Publications

Category: Labor and employment

Ordinance No. 1,129 of the Ministry of Labor and Employment (MTE) has caused real upheaval. On the one hand, the new rules have received praise, since they have abandoned inaccurate definitions from the previous rules, conferring on market players greater legal certainty and on companies, the possibility of properly defending themselves in investigations. On the other hand, legal irregularities and political opportunism are raised, for which reason the Federal Public Prosecutor's Office (MPF) and the Public Prosecutor's Office for Labor Affairs (MPT) have recommended revocation of the Ordinance. These are also the arguments underlying the Allegation of Non-compliance with a Fundamental Precept (ADPF) filed by the party named Rede Sustentabilidade and the Direct Suit of Unconstitutionality (ADI) brought by the Democratic Labor Party (PDT), both of which shall have their opinion drafted by Justice Rosa Weber, of the Federal Supreme Court. On October 24, Weber granted the petition for a preliminary injunction in the ADPF, ordered full suspension of Ordinance No. 1,129, requested information from the Minister of Labor and Employment, and subpoenaed the Attorney General's Office and the Solicitor General's Office to express their opinions. The decision is subject to a referendum by the Plenary Session of the Federal Supreme Court, but already produces erga omnes binding effects, that is to say, all courts and people must observe its terms, even if they are not parties to the ADPT. Another effect of the preliminary injunction is the revival of the articles of Interministerial Ordinance No. 4, of May of 2016, which had been revoked by Ordinance No. 1,129. Among them are those that establish a) the jurisdiction of the Department of Labor Inspection (SIT) to include the name of employers in the "dirty list" of slave labor; b) the list of minimum obligations that must be included in consent decrees (TAC) signed with the MTE; c) obligatory notice to the MPT to allow its participation in the execution of TACs; d) the rule that even if a TAC is signed, the employer is registered in the "dirty list", although for a shorter period than those that do not sign the consent decree; and e) updating the "dirty list" at any time. With the suspension of Ordinance No. 1,129: a) the definitions of slave labor for the purposes of inclusion in the "dirty list" are those provided for in Normative Instruction No. 91 of SIT; b) it is no longer necessary that inspection by labor tax auditors have the police authority present, who will file a Police Report; and c) notices of infraction need not necessarily contain photographs that show each irregular situation found; copies of all documents that demonstrate and prove forced labor, exhaustive working hours, degrading conditions or work in conditions analogous to slavery, nor a detailed description of the situation found, with a mandatory approach to the existence of armed security other than for the protection of the property, impediment to workers’ movement, servitude by debt, and the existence of forced or involuntary labor by the worker. All these innovations had been brought in by the suspended ordinance. Following Justice Weber's decision to suspend the Ordinance, SIT released the latest "dirty list" of slave labor on the MTE’s website on October 27. The inclusion of an employer in this list may imply damage to its image, restriction on obtaining financing from financial institutions, breach of contracts with commercial partners whose compliance rules prevent them from maintaining relationships with listed companies, and devaluation of the company’s shares, among other adverse impacts on operations and business.

Category: Corporate

The Brazilian Corporation Law (Law 6,404/1976) provides, in article 4, for the possibility of incorporation of publicly-held or privately-held corporations. These corporations are distinguished from the other companies provided for in the Brazilian legal system in several respects, especially due to their for-profit nature, that is, by the fact that generating profits takes priority over the personal characteristics of their shareholders.

On the other hand, and contrary to what happens in companies not subject to delectus personae, we see that companies subject to delectus personae, as is the case of limited liability companies, are generally characterized by their intuito personae nature, which takes into consideration the people who are its partners and who, in theory, will contribute their skills and personal characteristics to the success of the company.

However, the Brazilian reality shows the use of privately-held corporations by small groups of people, usually a family, to achieve various goals, among which are tax planning, succession, or the greater freedom and legal security that this type of company offers. In such companies, personal relationships among shareholders or their contributions to the corporation are relevant, and the desire to form a corporation (affectio societatis) stands out as the core of the corporation. The intuito personae nature, traditionally attributed to companies subject to delectus personae, predominates, and the "capital" element of the institute of anonymity moves into the background.

In this context, courts ran into the need to apply the Brazilian Corporation Law differently for publicly-held and privately-held corporations, taking into account their individual characteristics. Thus, judgments on corporate matters involving corporations with an eminently for-profit purpose are very different from judgments on matters for corporations where affectio societatis prevails.

Based on this, the Superior Court of Justice (STJ) was obliged to formulate innovative understandings in relation to corporations with privately-held capital, extending to them application of the legal regime characteristic of limited liability companies, as provided for in the Brazilian Civil Code (Law No. 10,406/2002), which is characterized by predominance of affectio societatis.

