Puerto Rico Employment Guide

Navigating Employee Termination in Puerto Rico: A Guide for Global Employers

Terminating an employment relationship in Puerto Rico requires careful adherence to a complex legal framework. The process must be managed collaboratively with key stakeholders and often involves specific obligations, including potential severance payments. For indefinite contracts, termination should generally be based on just cause. Dismissals without just cause entitle the employee to statutory compensation.

Permissible Grounds for Termination

To ensure compliance, employers must understand the valid grounds for ending an employment contract. These include:

• Voluntary resignation by the employee.
• Mutual agreement between the employer and employee.
• Unilateral termination by the employer, justified by:
  • Dismissal during a probationary period.
  • Objective reasons, such as economic redundancy.
  • Disciplinary dismissal for misconduct.
  • Performance-related issues due to an employee's incapacity to perform the role.
• Expiration of a fixed-term contract.

Notice Period Requirements

Unlike many jurisdictions, Puerto Rico's employment laws do not mandate a statutory notice period prior to termination.

Severance Pay Entitlements

A critical aspect of termination without just cause is the employee's right to severance pay. The calculation is based on the employee's length of service and is structured as follows:

• A base amount equivalent to three months' salary.
• An additional two weeks' salary for each full year of service.
• The total severance payment is capped at a maximum of nine months' salary.

For example, an employee with five years of service dismissed without cause would receive three months' pay plus ten weeks' pay (2 weeks x 5 years), provided the total does not exceed the nine-month cap.