On June 30, 2023, the Supreme Court of Puerto Rico issued an Opinion and Order interpreting an employer’s obligation to pay the Christmas Bonus to employees covered by a Collective Bargaining Agreement (CBA).  Writing for the Court, Judge Rafael Martínez Torres reasoned that because the Puerto Rico Department of Labor and Human Resources (“PR-DOL”) exempted unionized employees from its decision to relieve an employer of its obligation to pay a Christmas Bonus for financial reasons, the employer could not escape its obligation to pay the negotiated bonus under the CBA to its unionized employees.  

Generally, the Christmas Bonus for Private Employees Act, or Act 148 of 1969 (“Christmas Bonus Act” or “the Act”) mandates the distribution of Christmas Bonuses in the private sector. Article 7 of the Christmas Bonus Act gives the PR-DOL the authority to adopt any rule or regulation the Department deems necessary when it comes to the application of the Act’s provisions.  Article 6 specifically states that the provisions of this Act are not applicable to workers or employees who receive their Christmas Bonus under their CBAs, unless the sum provided is less than what the Act requires. Importantly, Article 7 of the Act allows an employer to request from the PR-DOL an exemption from paying the Christmas Bonus when it can assert a financial hardship defense. Specifically, an employer can make this request if it “has not obtained profits from his business, industry, trade, or firm or when the profits are not sufficient to cover the total amount of the bonus without exceeding the fifteen percent (15%) limit of the net annual profits.”  Once the request is received, the PR-DOL evaluates the documents presented in support and decides whether or not to grant an exoneration decree relieving the employer of its Christmas Bonus obligation.

In this case, the employer, Hospital HIMA San Pablo Caguas (“HIMA”), entered into two CBAs with a union representing a number of its employees. In both, HIMA agreed to pay Christmas Bonuses to all bargaining unit employees under certain conditions. Notably, the CBA expressly stated that HIMA would pay the bonus “under the terms established by law.” Thereafter, in 2015, HIMA requested from the PR-DOL an exemption under the provisions of the Act, claiming that it could not comply with its obligation to pay the statutory bonus because of the operational losses experienced that year. After reviewing the request, the PR-DOL granted a preliminary exemption, but explicitly informed HIMA that the exemption decision would not be applicable to bargaining unit employees. HIMA sought a reconsideration, arguing the bonuses were included in the CBAs in compliance with statutory requirements and thus, the exemption should extend to those employees. The PR-DOL reiterated its original interpretation, denying the exemption to pay bonuses to unionized employees.

HIMA refused to pay unionized employees the Christmas Bonus. Consequently, the union filed two complaints before the Department’s Arbitration and Conciliation Bureau demanding payment of the bonus. The arbitrator concluded that HIMA had infringed the provisions of the CBA.  In so deciding, the Arbitrator explained that Article 7 does not apply to employees represented by a union and, thus, HIMA could not withhold payment of the Christmas Bonus even after the exemption.

HIMA filed a petition for judicial review of the arbitration award before the Court of First Instance. It argued that the PR-DOL had exonerated the hospital from paying the Christmas Bonus and that this exoneration included unionized employees because the CBA specifically conditioned payment on “the terms established by law.” HIMA reasoned such terms included the exoneration clauses. The union, in turn, argued that the Christmas Bonus Act explicitly excluded bargaining unit employees and, therefore, the exoneration clause was inapplicable to them. The Court of First Instance agreed with HIMA, concluding that the parties’ past practice and the Christmas Bonus Act itself were sufficient to exonerate the employer from paying the bonus to all employees, regardless of whether they were unionized. The union appealed to the Court of Appeals, but the appellate court agreed with the lower court’s determination. The union then sought review before the Puerto Rico Supreme Court (PRSC).

In revoking the lower courts’ determination, the PRSC explained that the Act is clear in its lack of application to unionized employees. The PRSC examined the regulations adopted by the PR-DOL that specifically state that when employees are represented by a union it is up to the employer and the union to negotiate the specific terms to be followed. Accordingly, the PRSC held that an exoneration decision by the PR-DOL does not have any legal effect on employees covered by a CBA. The only exception to this is when the bonus amount received by the employee is less than what the Act requires. If the amount meets or exceeds the Act’s requirements, then the Act plays no part and the CBA, and the provisions therein, are binding. The Court recognized that parties to a CBA may negotiate to include provisions of the Christmas Bonus Act in the CBA, but explained that they may not impose a duty on the PR-DOL that the law does not require, and further cautioned employers that unless the exoneration received specifically covers bargaining unit employees, it will not be applicable to them. Consequently, the Court concluded that because in this case the exoneration granted had left out unionized employees, HIMA had violated its obligation when it unilaterally decided not to pay the bonus to them.

Following this decision, employers should examine and consider amending the language of their Christmas Bonus CBA Articles so that should the situation arise where they experience net losses or where earnings are insufficient to cover the required Christmas Bonus, they are best positioned to pursue an exoneration decree that will cover bargaining unit employees, negotiate with the union, or pursue any other feasible alternatives.

*Ruy Díaz González is an Associate with Schuster LLC | Littler.