Publications

Category: Labor and employment

On April 1, 2020, the Federal Government published Executive Order No. 936 ("MP 936") intended to implement new labor and employment measures for employers to confront the coronavirus (covid-19) and, with that, preserve economic activity and employment level, without significant impact on employees’ income.

It is expected that MP 936, also known as the “Emergency Employment and Income Maintenance Program”, will preserve around 8.5 million jobs and benefit a contingent of 24.5 million employees across the Brazilian territory during the state of public calamity.

In order to achieve these goals, MP 936 establishes two main labor and employment measures for employers to confront the crisis: (i) proportional reduction in work hours and salaries; and (ii) temporary suspension of employment contracts (layoffs).

Before detailing each alternative, it is worth mentioning that:

• the implementation of these measures does not require collective bargaining with the labor union, except for when implementing the proportional reduction in work hours and salaries greater than 25% and temporary suspension of employment contracts, which, only for employees receiving salaries between R$3,135.01 and R$ 12,202.11, must be implemented through collective bargaining with the labor union
• in consideration for the suspension or proportional salary reduction in salaries, employees will be entitled to a guarantee of employment while the measure remains in effect and for an equal period after the end of the suspension or recommencement of the contract[1]
• to preserve employees' income, the Federal Government will grant an Emergency Benefit to affected employees, corresponding to a percentage of the Unemployment Insurance

That said, please see below the details of each measure established by MP 936:

Proportional reduction in work hours and salaries

This consists of an individual agreement or collective bargaining for a proportional reduction in employees' salaries and work hours, for which the Federal Government will pay the “Emergency Employment and Income Preservation Benefit.”

The reduction may be implemented in the percentages set out below, all of which may be fixed through collective bargaining or, under certain conditions, individual agreements:

Thus, for employees receiving salaries between R$3,135.01 and R$ 12,202.11, reductions higher than 25% may only be implemented through collective bargaining.

In addition, employers must consider that employees’ hourly wages must be preserved and that the reduction cannot exceed the maximum period of 90 days.

MP 936 also established that employers may agree to reduction percentages different from those indicated above through collective bargaining, subject to the proportion of the Emergency Benefit payment provided for in MP 936.

Temporary suspension of employment contracts

This consists of an individual agreement or collective bargaining for the temporary suspension of employment contracts by employers, with the payment of up to 30% of the employee’s salary by the employer, and payment of the “Emergency Employment and Income Preservation Benefit” by the Federal Government.

With respect to this measure, it is worth mentioning that, last March 22, the Federal Government published Executive Order No. 927, establishing the possibility of implementing a temporary suspension of employment contracts without any salary or governmental aid, which was revoked, on the following day, by Executive Order No. 928.

With MP 396, the Federal Government apparently sought to correct the procedure previously established, which was target of harsh criticism by the press, Governors, and Congressmen due to a potential lack of protection for employees during the crisis.

However, unlike the provisions established by Executive Order No. 927, the suspension of employment contracts established by MP 936 must comply with some specific conditions according to the employer’s gross revenue in the 2019 calendar year:

Thus, for employees receiving salaries between R$3,135.01 and R$ 12,202.11, temporary suspension of the employment contract may only be implemented through collective bargaining.

In addition, employers must observe some conditions when implementing suspension of employment contracts:

• the maximum suspension period is 60 days and may be divided into up to two periods of 30 days
• during the suspension period, the employer must maintain the payment of benefits to employees
• during the suspension period, employees cannot continue working, even partially or remotely, under penalty of having the suspension disregarded

Finally, MP 936 also establishes, for both measures described above, that:

• they may be applied for apprenticeship and part-time contracts;
• for individual agreements, the reduction or suspension proposal must be delivered to employees with, at least, a two-day notice
• once the agreement is executed, employers must, within 10 days, inform the labor union and the Ministry of Economy about its execution (the form of communication to the Ministry of Economy is still pending definition)
• the Emergency Benefit to be paid by the Federal Government to the employee may be accumulated with any Allowance paid by the employer
• collective bargaining agreements executed prior to MP 936 may be renegotiated in order to adjust their terms to the conditions set forth by MP 936 within 10 calendar days (as MP 936 was silent with respect to individual agreements executed prior to its issuance, we believe that each situation should be analyzed on a case by case basis)
• a provisional guarantee of employment must be granted during the period of suspension or reduction of wor hours and salaries and for an equal period after the termination of this condition. In the event of termination of employment during the employment guarantee period, the remaining period will be due in percentages ranging from 50% to 100% of the salary to which the employee would be entitled
• regular work hours or the employment contract shall be reestablished, within 2 days, upon the (i) end of the state of public calamity, (ii) end of the period stated in the agreement, or (iii) acceleration, by the employer, of the end of the period agreed upon

