Supreme Court won’t undo nullification of pro-labor law in Puerto Rico

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The Supreme Court refused this week to review an appeals court ruling that upheld the power of Puerto Rico’s financial oversight board to nullify the territory’s pro-labor law in 2022.

The ruling leaves in place a decision by the U.S. Court of Appeals for the 1st Circuit to affirm the Financial Oversight and Management Board for Puerto Rico’s decision to void Act 41, which granted concessions to the labor movement.

The Supreme Court decided not to take up the petitions for certiorari, or review, in Hernandez-Montanez v. Financial Oversight and Management Board for Puerto Rico and Pierluisi v. Financial Oversight and Management Board for Puerto Rico in an unsigned order on March 25. No justices dissented. The court did not explain its decision. At least four of the nine justices must vote to grant a petition for it to advance to the oral argument stage.

The petitioner in one appeal, Pedro Pierluisi of the pro-statehood New Progressive Party, is the governor of Puerto Rico. The petitioner in the other appeal, Rafael “Tatito” Hernandez-Montanez, a Democrat, is the speaker of the Puerto Rico House of Representatives.

When Puerto Rico experienced serious financial difficulties in 2016, Congress approved the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) to restructure the U.S. territory’s debt. The law created the Financial Oversight and Management Board to “develop, approve, and certify Fiscal Plans and Territory Budgets, … negotiate with [Puerto Rico’s] creditors, … and commence a bankruptcy-type proceeding on behalf of [Puerto Rico],” according to a Legal Information Institute summary.

According to the oversight board, when PROMESA came into effect, Puerto Rico was more than $70 billion in debt. The U.S. territory faced upwards of $55 billion in unfunded pension liabilities “with no legal path to restructure its liabilities and stabilize its finances. Puerto Rico had lost access to capital markets.”

The goal of the oversight board is to represent the interests of Puerto Rico in the debt restructuring process in order “to reach consensual agreements in the best interest of all stakeholders that will end Puerto Rico’s bankruptcy under PROMESA.”

To date, the oversight board says it and the Puerto Rican government have together restructured about 80 percent of the territory’s outstanding debt, reducing total liabilities from more than $70 billion to a more manageable $37 billion, which will save Puerto Rico more than $50 billion in debt service payments.

In his petition (pdf), Mr. Pierluisi attacked PROMESA, calling it “a targeted disruption of Puerto Rico’s governance in an effort to manage its fiscal crisis.”

Although the law’s goals are “crucial,” it is “nevertheless an anti-democratic law that infringes on Puerto Ricans’ already limited right to self-rule by instituting an unelected Board to oversee the Commonwealth’s finances,” according to the petition.

The governor recounted that he signed a pro-labor bill, Act 41, into law in June 2022. The legislation required ambiguities in employment contracts to be construed in favor of employees and extended the statute of limitation from 1 year to 3 years for actions arising from an employment contract or its benefits. The measure also mandated double pay for students who work on a mandatory day of rest for most employers.

Around that time, the oversight board warned the governor that Act 41 was “significantly inconsistent with the Certified Fiscal Plan and [we] do not believe any other accurate conclusion is possible.”

The oversight board said the statute was barred by PROMESA, saying it would discourage investment, negatively affect labor participation, hurt economic growth, deprive the Puerto Rico government of revenues associated with that growth, and increase the public assistance burden.

The oversight board also said that the law was inconsistent with the official fiscal plan because it would repeal prior labor law reforms. The board said PROMESA barred the governor from signing the bill, the petition said.

In September 2022, the oversight board sued in federal district court in Puerto Rico to nullify Act 41 under PROMESA. The board argued that the governor failed to hand over documentation showing that the statute complied with the board’s fiscal plan for Puerto Rico, as required by PROMESA. In March 2023, the court granted summary judgment to the board, nullifying the statute under PROMESA.

In August 2023, a three-judge panel of the U.S. Court of Appeals for the 1st Circuit upheld the lower court’s ruling. Among its findings, the circuit court rejected the argument by Mr. Hernandez-Montanez and Mr. Pierluisi that the district court lacked jurisdiction to hear the case.

The Epoch Times reached out to Mr. Pierluisi’s attorney, William J. Sushon of O’Melveny and Myers in New York, and to Mr. Hernandez-Montanez’s attorney, Jorge Martinez-Luciano of ML and RE Law Office in San Juan, Puerto Rico, for comment, but had not received any replies as of publication time.

The oversight board said in a statement that it “welcomes the Supreme Court’s determination to leave in place the First Circuit’s opinion affirming the U.S. District Court’s approval of the Oversight Board’s determination not to approve legislation reversing critical labor reforms in Puerto Rico which would have deterred new investment.”

This article by Matthew Vadum appeared March 28, 2024, in The Epoch Times.

Photo: Puerto Rico Gov. Pedro Pierluisi of the New Progressive Party