Puerto Rico - Retailer Beware
September 13, 2007 By William Estrella Law Offices, PSC
The Legal Intricacies of Doing Business in Puerto Rico
Puerto Rico’s retail market is quite attractive. After all, several stateside retailers have some of their top selling stores in Puerto Rico. Consequently, their success presents the challenge to an increasing number of companies to follow suit and surge into the Puerto Rico market. However, a business’ ability to emulate or exceed the success of your competition will depend on its ability to properly manage the challenges this lucrative but challenging market presents.
Although Puerto Rico has a lucrative retail market disproportionate to its low per capita income, it comes with a price. Puerto Rico’s government bureaucracy and over-regulation far exceeds that of any other state of the Union with a similar size and base population. Thus, knowing the challenges ahead and selecting the right advice to guide through these obstacles is of utmost importance.
Initially, the costs and bureaucracy involved in developing land and completing the permitting process and endorsements needed to start a business are rather burdensome. With limited land and an ever expanding public interest in protecting local businesses, completing the zoning process to develop a commercial space can take several years. This process is further complicated by an excess of competitors whose way of preventing a reduction in their revenues is by preventing their competition from opening a business, while taking advantage of an administrative system that is ill-equipped to manage its workload. Most commercial projects where a substantial square footage is developed are subject to a zoning consultation involving an administrative procedure where the proponent must demonstrate that the project sought does not pose a threat to the environment and will not adversely affect the public interest. In all cases requiring a zoning change, the consultation may lead to a quasi-judicial procedure open for opponents to the project to present evidence against the project.
Once the project is approved, a series of additional permits are required to construct the building in question. In cases not subject to zoning procedures, the permitting agency, ARPE, becomes the litigation forum. Commonly, opposing parties to a project may present objections to technical aspects of the project to further delay the development, while taking advantage of a system ill-equipped to handle complex litigation.
Once you have completed the zoning and permitting stages, your business is ready to obtain the necessary licenses to operate. At this stage we have government agencies such as the Treasury Department, Hacienda, which oversees the granting of a series of licenses related to the type of merchandise sold by the establishment such as liquor, jewelry, and auto parts, among others. Hacienda also requires the business to be registered in a merchant registry for purposes of collecting the soon to be implemented sales tax. Also, the Department of Health issues certificates of fitness of the business to open to the public. Furthermore, the Firemen Department, the Electric Power Authority, and in some cases, the Puerto Rico Highway Authority also certify the business’ fitness to open to the public. Moreover, each municipality issues the authorization to operate any business within their jurisdiction.
Once a business is ready to open for business, it must also be ready to face the challenges of being an employer in Puerto Rico. Contrary to many of the states in the Union, Puerto Rico is not an employee-at-will jurisdiction. While employers may hire employees to a 90-day probationary period that must be memorialized in writing, once the employee succeeds that probationary period, employees can only be terminated for cause. In this regard, a presumption that an employee termination is wrongful also operates as a matter of law. In case of a non-discriminatory wrongful termination, or in one not covered under a wide array of other special legislation, severance pay, at a minimum of two months’ salary, is payable to the employee.
In addition to this, Puerto Rico provides for overtime for non-FLSA employers at double the regular hourly rate. Moreover, Puerto Rico overtime is to be paid for work performed for retailers on Sundays during regular business hours and for instances where no meal period is taken after five consecutive hours of work, as well as for any time worked in excess of 8 hours within a period of 24 consecutive hours. These overtime regulations, together with the prohibition to fraction the regular work shifts and Sunday work regulations, lead to a forced dependency on part-time employees to properly staff a business on peak hours.
There is a strong public interest in promoting employment stability that provides for mandatory vacation and sick time for those working over 115 hours per month. It also requires that en employer allow for an eight-week maternity leave with full pay, mandatory state sponsored workers compensation and non-employment related disability insurance, as well as unemployment.
Presently, several pieces of legislation are being considered to expand the scope of sick pay, provide for paternity leave, increase the applicable minimum wage to the level of the federal minimum wage, and expand protected class status to victims of domestic violence, among others. With regard to retailers, a strong push is also in place to extend mandatory sick and vacation accrual to part-time employees.
On the consumer protection side, Puerto Rico has some of the most complex consumer protection legislation. The Department of Consumer Affairs (DACO, by its acronym in Spanish) is the agency entrusted with enforcing the Government’s plethora of regulation over issues such as advertisements, signage, promotions, warranties and product recalls. Routinely, DACO inspectors visit businesses to ensure compliance with their regulations and have authority to impose fines of up to $10,000 per infraction. In this regard, some retailers have opted to take a proactive approach with DACO and have been successful in presenting a winning defense at times, there are still many others that continue to face the consequences of an aggressive and, at times, overzealous government.
