Are settlement agreements valid and enforceable under Law 75?

I’m not aware of a dealer ever challenging a written agreement after it receives the compensation it voluntarily accepted for the settlement of an actionable Law 75 claim. It is routine to settle Law 75 claims to avoid trial. It is typical for the payor (usually the principal) to require and state in a written agreement that it does not admit liability as a condition to settle and it does so to avoid the costs and inconveniences of trial. It is usual for Law 75 cases to settle for amounts that are short of the total compensation that a fact finder could potentially award the dealer in damages if there was liability, or for amounts less than the measure of full Law 75 damages. The question about the validity of settlement agreements is provoked by Law 75’s anti-waiver provision that it is a remedial legislation, and its protections cannot be waived. For example, if Law 75 applies, parties cannot waive by contract that the agreement expires at the end of the term and will not be renewed or waive just cause for termination or non-renewal. In another similar context, an agreement cannot state that it is not a dealer's or distribution contract to avoid legal protections.Those are the obvious cases. Less usual, but found by an arbitration panel not to waive Law 75 rights, is a liquidated damages provision in a Law 75 agreement in the event of a termination. But that case was factually unusual because the distribution of the line and its goodwill were fully mature, valuable, and developed by the owner when the dealer took over the distribution rights.This anti-waiver provision has never come into play in the context of a settlement agreement. I am inclined to think that a settlement agreement, that would otherwise be valid and enforceable at civil law, does not implicate Law 75’s anti-waiver provision.The dealer could be receiving less money than the maximum measure of damages, but Law 75 does not guarantee any compensation much less require a severance (“mesada”). Actual damages must be proven.The factors in Law 75 to award damages are just guidelines. Law 80, which tracks Law 75’s just cause requirement and is vested with public policy, does obligate an employer to pay the statutory severance (“mesada”) for an unjustified termination. Puerto Rico’s Supreme Court is evenly split down the middle 4-4 on the validity of a settlement agreement where the employee admits that there was just cause for termination as a condition to receive a settlement payout. Four Justices would hold that the settlement agreement of a Law 80 claim on those terms is illegal and contrary to public policy. They reason it was a waiver of the employer's burden to prove just cause for termination and bypassing payment of the compulsory "mesada". But the case should raise some eyebrows when settling claims involving special laws, like Laws 75/21, that have strong public policies behind them. The decision, Feliciano v. Luxury Hotels, 2022 TSPR 133 (Oct. 26, 2022), gives food for thought about how far reaching could this decision be in employment cases or if it is limited to the facts. Stare decisis is that settlement agreements of Law 80 claims are valid, at least for the time being.

A panel of Puerto Rico’s intermediate appellate court invalidates choice of forum provision under Law 75

In Home Orthopedics Corp. v. Rikco International, 2020 WL 3455027 (TCA 2020), an exclusive distributor of orthopedic shoes sued both its principal for termination under Law 75 and KMart for tortious interference. The supply agreement had a mandatory and broad choice of forum clause providing for resolution of disputes in Wisconsin. The trial court dismissed the complaint with prejudice to enforce the forum selection clause, relying principally on federal caselaw. It is unclear from the opinion why it was a dismissal with prejudice when enforcement of the clause only had a jurisdictional effect, not on the merits of the claims. The appellate court reversed and remanded. First, the court held that the supply agreement had expired on its own terms and was not renewed in writing. Although the parties conducted business after its expiration date without a new agreement, the court held that the there was no valid and binding choice of forum clause. Second, assuming it was in effect, Law 75 invalidates a provision mandating litigation outside of Puerto Rico as a matter of public policy. There are three things to learn or remember from this case. One, for suppliers not to do business without a written contract and be vigilant to renew or negotiate the terms of a new agreement before the old one expires. Two, there is an actual conflict between federal courts and Puerto Rico’s intermediate appellate courts on the enforcement of mandatory choice of forum provisions in Law 75 contracts. Third, an arbitration agreement with a mandatory choice of forum clause outside Puerto Rico is binding and enforceable under the Federal Arbitration Act, that preempts Law 75 on this issue. A properly crafted arbitration clause would have solved the locale for dispute resolution in this case.