Publications

: Category: Labor and employment

The federal government published, in an extra edition of the Official Gazette on April 1, Executive Order No. 936/20 (MP 936), which institutes the Emergency Program for the Maintenance of Employment and Income. The objective is to protect workers and ensure their employability during the period of public calamity mandated by Law No. 13,979/20. Among the measures proposed by the government is suspension of employment contracts for a maximum period of 60 days.

On March 22, the government had already issued Executive Order No. 927 (MP 927), with the intention of suspending employment contracts for up to four months while the calamity lasts. However, this measure, proposed in article 18 of the text, was repealed the following day by Executive Order No. 928 (MP 928). The main reason for revocation was the lack of regulations to reduce the financial impacts of suspension of contracts for workers. MP 936 has brought in provision to fill this need, at least partially.

According to article 8 of MP 936, during the state of public emergency, employers may agree to temporary suspension of the employment contracts of their employees for a maximum period of 60 days, divisible into up to two periods of 30 days.

In the head paragraph of the article it is possible to find two important changes in relation to article 18 of MP 927. The first is the maximum period of suspension of contract, which used to be four months and is now limited to 60 days, with the possibility of two successive periods of 30 days each. The second change is the need expressed according to the employee. The wording of MP 927 generated discussion about this need, since subsection II of article 18 provided that this suspension "could be agreed upon individually with employees," which denotes absence of a mandatory term.

The change in the formality required to agree on suspension of contract is provided for in paragraph 1 of article 8 of MP 936. It provides that suspension of contract must be agreed upon in writing between the employee and employer and forwarded to the employee two days in advance.

The formalization of the agreement must be sent to the labor union and to the Ministry of Economy within ten days after its execution. This time limit is necessary to enable inclusion of the worker in the Emergency Program for Maintenance of Employment and Income.

With the formalization of the suspension of contracts under the terms above, the federal government will pay 100% of the unemployment insurance that would be due to employees, considering their nominal salary. This amount may reach a maximum of R$ 1,813.03, if the employee receives an average salary above R$ 2,666.29.

For salaries below this ceiling, the calculation is based on various assumptions:

for those with a monthly income of less than R$ 1,599.61, it is equivalent to 80% of the nominal salary; and
for those who receive a monthly salary between R$1,599.62 and R$2,666.29, R$1,279.61 is added to 50% of the salary that exceeds R$1,599.62.

The exception to this rule are companies that have annual gross revenue above R$ 4.8 million. In this case, the government pays 70% of the above amounts and the employer is obliged to maintain the payment of 30% of the employee's salary.

During the suspension of contracts, employers must maintain all benefits granted to employees, our mere liberality or by determination of a collective bargaining agreement.

During this period, employers will not need to maintain FGTS payments due to employees or the payment of INSS contributions. MP 936, however, allows employees to make the payment of social contributions as optional insureds, for the period to be accounted for retirement purposes, and other social benefits governed by the INSS.

MP 936 requires the agreement to be in writing, since employers may negotiate the maintenance of a daily allowance for employees during the period. The negotiated daily allowance and the mandatory allowance for employees of companies with annual gross revenue above R$ 4.8 million will be compensatory and will not form part of the basis for calculating withholding income tax and the annual income tax adjustment declaration of employees.

The allowance will also not be reflected in social security contributions or in other taxes and fees levied on payroll, nor will it be the calculation basis for the payment of the employee's FGTS.

The payment may also be deducted from the company's net income for the purposes of determining corporate income tax and Social Contribution on Net Income of legal entities taxed under the actual profit arrangement.

The suspension will cease in three cases: with a formal request to return to work made by the employer, at the end of the agreed-upon period, or when the end of the period of calamity is decreed. Employees will return to work within two consecutive days, counted from the occurrence of any of these scenarios.

MP 936 also provides for penalties if the employee performs any type of work activity for the employer during the period, even if partially, remotely, or via teleworking. In cases of proven activity, employers will be compelled to pay wages and social contributions in full during the period, in addition to the legal sanctions provided for in collective bargaining agreements.