ABOUT THE AUTHOR: Gerardo J. Hernandez & Alberto G. Estrella
Gerardo Hernandez is the Firm's Director of Labor & Employment Practices. Alberto Estrella is the Firm's Managing Parter and Director of Litigation and General Practices.
Copyright William Estrella Law Offices, PSC
More information about William Estrella Law Offices, PSC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Although Puerto Rico has a lucrative retail market disproportionate to its low per capita income, it comes with a price. Puerto Rico’s government bureaucracy and over-regulation far exceeds that of any other state of the Union with a similar size and base population. Thus, knowing the challenges ahead and selecting the right advice to guide through these obstacles is of utmost importance.
Initially, the costs and bureaucracy involved in developing land and completing the permitting process and endorsements needed to start a business are rather burdensome. With limited land and an ever expanding public interest in protecting local businesses, completing the zoning process to develop a commercial space can take several years. This process is further complicated by an excess of competitors whose way of preventing a reduction in their revenues is by preventing their competition from opening a business, while taking advantage of an administrative system that is ill-equipped to manage its workload. Most commercial projects where a substantial square footage is developed are subject to a zoning consultation involving an administrative procedure where the proponent must demonstrate that the project sought does not pose a threat to the environment and will not adversely affect the public interest. In all cases requiring a zoning change, the consultation may lead to a quasi-judicial procedure open for opponents to the project to present evidence against the project.
Once the project is approved, a series of additional permits are required to construct the building in question. In cases not subject to zoning procedures, the permitting agency, ARPE, becomes the litigation forum. Commonly, opposing parties to a project may present objections to technical aspects of the project to further delay the development, while taking advantage of a system ill-equipped to handle complex litigation.
Once you have completed the zoning and permitting stages, your business is ready to obtain the necessary licenses to operate. At this stage we have government agencies such as the Treasury Department, Hacienda, which oversees the granting of a series of licenses related to the type of merchandise sold by the establishment such as liquor, jewelry, and auto parts, among others. Hacienda also requires the business to be registered in a merchant registry for purposes of collecting the soon to be implemented sales tax. Also, the Department of Health issues certificates of fitness of the business to open to the public. Furthermore, the Firemen Department, the Electric Power Authority, and in some cases, the Puerto Rico Highway Authority also certify the business’ fitness to open to the public. Moreover, each municipality issues the authorization to operate any business within their jurisdiction.
Once a business is ready to open for business, it must also be ready to face the challenges of being an employer in Puerto Rico. Contrary to many of the states in the Union, Puerto Rico is not an employee-at-will jurisdiction. While employers may hire employees to a 90-day probationary period that must be memorialized in writing, once the employee succeeds that probationary period, employees can only be terminated for cause. In this regard, a presumption that an employee termination is wrongful also operates as a matter of law. In case of a non-discriminatory wrongful termination, or in one not covered under a wide array of other special legislation, severance pay, at a minimum of two months’ salary, is payable to the employee.
In addition to this, Puerto Rico provides for overtime for non-FLSA employers at double the regular hourly rate. Moreover, Puerto Rico overtime is to be paid for work performed for retailers on Sundays during regular business hours and for instances where no meal period is taken after five consecutive hours of work, as well as for any time worked in excess of 8 hours within a period of 24 consecutive hours. These overtime regulations, together with the prohibition to fraction the regular work shifts and Sunday work regulations, lead to a forced dependency on part-time employees to properly staff a business on peak hours.
There is a strong public interest in promoting employment stability that provides for mandatory vacation and sick time for those working over 115 hours per month. It also requires that en employer allow for an eight-week maternity leave with full pay, mandatory state sponsored workers compensation and non-employment related disability insurance, as well as unemployment.
Presently, several pieces of legislation are being considered to expand the scope of sick pay, provide for paternity leave, increase the applicable minimum wage to the level of the federal minimum wage, and expand protected class status to victims of domestic violence, among others. With regard to retailers, a strong push is also in place to extend mandatory sick and vacation accrual to part-time employees.
On the consumer protection side, Puerto Rico has some of the most complex consumer protection legislation. The Department of Consumer Affairs (DACO, by its acronym in Spanish) is the agency entrusted with enforcing the Government’s plethora of regulation over issues such as advertisements, signage, promotions, warranties and product recalls. Routinely, DACO inspectors visit businesses to ensure compliance with their regulations and have authority to impose fines of up to $10,000 per infraction. In this regard, some retailers have opted to take a proactive approach with DACO and have been successful in presenting a winning defense at times, there are still many others that continue to face the consequences of an aggressive and, at times, overzealous government.
ABOUT THE AUTHOR: Gerardo J. Hernandez & Alberto G. Estrella
Gerardo Hernandez is the Firm's Director of Labor & Employment Practices. Alberto Estrella is the Firm's Managing Parter and Director of Litigation and General Practices.
Copyright William Estrella Law Offices, PSC
More information about William Estrella Law Offices, PSC
View all articles published by William Estrella Law Offices, PSC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
