Increase To The Severance Payment Formula Under Act 80.


Act No. 128 of October 7, 2005 amended Act No. 80 of May 30, 1976 (AAct 80@) to, among other things, increase the severance payment (commonly known as La Mesada@) to a worker discharged from employment without just cause.  The Puerto Rico Legislature stated that the compensation afforded by Act 80 had become inadequate due to the limited remedy granted to the workers.  The Legislature=s intent is to discourage employers from discharging workers, specially those who have worked for more than fifteen (15) years.

The amendment to Act 80 states that every employee contracted without a fixed term, who is discharged from employment without good cause, shall be entitled to receive, in addition to the salary that the employee may have earned, a severance payment.  The new severance formula, which is effective immediately, is as follows:

A. Employees discharged within the first five (5) years of service:
The salary corresponding to two (2) months and an additional progressive compensation equal to the salary corresponding to one (1) week for each year of service.

B. Employees discharged after five (5) years and up to fifteen (15) years of service:
The salary corresponding to three (3) months and an additional progressive compensation equal to the salary corresponding to two (2) weeks for each year of service.

C. Employees discharged after fifteen (15) years of service:
The salary corresponding to six (6) months and an additional progressive compensation equal to the salary corresponding to three (3) weeks for each year of service.

To illustrate the impact of the amendment, if a Court determines that an employee who earned an annual salary of $24,000 and worked for 15 years was unjustly dismissed, under the new formula the employee shall be entitled to a severance payment of approximately $32,800 (as opposed to a severance payment of approximately $12,900 under the old formula).

As you may appreciate, this is a steep increase in the severance payment formula which imposes a greater burden to employers.  Also, it could trigger a surge of unjust discharge litigations.  Therefore, it is of utmost importance the proper analysis and evaluation of the facts and circumstances leading to an employee dismissal.

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