As with the other measures brought in by the MP, the agreement to suspend contracts per an individual agreement is limited to employees who receive an average salary of less than R$ 3,135.00 and to those who have completed higher education and receive an average salary of more than R$ 12,202.12. For the others, this agreement must occur through collective bargaining.

The suspension of contracts pursuant to article 8 of MP 936 shall apply to internship contracts and part-time contracts. It is not equated to the provisions of article 476-A. To include employees in this program, employers do not need to provide employees with a vocational training course.

In any case of suspension of contract using the benefits of the Emergency Program for Maintenance of Employment and Income, the employees affected will have their jobs guaranteed during the suspension and for an equivalent period subsequent thereto.

: Category: Infrastructure and energy

The National Economic and Social Development Bank (BNDES) approved different economic measures in March of this year in order to mitigate the social and economic impacts of the new coronavirus (covid-19) pandemic that Brazil is weathering. Among them is the possibility of granting a six-month suspension on repayments of loans (principal and interest) taken out with the institution, in both direct and indirect types, by companies affected by the crisis, a measure known in the market as a standstill agreement.

BNDES’s direct transactions are those in which the financing is requested by the borrower directly to the bank, without brokerage from other financial institutions. In such cases, BNDES offers the possibility of suspending interest and principal for a six-month period. For this purpose, it is necessary to submit the request to BNDES by June 30, 2020. It will be reviewed by the team responsible for the borrower’s contract who will seek the suspension and forward it to BNDES’s Credit and Transactions Committee, in charge of ascertaining whether there is any impediment to the suspension. If the standstill period request is approved, the financing contract will be amended.

The main implications for borrowers that have their financing agreements amended are: (i) prohibition on the distribution of dividends and interest on equity for the year in which the suspension of payments takes place, except the minimum provided for by corporate laws and regulations; and (ii) that the BNDES does not declare any financial default of the relevant borrower during the suspension period. Other specific obligations are described in the terms of the draft of the contractual amendment available on BNDES’s website. Considering that the new form of payment of the suspended installments is not standardized, the borrower must pay special attention to the repayment provisions of financing contracts entered into before the standstill agreement is applied for.

The standstill is also provided for indirect transactions, those where there is an intermediary financial institution between BNDES and the borrower, in general due to the lack of BNDES branches in the borrower's location. Only accredited financial institutions may participate in indirect financing transactions. They are responsible for analyzing the financing, the risks of financial default, and all the business issues for granting the financing.

In this type of financing, BNDES grants to borrowers the same possibility for suspension of payments as is offered in direct transactions, as indicated above. To this end, it is necessary to forward the request to the financial agent with whom the transaction was contracted. BNDES has already reported that the negotiation of standstill agreements and detailed criteria thereof are of the responsibility of the accredited intermediary financial institutions, noting that the rules set out in SUP/ADIG Circular No. 12/2020-BNDES must be complied with.

The possibility of a standstill agreement applies to all BNDES financing instruments, including those done with funds from the Merchant Navy Fund (FMM). The exceptions are the financing programs subject to matching by the Brazilian Treasury (subsidized transactions where the interest rate of the transaction is lower than the cost of the funds granted by BNDES).

: Category: Real estate

On April 3, the Senate voted and approved Bill No. 1,179/20 (PL 1,179/20), with the purpose of establishing rules, of an emergency and transitory nature, applicable to private law relations during the period of public calamity caused by the covid-19 pandemic. The text is still subject to approval by the Chamber of Deputies and then presidential veto.

The period of application of PL 1,179/20 was set as being March 20 to October 30, 2020. In the event that Legislative Decree No. 6/20 (which declared the state of public calamity in Brazil) is revoked before October 30, this revocation date will be understood as the new final term for the application of the emergency and transitory rules instituted by the bill.

