Two recent rulings from the Puerto Rico Court of Appeals provide guidance as to what constitutes the transfer of a going business vis-à-vis the closing of a business, to determine whether the employer is liable for payment of severance to employees who are discharged within the context of those transactions.  

In Quintero v. Bestov Broadcasting, Inc., plaintiff was a sales executive who worked at Radio Puerto Rico, a radio station owned and operated by Bestov Broadcasting, Inc. (“Bestov”).  Due to its economic difficulties, Bestov entered into a three-year lease with an option to buy agreement (“Agreement”) with Boricua Broadcasting Corp. (“Boricua”), to lease its facilities, equipment and on-air radio time. Pursuant to the Agreement, Bestov retained the control over its policies, as well as the authority and power over its operations and programming, including the right to refuse or cancel programming or advertising that did not comply with Bestov’s policies.  As the Agreement required Boricua to hire its own staff and pay their salaries, Bestov discharged all of Radio Puerto Rico’s employees.  Boricua, in turn, hired several of Bestov’s employees, although plaintiff was not amongst them.  Plaintiff sued Bestov alleging unjust dismissal and claiming severance.  In response, Bestov alleged that it had just cause to dismiss plaintiff because its operations had partially or completely closed due to its financial difficulties. 

The Court of Appeals looked at the interplay between Act 80 and the labor code to determine whether Bestov had established that plaintiff’s termination of employment should be deemed for just cause.  Puerto Rico Act 80 of May 30, 1976 (“Act 80”) provides that any person hired for an indefinite period of time, and discharged without just cause, is entitled to receive a severance payment, in addition to any wages owed.  The law also provides that just cause exists for the discharge of an employee in the case of a full, temporary or partial closing of the operations of the establishment.  However, in the case of transfer of a going business, if the buyer chooses not to continue with the services of all or any of the employees, and hence does not become their employer, the former employer shall be liable for the compensation. 

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