Employer Validates Cause in Wrongful Termination Case

Economic downturn, lower revenues, restructuring and other business reasons can be the basis for a lawful employment discharge under Puerto Rico’s  Law 80 (act no. 80 of may 30, 1976). In the wrongful termination  case of  Zapata v J.F. Montalvo Cash & Carry, Inc. ,  August 27, 2013 , the Puerto Rico Supreme Court held that the employer  had shown  valid business reasons to discharge the plaintiff even though after  his discharge the company hired others and  even awarded performance bonuses.

 There are two sets of reasons that make a discharge lawful in Puerto Rico.  One relates to employee misconduct and the other to economic/business reasons;  the latter are discussed in the Zapata case.

Business reasons under Act No. 80 are certain specific circumstances of an economic nature that may arise in the daily operation of an organization which involve the termination of employment.  In such cases, employers are under no obligation to pay severance compensation.

These circumstances occur within three major scenarios:

1. Closings: A total, temporary or partial closure of operations.

2. Reorganizations: Technological changes or reorganization , as well as changes in style, quality or nature of the product being produced or handled by the establishment .

3.  Reduced economic activity that require reductions in the number of employees.  Reduced economic activity includes a decline (actual or anticipated) in sales volume, production or profits.

 Not all changes or reductions in activity  justify  a dismissal . The  magnitude must be  meaningful to such a degree as to threaten the stability and solvency of the business.

In all three scenarios terminations must be based on economic/business  reasons directly related to the viability of the business and / or its components , and to  address issues concerning the welfare of business management and the fiscal health of the company.

Given that an employer has the burden to show that the discharge was for just cause,  it must present evidence of a reorganization plan, its  implementation and usefulness; the alleged decline in production , sales or profits, as appropriate; and demonstrate that these circumstances required the layoff.