Among the emergency and transitional rules approved, some have a direct impact on the real estate market and deserve special analysis:

Revision of real estate contracts

PL 1,179/2020 rules out future allegation: (i) of increased inflation, (ii) of variation in foreign exchange rates, (iii) of devaluation, or (iv) of substitution of monetary standard as cases of unforeseeable circumstances to support requests for termination of contract or revision due to excessive burdensomeness. The PL also establishes that the consequences of the covid-19 pandemic on contractual relations under private law will not have retroactive legal effects to March 20, 2020.

Leases of urban properties

The final approved version of the PL prohibits the granting of preliminary injunctions to vacate leased urban properties for commercial or residential purposes within 15 days in eviction actions, regulated by article 59, paragraph 1 of the Lease Law, and filed after March 20, 2020.

The original version of the PL provided for temporary suspension of payment of rent from residential leases. This suspension was justified by the change in the economic and financial situation of tenants, which could occur due to loss of employment, reduction in work hours and salary, or a reduction in their compensation as a consequence of the crisis caused by covid-19. The measure, however, was not approved by the Senate, as it was found that it could also result in losses for landlords, who often depend on rental income for their livelihood. It is worth noting, however, that the proposal to suspend payment of rent was strongly defended by some senators and may be rediscussed in other bills that cover the same issue.

Agrarian contracts

The provisions of the original proposal and its amendments on agrarian contracts were not approved.

In the original draft, PL 1,179/2020 provided for: (i) automatic extension of lease terms, (ii) an additional term for exercise of preemptive rights by lessees and for retaking of the property by lessors, and (iii) authorization for Brazilian companies equated to foreign companies (as a result of being controlled or having the majority of their capital stock directly or indirectly held by foreigners) to enter into lease agreements until October 30, 2020, without compliance with the restrictions set forth in Law No. 5,709/71.

Despite the non-approval of these rules, questions still have to be asked about the stability of leases during the quarantine period. The topic may be the subject of new proposals in the Brazilian Congress. The Senate felt that the existing legislation and reasonableness would already be sufficient to govern any discussions on the subject. Therefore, there would be no need for new rules of an exceptional and transitional nature.

Adverse possession

The rule approved provides for suspension of the time limits for acquisition of real estate or personal property by means of adverse possession until October 30, 2020, thus protecting the owners or interested parties who would have difficulty in defending properties that are in the possession of third parties during the period of the pandemic.

Still on the subject of property rights, the Senate rejected a proposal to prohibit the granting of injunctions to vacate a property that is subject to a fiduciary sale in guarantee, seeking to protect, in an equitable manner, the interests of the debtor and of the purchaser of the property. The decision also ensures that any prohibition on the bidder’s investiture in possession of the property would create legal uncertainty.

Rules applicable to building condominiums

In order to legitimize the measures adopted in some building condominiums in recent weeks and ensure the effectiveness of the recommendation of social isolation, PL 1,179/2020 has given landlords powers to temporarily restrict: (i) the use of common areas of the condominium, (ii) the holding of meetings and festivities, and (iii) the use of parking garages by third parties, including in areas exclusively owned by the condominium members. However, the right of the condominium members to use the common areas necessary to access their private areas was expressly reserved, as was the right to medical care and to carry out works of a structural nature or necessary improvements.

In addition, the bill authorized that both condominium meetings and their respective voting may occur virtually on an emergency basis. If it is impossible to hold meetings in this manner, it was decided to extend the terms of office of condominium representatives from March 20, 2020, to October 30, 2020.

Next steps

After the vote in the Senate, the text will be submitted to the Chamber of Deputies for evaluation, which may approve it without amendments or propose amendments. If amendments are proposed, the text will return for further consideration by the Senate. Approved in both legislative houses, the legal text shall be subject to approval or total or partial veto by the President of Brazil.

In the vote on PL 1,179/2020, the Senate expressed the expectation that the law will be passed within the next week, given the emergency nature of its provisions.

: Category: Labor and employment

The new form of the coronavirus, called SARSCoV-2 and causing covid-19, was first discovered in Wuhan, China, in November of 2019. The coronavirus, previously associated with other known viral forms, such as SARS-CoV and MERS-CoV, suffered a genetic mutation in 2019, causing the new disease.