Emergency Employment and Income Preservation Benefit

The Emergency Employment and Income Preservation Benefit will be calculated based on a percentage of the Unemployment Insurance, which is currently calculated as follows:

For example, for an employee who, in the last three months, had an average salary of BRL 2,000.00, the amount of each payment of his/her Unemployment Insurance would be BRL 1,479.87. If that employee agrees to a 50% reduction in work hours and salary with his/her employer, the employer would pay 50% of the employee's salary (BLR 1,000.00) and the Federal Government would pay 50% of the Unemployment Insurance Installment, which, in this case, corresponds to BRL 739.94. Therefore, during the period of work hours and salary reduction, this specific employee would receive a monthly amount of BRL 1,739.94, which is, approximately, 87% of his/her original salary.

Other Provisions of MP 936

MP 936 also establishes that:

• during the state of public calamity, the professional training course provided for in article 476-A of the Brazilian Consolidated Labor Laws (CLT) (that regulates the regular layoff procedure through collective bargaining) may be offered exclusively remotely, lasting no less than one month and not more than three months;
• during the state of public calamity, electronic means may be used to meet the requirements for collective bargaining, including for the purposes of calling, deliberating on, deciding, formalizing, and publishing the collective bargaining agreement;
• during the state of public calamity, collective bargaining negotiation deadlines are reduced by half;
• intermittent employees will be entitled to an Emergency Benefit of BRL 600.00 for a period of 3 months, regardless of the number of employers they have contracts with.

[1] For example, a company implementing a salary reduction for 3 months will not be able to terminate the employee during this period and for the following 3 months, totaling 6 months of guarantee of employment.

[2] Employees who receives more than R$12,202.12 and holds a higher education degree.

[3] Employees who receives more than R$12,202.12 and holds a higher education degree.

[4] Employees who receives more than R$12,202.12 and holds a higher education degree.

[5] According to MP 936, the allowance paid by the employer will not have a salary nature and, thus, will not be considered for purposes of income tax, social security contributions, other taxes on payroll and the Severance Guarantee Fund (FGTS). It may also be excluded from the company’s net income for purposes of Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL).

[6] Employees who receives more than R$12,202.12 and holds a higher education degree.

Category: Corporate

With the covid-19 pandemic, a significant portion of companies will have their operations seriously affected due to the need to comply with orders that impose, among other issues, closure of establishments and reduction of operating hours. This adversely affects billing and generation of cash. In this scenario, Executive Order No. 931/20 (MP 931) and CVM Resolution No. 849/20 were approved. Among other matters, they deal with the extension of deadlines applicable to corporations and limited liability companies, such as deadlines for holding ordinary general meetings by corporations, until the 7th month of the 2020 fiscal year.

In addition, management bodies (board of directors and board of executive officers) have been authorized to declare interim dividends based on a half-yearly balance sheet, regardless of provision in the bylaws, in order to meet, when appropriate, the need to pay dividends to shareholders while awaiting the ordinary general meeting.

However, whether in advance or within the time limit extended by MP 931, companies cannot fail to approve their financial statements and, no less important, resolve on the allocation of the net income calculated in the past fiscal year, if any. This creates the obligation to remunerate its shareholders through the distribution of dividends, which compromises part of its cash in a crisis scenario that may extend throughout the fiscal year 2020.

Regarding the distribution of dividends, Law No. 6,404/76 (the Brazilian Corporations Law), which governs corporations, establishes as its main purpose the calculation of profits and, as a consequence, the obligation of companies to allocate part of their net income to the payment of mandatory dividends to shareholders, pursuant to article 202 of the Brazilian Corporations Law. Paragraph 6 of article 202 provides that “profits not earmarked per the terms of articles 193 to 197 [i.e. earmarked for profit reserves or retained through capital budget] shall be distributed as dividends."

Despite the obligation to distribute dividends, the Brazilian Corporations Law provides for the existence of profit reserves and allows companies to retain part of their profits for purposes other than the distribution of dividends.

Thus, considering the current economic scenario caused by the coronavirus pandemic, it is questionable whether companies, even if they have recorded profits in their balance sheets, could legitimately withhold part or all of the dividends to be allocated to shareholders.

