming months.
© 2022 Jackson LewisNational Law Review, Volume XII, Number 249