The transmission of the virus is identical to that of its predecessors: from person to person, when there is direct physical contact or less than 1.5 meters away, through droplets of saliva released by sneezing or coughing, or by contact with contaminated secretions such as phlegm. It also occurs through contact with contaminated objects and surfaces. Preliminary data suggest that an infected person may transmit SARS-CoV-2 not only during the symptomatic period of the disease, but also before it. As of March 19, 2020, more than 200,000 cases had been reported worldwide, with 8,017 deaths associated with the virus. Protective measures are social isolation (voluntary quarantine), constant hand hygiene with soap and hand sanitizer, covering the mouth when sneezing or coughing, avoiding crowds, keeping environments ventilated, and not sharing personal objects. Governments around the world, as well as private companies, have already put voluntary or mandatory social isolation into practice, and its impacts on private initiative are visible and worrying. The federal government, in anticipation of the impacts of preventive measures on labor relations, identified the difficulties that would be faced and, on March 22, 2020, published Executive Order No. 927 (“MP 927/20”), amending legislation to make procedures more flexible and to regulate the alternatives that could be adopted by employers to preserve jobs and income while the state of public emergency remains in effect. Although MP 927/20 has provided for some specific measures for dealing with the crisis, as shall be better explained later on, it also provided that other alternatives may be explored between the employer and the employee, through the execution of an individual written agreement, which will take precedence over the other regulatory, legal, and business arrangements, subject to the limits of the Federal Constitution (“FC”). Among the main measures provided for in MP 927/20, we highlight the suspension of employment contracts, for up to four (4) months, for the participation of employees in distance training courses or programs offered by employers. In view of the controversy around the issue, particularly in light of the exemption from the obligation to pay wages during the period, the federal government opted to reassess the advisability of maintaining this alternative, which was revoked the following day with the publication of Executive Order No. 928/2020. This primer aims to present the impacts on labor relations of the covid-19 prevention measures and what companies can do to limit financial losses, maintaining in the first place the welfare of their employees, particularly in view of the alternatives created or made more flexible by MP 927/20.

*Up-to-date information in April 7th.

: Category: Corporate

Upon the declaration of the covid-19 pandemic by the World Health Organization (WHO), we are currently experiencing a situation of global anxiety that requires attention in the face of a crisis that a few months ago seemed unthinkable. Like other countries, Brazil has also adopted various measures to combat the spread of the virus.

Federal Law No. 13979, of February 6, 2020, was one of the first legal standards published in Brazil in response to the covid-19 outbreak. It described the main measures to be implemented in order to contain the spread of the virus and support society, including those aimed at ensuring access by health market players to protective equipment, medicines, and other tools needed to combat the imminent pandemic.

In less than a month, the drastic change in the scenario led to the publication of Executive Order No. 926/20 and other state and municipal regulations throughout Brazil. They have restricted several economic activities, especially those related to retail and entertainment, to avoid crowding. Although such measures were well received by a large part of the population, there were still doubts about the need to maintain other ancillary activities related to essential ones.

Only on March 20, with the publication of Federal Decree No.10282/20, which regulates article 3, paragraph 8, of Law No. 13979/20, was it defined, in its article 3, paragraph 1, what should be considered to be "essential and indispensable services and activities to meet the unavoidable needs of the community", among which: (i) health care, medical and hospital services; (ii) social assistance and care to populations in a vulnerable condition; (iii) public and private security activities; (iv) national defense and civil defense activities; (v) telecommunications and internet; (vi) water collection, treatment, and distribution; (vii) sewage and garbage collection and treatment; (viii) electric power generation, transmission, and distribution; and (ix) services related to information technology and data processing (data center) to support other activities.

Perhaps even more important, article 3, paragraph 2, of Federal DecreeNo. 10282/20 correctly included also as essential activities, the ancillary activities of support and supply necessary for the production chain associated with the performance and operation of public services and essential activities. Quite accurately, it identified that stopping these ancillary activities would lead to a hindrance or even suspension of activities and services deemed essential, thereby affecting the entire population in social isolation for an indeterminate period of time.