On this issue, the Brazilian Corporations Law provides for some mechanisms that companies could use to allocate their results without the need to resolve on the distribution of dividends, saving and preserving their cash for the adverse scenario that they will most likely face in the coming months. They are: reserves for contingencies (article 195 of the Brazilian Corporations Law), retention of profit reserve through capital budget (article 196 of the Brazilian Corporations Law), and special reserve (article 202, paragraph 5, of the Brazilian Corporations Law). Let us see which would be the most appropriate for the current situation.

The reserve for contingencies is formed by allocating "part of net profit [...] to offset, in the future, decrease in profit resulting from a loss deemed probable, the value of which can be estimated." As legal scholarship teaches, the creation of a reserve for contingencies cannot be based on a provisioned contingency, because it has already materialized, but rather on a contingency that has not materialized, that is future and uncertain, but predictable, the quantification of which is possible.

It is possible to infer, therefore, that the formation of the reserve for contingencies is justified in view of demands with reasonable predictability and whose value involved in the event of loss is at least determinable beforehand, since only that part of the profit that equates to the estimated value for loss will be earmarked to this reserve. The residual value of the net income that cannot be earmarked for the reserve for contingencies, since the estimated loss is not equivalent to all the net income calculated by the company, should be distributed as a dividend to shareholders. Thus, pending the new deadline for deciding on the earmarking of companies' results, the uncertainties in each sector may not yet allow for an estimation of expected losses for the purpose of forming contingency reserves and, therefore, the use of such reserves may not be the most appropriate for what is currently proposed.

The profit retention reserve, on the other hand, allows the company to retain a portion of net profits, provided that a capital budget justifying the retention is approved at a general meeting. Normally, the objective of this retention is to cope with some project or investment that should be described and provided for in the capital budget. This reserve, however, cannot be approved to the detriment of distribution of the mandatory dividend referred to in article 202 of the Brazilian Corporations Law. In this sense, article 198 of the law provides that “the earmarking of profits to create the reserves referred to in article 194 and the retention of the terms of article 196 may not be approved, in each fiscal year, to the detriment of distribution of the mandatory dividend." It is worth mentioning that the profit retention reserve can only be used after the distribution of dividends, which would make it impossible to use such reserve to retain a dividend that would be distributed to shareholders.

On the other hand, the alternative of the special reserve provided for in paragraphs 4 and 5 of article 202 of the Brazilian Corporations Law may be a viable alternative for companies wishing to retain the amount of profits that would be earmarked for distribution of dividends. This reserve establishes retention of a portion of the adjusted net income of the company reserved for the distribution of the mandatory dividend to its shareholders, provided that the financial condition of the company is incompatible with distribution thereof.

In this sense, article 202, in its paragraphs 4 and 5, allows the company to refrain from distributing the mandatory dividend if it considers it to be incompatible with its financial situation, in the following terms: "the dividend provided for in this article shall not be mandatory in the fiscal year in which the management bodies inform the ordinary general meeting that it is incompatible with the financial situation of the company.”

Next, the article provides that the audit committee, if in operation, shall give an opinion on such information and, in publicly-held companies, the management shall submit to the Brazilian Securities and Exchange Commission (CVM) an explanatory memorandum within five days of the general meeting. The standard also states that profits that are not distributed will be recorded as a special reserve and must be paid as dividends when the financial condition of the company permits and if they are not absorbed by losses in subsequent years.

The withholding of dividends mentioned does not apply to holders of preferred shares with fixed or minimum dividends, in accordance with article 203 of the Brazilian Corporations Law.

As one sees, the creation of a special reserve is an exceptional situation and should be used with caution by the company's executives, since it may raise questions from minority shareholders unhappy with the retention. On the other hand, considering the exceptionality of the situation the companies are experiencing due to the coronavirus pandemic, we believe that companies can suspend the payment of minimum compulsory dividends on the basis of creation of special reserves, but in the meantime they must justify in detail to the general meeting the causes and justifications that led them to adopt the measure, which, it must be repeated, must be considered exceptional.

Accordingly, companies should make sure that there are sound arguments to justify that the pandemic situation will cause a material deterioration in cash position or other equally relevant facts that will prevent them from declaring the dividends to which shareholders are entitled.