On this point, although there is no corresponding provision in the Brazilian Corporation Law, we would like to emphasize the understanding brought in by the STJ in order to consider the breakdown of affectio societatis (i.e., the lack of willingness to remain associated) as a cause for partial dissolution of privately-held corporations, as per precedents of that court (e.g., REsp 1.321.263/PR, EREsp 1.079.763/SP, EREsp 111.294/PR, REsp 917.531/RS, REsp 247.002/RJ, and REsp 1.129.222/PR). It should be noted that the Brazilian Corporation Law only provides for the mechanism of total dissolution of the corporation in the event that its shareholders do not wish to continue with its corporate activities.

Based on the principle of social function and preservation of the company contemplated in the Federal Constitution (articles 5, items XIII and XXIII, 170, items II-IX, and the sole paragraph of article 186) and established in the Company Reorganization Law (Law No. 11,101/2005, article 47), partial dissolution of privately-held corporations became widely applied by Brazilian courts, with support from the STJ.

Accordingly, taking into account the social function of the company, one avoids completely dissolving it, factoring in the interests of the various stakeholders involved: partners, workers, suppliers, and society itself. Undoubtedly, it is a better solution than the legally envisaged alternative, since total dissolution would lead to the closing down of the corporations's activities, thereby leaving to their own luck employees, suppliers, the public and even the shareholders who wish to maintain the company’s productive activities.

The main argument that has been used to request partial dissolution of privately-held corporations is supported by the possible existence of the intuito personae nature of these companies, since the choice of this type of company may not necessarily be restricted to the pursuit of profit, but based on attributes capable of giving its participants certain benefits.

In this sense, the STJ has constructed the understanding that partial dissolution of a privately-held corporation is possible in two scenarios: (i) breaking of the affectio societatis; and (ii) lack of profit or non-distribution of dividends for a long period. However, these scenarios are not exhaustive: in order to grant partial dissolution, all other aspects of the case must also be observed.

Therefore, partial dissolution of a privately-held corporation, due to the absence of any provision expressed in the Brazilian Corporation Law, must be pled before the Judiciary and, therefore, determined by means of a judgment.

Category: Labor and employment

Law No. 12,761/2012 established the Worker Culture Program and created the cultural voucher, which was later given a regulatory framework by Decree No. 8,084/2013 and establishes that joining the program and granting this benefit are optional for employers.

The program seeks to guarantee, expand, and foster the access of Brazilian citizens to cultural goods and services, thereby providing the population the ability to fully exercise its social rights to culture and stimulating the generation of work, income, and employment through the democratic development of the culture economy.

The benefit of the cultural voucher consists of a monthly amount of R$ 50.00, cumulative, to be provided by the employer to workers with an employment relationship. It is not classified as salary and is not factored into remuneration for any effects. Therefore, it is not subject to social security contribution and is not included in the income tax calculation basis or for FGTS deposits.

The program is primarily intended for employees who earn up to five minimum wages. Those who have remuneration higher than this limit can only receive the cultural voucher if the company guarantees the service to all employees with lower remuneration, according to article 7 of Law No. 12,761/12.

The provision of the cultural voucher will depend on prior acceptance by the worker, who may reconsider his decision at any time. For this reason, companies that choose to provide this benefit must ask employees for their written acceptance. In this document, it is advisable for companies to state the value of the benefit and also whether any portion of it will be deducted from employees opting in, since article 15 of Decree No. 8,084/2013 allows employers to discount it from employee’s remuneration, and article 16 requires the discount in the following percentages:

I) Article 15 - Workers with remuneration up to five minimum wages:

• Up to one minimum wage - 2%.
• Above one and up to two minimum wages - 4%.
• Above two and up to three minimum wages - 6%.
• Above three and up to four minimum wages - 8%.
• Above four and up to five minimum wages - 10%.

 
 II) Article 16 - Workers with remuneration of more than five minimum wages:

• Above five and up to six minimum wages - 20%.
• Above six and up to eight minimum wages - 35%
• Above eight and up to ten minimum wages - 55%.
• Above ten and up to twelve minimum wages- 70%.
• Above twelve minimum wages: 90%

It is important to clarify that the benefit is intended for the worker, called a user, and preferably must be provided by a magnetic card, and payment in cash is prohibited.

In order for the user/employee to be entitled to the benefit, the employer (company providing the benefit) must register in advance with the Ministry of Culture, which authorizes the employer to distribute cultural vouchers to its employees. The voucher will be produced and marketed by operating companies, which are legal entities registered with the Ministry of Culture and authorized to operate in this industry, and should be used at accredited establishments.

By fiscal year 2017, calendar year 2016, amounts spent on purchasing cultural vouchers could be deducted from the Corporate Income Tax (IRPJ) due from the beneficiary company taxed using the actual profit tax regime. The deduction was limited to 1% of income tax due based on actual quarterly profit or actual profit calculated in the annual adjustment.