Although article 2 of the decree establishes that its provisions shall apply to all bodies of the federation (public and private), and given the strong legal arguments to defend the position that the rules therein should prevail over any other state and/or municipal measures, one may not want to overlook that some of the measures provided in Federal DecreeNo. 10282/20 may be disputed by states and municipalities. After all, they have constitutional duties to fulfill and many are being pressured by the population to respond to the total paralysis of local economies.

It is different for companies that provide services or inputs necessary for the maintenance of other essential activities, such as manufacturers of components and raw materials for the production of ventilators, masks, gloves, and other medical equipment and accessories. These organizations not only have the right, but also the duty to continue operating so that, in fact, there will be no shortage of what is essential to overcome covid-19 in Brazil.

Thus, if a certain company believes that it performs an activity considered ancillary to an essential activity performed by another supplier, it must gather evidence that continuity of its services is essential for maintenance of the production chain of an essential activity. This evidence may be brought to the attention of the competent authorities or even support judicial measures to protect the continuity of the activity.

It is worth remembering that companies that play an ancillary role in some essential activity are not exempt from adopting, in their business unit and in the entire production chain (including those responsible for distribution centers), strict measures of hygiene and care to prevent infection of their employees, business partners, and other staff members. They should also provide products and means for proper sanitization and for taking the temperature of their employees, in addition to keeping the environment ventilated and disseminate frequent and clear information with guidance on covid-19 prevention measures.

It is not possible to anticipate how long the current pandemic will last or how the restrictive measures necessary to combat covid-19 will evolve. Given the dynamics of the disease, it is likely that new laws, decrees, and regulations will be published in the coming days or weeks. For this reason, before implementing any measure, we recommend that companies should consult their legal advisors, and assess possible risks and preventive conduct necessary to perform in this scenario of great legislative instability.

: Category: Corporate

Executive Order No. 931, published on March 30 (MP 931), amended deadlines and procedures for compliance with legal obligations of corporations and limited liability companies, among other entities. The amendments are justified by the difficulty in complying with certain legal provisions in the face of the restrictions imposed by the measures to combat the covid-19 pandemic.

MP 931 included provisions in the Brazilian Corporations Law and in the Civil Code with new rules applicable to general meetings and partners’ meetings, including to expressly provide for the possibility of holding virtual general meetings. Below are the main changes implemented by MP 931:

General provisions

Extension of the terms of office of officers and directors, members of the audit committee, and other committees until the ordinary general meeting or partners' meeting, as the case may be (as an exception in this fiscal year); and
Possibility of submitting corporate acts signed as of February 16 to the competent board of trade as soon as work is resumed, giving the respective act retroactive effects (exceptionally due to the state of public emergency).

For limited liability companies

Holding of partners’ meetings within seven months of the end of the previous fiscal year, i.e., July 31, 2020 (exceptionally in this fiscal year);
Withdrawal of the effectiveness of contractual provisions requiring the holding of partners’ meetings before seven months from the end of the fiscal year (that is, July 31, 2020), as provided for in MP 931 (exceptionally in this fiscal year); and
Holding a partners' meeting with a vote and participation of partners remotely, under the terms of regulations to be issued by the DREI (National Department of Business Registration and Integration).

For corporations

Holding of ordinary general meetings within seven months of the end of the previous fiscal year, i.e., July 31, 2020 (exceptionally in this fiscal year);
Possibility for the board of directors to resolve, ad referendum, on urgent matters of exclusive competence of the general meeting (exceptionally in this fiscal year);
Competence on the board of directors or the board of executive officers to declare interim dividends, regardless of amendment of bylaws (exceptionally in this fiscal year);
Holding of general meetings by privately-held companies in which the shareholder can participate and vote remotely, under the terms of regulations to be issued by the DREI;
Option for CVM to authorize, in the case of publicly-traded companies: (i) the holding of a general meeting outside the company's headquarters; and (ii) the holding of a digital meeting.

The provisions listed above applicable to corporations are also valid for government-owned companies, government-controlled companies, and their subsidiaries.