As an alternative for companies that do not wish to resort to retention based on the special reserve when the ordinary general meeting is held, due to the fact that they are not yet aware of the extent and the effects of the current crisis on their results, CVM's board (PA CVM No. RJ 2003/12233) has already opined to the effect of considering regular resolution by the meeting that approved the suspension of payment of dividends previously declared. In that precedent, the dividends were declared at an ordinary general meeting and were to be paid by the end of the fiscal year in which they were declared, in accordance with article However, considering that the financial situation of the company in question deteriorated between the date of declaration of such dividends and the date of their actual payment, the company opted to hold a new general meeting to resolve on the suspension of payment of dividends previously declared, based on article 205, paragraph 3, of the Brazilian Corporations Law. 202, paragraphs 4 and 5, which was considered valid by CVM's board.

This could be an alternative for companies that prefer to wait until the end of the year to ascertain the effects of the crisis on their financial results. In this situation, it should be repeated, companies should provide a suitable justification for the reasons that led them to suspend payments already declared.

In any case, the validity of the retention of the minimum mandatory dividend to form a special reserve requires that certain precautions be taken by companies, among which we highlight:

• disclosure of a schedule for distribution of the minimum mandatory dividend retained if the special reserve is not consumed by future losses;

• avoiding future losses being absorbed by the special reserve, unless there is no alternative; and

• duly informing the market of the existence of the commitments which the special reserve seeks to guarantee and of any other guarantees which already secure them.

The decision to withhold the minimum mandatory dividend or suspend payment thereof shall be reported to CVM, pursuant to article 202, paragraph 4, of the Brazilian Corporations Law, and disclosed as a material fact for the purposes of CVM Instruction No. 358/02, as already stated by CVM in PAS No. 03/02: "the non-payment of a mandatory dividend on the scheduled date constitutes a material fact, under the terms of the laws and regulations in force and the failure to disclose it, without any justification, gives rise to liability."

Recently, some companies have preferred to make accounting provisions to cope with the effects of any economic crisis generated by the covid-19 pandemic. On this point, it is important to clarify that accounting provisions, unlike the formation of reserves or retention of profits dealt with in this article, impact the company's own results, which may prove detrimental to the issuer.

Category: Labor and employment

Health professionals are at the forefront of fighting the covid-19 pandemic and treating people affected by the coronavirus. Decree No. 10,282/20 reinforced the role of these workers by recognizing health care (including medical and hospital services) as an essential and indispensable activity to meet the unavoidable needs of the community.

The state of public health emergency will impact the routine of these professionals, with the growing hospital demand predicted for the coming weeks, which may even culminate in collapse of the health system in Brazil.

Aware of the possible repercussions of the pandemic, the federal government published Executive Order No. 927/20 (MP 927) to introduce changes in the work hours of these workers. During the state of public calamity (until December 31, 2020) health facilities will be allowed, even for hazardous activities and for 12-hour work days per 36 hours of rest (12x36):

• to extend the work day beyond the legal or contractual limit, under the terms of article 61 of the Consolidated Labor Laws (CLT); and

• to adopt overtime shifts between the 13th and 24th hour of the break during the work day, without any administrative penalty, guaranteeing paid weekly rest.

In short, MP 927 authorized professionals working in health facilities to work overtime beyond the agreed-upon/legal limit (10 or 12 hours depending on the type of work day), including during the period reserved for the break between work days (11 or 36 hours depending on the work day). However, weekly paid rest (24 hours) must be respected for this practice to not constitute an administrative infraction.

MP 927 also assured that, in the current calamity situation, overtime may be paid by the employer or may be offset within up to 18 months after the end of the disaster period (hours bank), thus minimizing possible financial impacts for health facilities due to extended work days in order to meet increased demand.

For the extension of the work day and adoption of shifts, MP 927 requires only an individual written agreement entered into between the health facility and the employee. With regard to this agreement, it is recommended that it state, at the outset:

• whether and when overtime will be paid; or

• whether overtime will be offset and how this offsetting will occur, including the way in which each hour worked and offset will be determined.

The lack of an individual agreement with the employee to regulate overtime worked beyond the legal and collective bargaining limits may prevent the offsetting of these hours within the period authorized by MP 927 after the end of the public emergency. This will force the healthcare facility to pay additional hours as overtime. In addition, once the period of 180 days is exceeded during which labor inspectors will have their function limited to providing guidance (article 31 of MP 927), health facilities will be subject to fines for noncompliance with work hours rules (extension beyond the legal limit and violation of breaks between work days).

Category: Capital markets

Executive Order No. 931/20 (MP 931/20) has just been issued, with measures related to the holding of general meetings of corporations and meetings of partners of limited liability companies, in response to complaints by publicly-held companies and class entities such as Abrasca and IBRI regarding the difficulties caused by the coronavirus pandemic.