Considering that the validity of this tax incentive has expired, Draft Bill No. 6233/2016, which intends to extend it until 2021, is pending before the Chamber of Deputies. The procedure is conclusive, that is, the draft bill will be voted on only by the committees designated to review it, thereby dispensing with a resolution by the full chamber. It loses its conclusive nature, however, if there is a dissenting decision among the committees or if, regardless of whether it is approved or rejected, there is an appeal signed by 51 deputies seeking a review of the matter by the full chamber.

On May 3, 2017, the Cultural Committee unanimously approved the opinion, which will now be reviewed by three committees: Finance and Taxation, Constitution, and Justice and Citizenship.

The benefit may be terminated by the employer at any time, as it is not incorporated into the employee's remuneration for any purpose, as provided for in item I of article 11 of Law No. 12,761/12.

Category: Labor and employment

On November 14, 2017, three days after the Labor and Employment Reform coming into effect, President Michel Temer issued a Provisional Measure amending the original bill sanctioned on July 14th, 2017.

Complying with the commitment assumed during the legislative process of approving the Bill of Law, the Provisional Measure issued by President Temer addresses the main controversial changes of Federal Law No 13.467/2017, which caused a national uproar over the last 3 months.

Among those points, we highlight the following ones:

1. Amendments to the rules regarding the calculation of compensation of non-material damages, aiming at unlinking compensations from employees’ salaries;
2. Possibility of implementing 12x36 shifts solely through collective bargaining agreements, except in the health sector, in which it may be individually negotiated;
3. Amendments to the rules regarding work of pregnant women, limiting the possibility of working under unhealthy conditions;
4. Amendments to the rules regarding the hiring of independent contractors in order to prohibit the imposition of exclusivity obligation;
5. Specific regulation of intermittent employment contracts, in order to cover open gaps of the original bill;
6. Clarification of the duties and activities that will be performed by the commission of employees on their representation; and
7. Implementation of limits for the payment of allowances and premiums without salary nature.

Although the Provisional Measure immediately comes into effect as from its issuance and publication (i.e. as of November 14, 2017), its transformation into a Federal Law relies on the approval by the Legislative. Therefore, Brazilian National Congress will have 60 days, renewable once for equal term, to approve, amend or reject the Provisional Measure presented by the President.

In the event of such voting taking longer than 45 days, the Provisional Measure will lock up the voting agenda of the house of representatives, which can only resume its regular schedule after voting the Provisional Measure.

After being approved by the Brazilian National Congress, the Provisional Measure returns for the final sanction by President Temer, after which the Provisional Measure will come into effect as a Federal Law.

On the other hand, in the event of being rejected by Brazilian National Congress or not approved within 120 days, Brazilian congressmen will be responsible for drafting a legislative decree to settle the effects of the Provisional Measure for the period it was effective.

The Provisional Measure maintained the non-obligation of paying union dues to labor unions. Thus, after the Labor and Employment Reform, union dues will continue not being mandatory.

Machado Meyer Advogados will continue following the development of this matter and its possible outcomes.

DOWNLOAD THE COMPARATIVE TABLE OF THE MAIN POINTS CHANGED BY THE LABOR REFORM, AS AMENDED BY THE PROVISIONAL MEASURE No. 808/2017

DOWNLOAD THE E-BOOK WITH THE MAIN ASPECTS CHANGED BY THE LABOR REFORM, AS AMENDED BY THE PROVISIONAL MEASURE No. 808/2017

