U.S. District Court Judge Laura Taylor Swain voided a 2022 Puerto Rico labor law, a win for the Puerto Rico Oversight Board, and perhaps an important precedent, according to an analyst.

The law, Act 41, does not comply with the Puerto Rico Oversight, Management and Economic Stability Act because it was not submitted to the board with a formal estimate of its financial impact and because the board did not subsequently declare the act consistent with the fiscal plan, Swain ruled Friday.

Puerto Rico House of Representatives and Senate leaders will appeal the decision, the El Nuevo Día news website reported. Gov. Pedro Pierluisi said he was considering an appeal.

Act 41 would have basically undone a 2017 law that eased certain requirements for employers. It cut the probationary period for new employees; reduced the number of hours required for a Christmas bonus; mandated sick and vacation day benefits for part-time employees; increased wrongful termination indemnity pay; and required employers to prove dismissals were justified.

The implications of the ruling go beyond this case, according to Vicente Feliciano, president of Advantage Business Consulting. “This is great news, much better than what initially meets the eye,” he said. “The [board] staked a claim directly related to the economy and indirectly related to fiscal impact. The decision by Judge Swain sets the precedent for this category of controversies. They range from the trucking rate regulation, recently approved by the Puerto Rico government, to the paid leave for menstruation, currently being discussed by the legislature.”

Some parts of Act 41 were beneficial, said Heidie Calero, President of H. Calero Consulting Group, pointing to the three-month probation period it offered as encouraging employment.

But, she noted, “It is not Puerto Rico’s labor laws [that are] the major deterrent of investment but rather the bureaucratic permitting process under the supervision of the Secretary of Economic Development and the lack of an economic plan going forward.”

With the law voided, Swain declined to rule on the board’s claim that Act 41 impairs the purposes of PROMESA, saying the claim became moot, but she is willing to listen to arguments that it is not.

The board’s January 2022 adopted fiscal plan warned the local government not to repeal the 2017 labor law, Swain said, noting the board repeatedly asked the local government for an estimate of its fiscal and economic impact, but it did not receive one.

Gov. Pierluisi signed Act 41 in June and the board filed its adversary complaint against it in September.

“An economic analysis by the Oversight Board concluded that Act 41 [would] have a negative effect on Puerto Rico’s labor market and its economy overall, leading to fewer jobs, higher outmigration, declining economic growth, and lower commonwealth tax revenues,” the board said after Swain’s ruling.

“The practice of enacting laws without regard to, or an understanding of, the economic consequences is at the root of Puerto Rico’s fiscal crisis and eventual bankruptcy,” the board said.

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