Separation and extrajudicial employment agreements in Puerto Rico: you may still owe attorney’s fees and may be walking into litigation you thought you would avoid
By: Javier G. Vázquez-Segarra, Esq.
Angel Berberena, Esq.
August 6, 2020
The Puerto Rico Supreme Court recently ruled that clauses in extrajudicial separation agreements between employers and employees, in which his right to receive attorney’s fees is waived, are null and void. See: Berkan v. Mead Johnson Nutrition, 2020 TSPR 29. This may impact your employer’s organization much more than you may think.
An employee with over 30 years of service was terminated due to a corporate reorganization that resulted in the elimination of his position. Although the employer apparently had just cause for termination, it decided to offer a separation package in exchange for a standard separation agreement and general release (“Agreement”). The employee retained counsel to review the Agreement and to renegotiate some of its provisions. After several months of negotiations, an agreement was reached as to the severance pay, but the employer refused to include an additional amount to cover attorney’s fees. The employee signed the Agreement, which included a waiver regarding attorney’s fees, and received his severance. Shortly after, counsel for the employee filed suit against the employer demanding attorney’s fees.
The Supreme Court ruled in favor of the attorneys on the grounds that Law No. 402 of 1950 prohibits any agreement in which an employee has to pay for his own attorney’s fees in relation to a labor or employment claim. The Court added that the waiver of said fees is null and void and that the employee’s attorneys are entitled to “reasonable attorney’s fees” on the grounds that Law No. 402 does not distinguish between judicial or extrajudicial claims. The Court further concluded that because Law No. 402 does not define “reasonable attorney’s fees,” such amount should be part of the negotiation between the parties and failure to reach an agreement opens the door to the parties to file a judicial claim for the Court to award “reasonable attorney’s fees.”
This recent opinion by the Puerto Rico Supreme Court introduces an additional layer of complexity to separation agreements and creates an independent cause of action that may result in litigation that the agreement intended to avoid. Employers are advised to exercise extreme caution and to secure legal advice before performing reductions, offering separation packages, or executing employment separation agreements.
Goldman Antonetti & Córdova, LLC stands ready to assist you and your business to adjust to Puerto Rico’s regulatory and legal changes. If you need further assistance in this area, please contact any of the following members of our Firm:
|Luis Ortiz Abreu
Although the information included in this document may concern legal issues, it is not a legal opinion or professional advice and clients shall not use it as such. We assume no responsibility or liability of any kind for any information contained herein, and we expressly disclaim all liability for any claim for damages arising from the use, reference to, or reliance on, such information. If legal or other expert assistance is required, the services of a competent professional should be sought.