Category: Labor and employment

Territorial jurisdiction in the Labor Courts, that is, the place where the labor claim must be filed, is defined based on the location of the provision of services, with the two exceptions provided for in paragraphs 1 and 2 of article 651 of the Consolidated Labor Laws (CLT), regarding employees who are commercial or traveling representatives and employees who carry out their activities at a place other than where they were hired. The current CLT provides for the possibility of submitting a defense to jurisdiction and its form of procedure, but it is silent regarding the form of arguing lack of jurisdiction with respect to the Court to which the suit was assigned, that is, it does not specify whether the defense should be submitted in the defendant’s answer itself or in a separate motion or at what moment in time the allegation of lack of jurisdiction must occur, and for this reason the Brazilian Code of Civil Procedure (CPC) is applied secondarily, pursuant to article 76 of the CLT. The CPC of 2015, in its article 64, states that lack of jurisdiction, whether absolute or relative, must be alleged as a threshold issue in the defendant’s answer, thereby altering the rule of the previous code, according to which lack of jurisdiction should be presented in the form of a motion, submitted in a separate brief. This scenario, however, will be altered by the labor reform, since the CLT, with the enactment of Law No. 13,467/2017, will contain specific rules regarding the form, deadline for submission, and procedure for the defense of lack of territorial jurisdiction, bringing in provisions different from those set forth in the CPC and applied to date in Labor Procedure due to the omission in existing labor legislation. According to the new articles of the CLT, the defense of lack of territorial jurisdiction must be submitted before the hearing, within five days from the receipt of service of process by the respondent company and in a separate brief, which should explicitly state the existence of the defense, as amended by article 800 of the CLT: "Article 800.  If there is a defense of lack of territorial jurisdiction within a period of five days from service of process, before the hearing and in a brief that indicates the existence of this defense, the procedure established in this article shall be followed." In addition to the provisions mentioned above regarding the deadline and the form of, the labor reform establishes a new procedure for handling the defense of lack of jurisdiction in the labor sphere. According to a new rule, once the defense of lack of territorial jurisdiction has been submitted, the case shall be stayed until the defense is decided, and the judge shall summon the other parties to respond within the common deadline of five-days, scheduling a hearing for the production of oral evidence, if deemed necessary. After the decision on the defense of lack of territorial jurisdiction, the case will return to be processed as normal, with the designation of a hearing and submission of the defendant’s answer. In light of the provision for a stay in the proceeding pending a judgment on the defense, it is important to note that any allegation of relative lack of jurisdiction for merely dilatory purposes may be considered litigation in bad faith, and the company may be subject to a fine. In this context, it is of the utmost importance that companies be especially attentive to the new deadline for filing a defense of lack of territorial jurisdiction, which is short and begins with the receipt by the company of service of process for the labor claim, in order to avoid preclusion of the opportunity to argue it.

Category: Infrastructure and energy

Presidential Provisional Measure No. 800/2017, popularly known as the “Highways PM,” establishes rescheduling of investments as a new regulatory tool for federal highway concession contracts. Subject to future regulation by the Ministry of Transport, Ports, and Civil Aviation, the measure seeks to solve the problem of concentration of investments in the first years of the concession, in the light of the fall in demand for road services. The problem is especially evident in the contracts of the 3rd Concessions Stage conducted by ANTT (National Ground Transportation Agency). Per the template for these contracts, the programming of the investments was oriented mainly based on the delivery of the works in the short term. The supervening lack of users suggests, however, that the financial structure of concessions should synchronize the investments with the factors affecting highways’ income generation, of which the cash flow serves the debt. Under this aspect, pursuant to Paragraph 8 of Article 1 of the PM, investments in segments with higher concentration of demand, determined based on ANTT technical criteria, should be prioritized in the rescheduling. The head paragraph is sufficiently clear in emphasizing, however, that rescheduling may not compromise the service level requirements and the technical parameters originally established in the concession contracts awarded to the concessionaires. The rescheduling instrument is a document that will establish a new investment schedule for concessionaires for a term of up to 14 years. Its execution is conditioned on a prior demonstration of the economic and financial sustainability of the project until the end of the term of duration of the concession contracts. In order for the instrument to be signed, the concessionaire must also express an interest in adhering to the financial rescheduling within one year from the date of publication of the PM. Once the administrative procedures have been completed, a contract addendum will be signed, informing the suspension of the investment obligations falling due and the corresponding fines. The silence on fines resulting from investment obligations overdue and in default leads to the interpretation that the rescheduling is not intended to waive breach of contract, but rather to prospectively consider the conditions for provision of service originally defined. By opting for the rescheduling investments, the concessionaires will be, under the terms of the PM, barred from filing for the concessions´ new bidding procedures, as provided for in Chapter III of Law No. 13,488/17. The remedies are, therefore, not cumulative. In addition, in spite of the change in the conditions and the time limits of the financial obligations imposed on the concessionaires, the PM imposes the maintenance of financial balance in the concession contract. To this end, it envisaged three contractual mechanisms, applicable on a case-by-case basis. These are: i) a rate and tariff reducer, ii) reduction in the contract’s term of duration, or iii) a combination of both. These mechanisms should be used so that the relationship between the charges and financial rights of each party to the concession contract remains unchanged, despite the new investment schedules. In view of this, the regulation of the Ministry of Transport will be essential in governing these mechanisms. The PM notes, in any case, that effective application of the rate and tariff reducer, which will culminate in reduction in the IRR (Internal Rate of Return) of the concessionaire, will be conditioned to the end of the new investment schedule. Only at the end of the renegotiated period, therefore, will the new remuneration rate be calculated based on the present value of the discounted amount, considering, via simulated model, immediate application of the reducer. In the event that the rescheduling agreement is not signed, after the addendum suspending the original investments, the effects of the latter will be interrupted and the adjustments and corrections originally provided for in the concession agreement will be applied whenever called for. In sum, the PM has great potential to avoid recurrence of concession contracts "devolution", already found to have occurred in at least one precedent within the scope of the 3rd Concessions Stage. Its technical bias may anticipate new sources or volumes of revenue and delay the fulfillment of certain investment obligations, which, from the perspective of financial realism, have become unfeasible under the current demand for road services.