In what has been a string of recent favorable decisions for employers, the Supreme Court of Puerto Rico recently issued another opinion, this time elaborating on the evidentiary standard for wrongful termination claims under Act No. 80 of May 30, 1978 (“Act 80”) after a corporate reorganization. Additionally, and perhaps the most important holding of the opinion, the High Court adopted the sham affidavit doctrine, developed by federal courts, making clear that courts cannot consider a plaintiff’s affidavit that contradicts prior deposition testimony in determining whether a genuine controversy of a material fact exists that would preclude entering summary judgment.

The plaintiff in Lugo Montalvo v. Sol Meliá Vacation Club, 2015 T.S.P.R. 159, 194 D.P.R. ___ (2015) filed suit against his former employer alleging national origin discrimination and unjustified dismissal under Act 80. The employer argued that the plaintiff was terminated with just cause as a result of a corporate reorganization in which the plaintiff’s department was closed and his position was eliminated. The employer filed a motion for summary judgment primarily based on several of the plaintiff’s own admissions during his deposition. As part of his opposition, the plaintiff submitted a sworn statement that contradicted his prior deposition testimony. The lower court denied the motion for summary judgment, finding that there were genuine controversies of material fact. On appeal, the employer argued that the plaintiff’s sworn statement was a sham affidavit filed for the sole purpose of creating a controversy of fact, and should not have been considered by the lower court. The Court of Appeals rejected the employer’s argument and affirmed the lower court’s denial of the motion for summary judgment.

The Supreme Court of Puerto Rico concluded that the lower courts erred in considering the plaintiff’s sworn statement. The court recognized two types of sham affidavits: (1) a sham affidavit by omission; and (2) a sham affidavit by contradiction. The sham affidavit by omission consists of a party withholding relevant information during a deposition for the sole purpose of creating an issue of material fact by stating said information by means of an affidavit. The sham affidavit doctrine by omission had been previously adopted by the Supreme Court of Puerto Rico. This time, the Supreme Court adopted the sham affidavit by contradiction doctrine, which applies: (1) when a party has been examined by means of precise and unambiguous questions and responded to the same in detail during a deposition or a previous sworn statement; (2) when opposing a motion for summary judgment, said party presents a subsequent statement that is clearly inconsistent with the previous version; (3) the inconsistency between both statements is evident, manifest or patent, and not mere discrepancies of lesser importance or good-faith errors; (4) no adequate explanation is offered for offering the new version; and (5) the later statement does not respond to the discovery of new evidence, which notwithstanding reasonable efforts by the party, was not discoverable or was not available at the moment in which the first statement was offered.

After evaluating and comparing the plaintiff’s deposition testimony with the sworn statement filed at the summary judgment stage, the court determined that the statement was a sham affidavit by contradiction. As such, it should not have been considered and the lower courts erred in finding there were genuine issues of material fact. The Supreme Court also emphasized the distinction between a controversy of fact and a controversy of law, noting that the lower court incorrectly characterized “controversies of law” as “controversies of fact” (such as whether the employer incurred in national origin discrimination and whether the termination was with just cause or not).

Based on the uncontested facts, the Supreme Court held that the employer met its burden of establishing that the plaintiff was terminated as a result of the reorganization that closed his department, caused by a decrease in sales. Importantly, the court recognized that an employer may modify its way of doing business by making changes directed at optimizing its resources and increasing its revenue, either by eliminating employment positions, creating new ones, or merging existing positions, for purposes of being competitive, as long as it is a bona fide reorganization. Since the employer was able to establish just cause for the termination, the plaintiff’s discrimination claim also necessarily failed.

This decision reiterates an employer’s prerogative in reorganizing its business in order to stay competitive without having to incur Act 80 liability, as long as the reorganization is bona fide. From a litigation and procedural standpoint, the decision further supports a shift in how motions for summary judgment are viewed by lower courts and reiterates its message that summary judgment is an appropriate method for resolving employment cases when it is evident that no controversy of material fact exists.