With the text of MP 931/20, the Brazilian Corporations Law is amended in order to, essentially:

• Authorize, in the 2020 fiscal year, ordinary general meetings (AGO) of corporations (including publicly- and privately-held companies, government-owned companies, and government-controlled companies and their subsidiaries) to take place within the first seven months of the following fiscal year, by July 31, 2020;

• Exceptionally during the 2020 fiscal year, authorize the Brazilian Securities and Exchange Commission (CVM) to extend the deadlines established in the Brazilian Corporations Law for publicly-traded companies, including the date for presentation of financial statements;

• Authorize the board of directors to resolve, ad referendum of the AGO, on urgent matters within the competence of the General Meeting (unless expressly prohibited in the bylaws); and

• Authorize general meetings to be held outside the address of the company's headquarters, but in the same municipality, in the case of publicly-traded companies, give CVM the power to authorize the holding of digital meetings and at locations outside the municipality of the company's headquarters.

CVM is expected to issue a resolution or other regulation on the points whose competence has been assigned to the authority (in particular with regard to the deadlines for disclosure of financial information), which should occur soon.

The measures are optional, that is, companies may maintain their original schedule for disclosing information and holding ordinary general meetings. In such cases, encouragement of participation by means of remote voting is recommended. It is up to each company's management to evaluate the options offered by the new regulations, based on its specific situation and history of participation in meetings.

Among the practical consequences of the measures for companies choosing to postpone the meeting are:

• Postponement of approval of the annual financial statements and allocation of profit and loss for the year ended December 31, 2019, in which case it is up to the management of the companies that so desire to evaluate other possibilities for distribution of profit and loss, such as interim or intermediate dividends or interest on equity. There may also be a mismatch between the disclosure of the financial statements and their approval, for those companies that choose to disclose their annual financial statements within the usual timeframe, but postpone the ordinary general meeting;

• Extension of the terms of office of the members of the board of directors that expire on the date of the annual general meeting, as well as of the audit committees that have been set up, as determined by the Brazilian Corporations Law;

• For companies without an established and non-permanent audit committee, postponement of the possibility of setting up the committee and electing its members, with the risk that there may some damage to its work, considering that by the time the committee is set up, the financial statements will have already been disclosed;

• Postponement of approval of the overall compensation of officers and directors and audit committee members (the latter, provided that the audit committee has been set up) to the 2020 fiscal year.

The measures are exceptional and mean recognition of the practical difficulties that companies face in meeting their regulatory obligations, either due to the unavailability of professionals and officers and directors of the company itself and of third parties involved (such as independent auditors), or due to the inability to ascertain the concrete and estimated effects of the pandemic on their profit and loss and operations.

Category: Public and regulatory law

It is still too early to diagnose and, above all, predict all the effects that the covid-19 pandemic will have on concession contracts, under common or public-private partnership arrangements. It seems certain, however, that this event of cataclysmic proportions will bring back the practice of rescheduling investments in these contracts.

In Brazil, the issue had appeared in 2017 through Executive Order No. 800 (MP 800), establishing guidelines for the rescheduling of investments in federal highway concessions. That situation was, in comparison to the current one, simpler: it was a case of deterioration of macroeconomic variables in relation to the years 2012 to 2014, when the 3^rd stage of the Federal Highway Concession Program (Procrofe) had been bid. The explanatory memorandum for MP 800 argued that the scenario for concessionaires from 2015 onwards was one of difficulties in obtaining long-term loans, given the "financial liquidity constraint", and in generating revenue, due to a fall in the volume of general road traffic, especially when related to heavy vehicles, as they have greater elasticity as a function of GDP and greater impact on fare multipliers.

The remedy that MP 800 offered to concessionaires was de-concentration of investments in the initial years of the contract, contrary to the original modeling, which sought precisely to accelerate the economy by implementing infrastructure in the short and medium term, such as additional lanes and works of art. However, the immediate application of the rebalancing discount ("factor D") or any other contractual sanction was removed. The indirect assistance to the concessionaires was found, in fact, in the possibility of maintaining the economic and financial balance of the contract, as related to the investments delayed, unbalanced in favor of the companies, until the end of the performance of the new schedule, which could occur within up to 14 years. Only then would the rebalancing discount be applied (considering all prior financial effect, one should acknowledge).

Regardless of the merits of the reasons and the legal arrangement of the remedy, the fact is that the rule lost its effectiveness, since it was not converted into law, and, except for a single contract, all the other concessions of the 3^rd phase of Procrofe incurred significant delays in their schedule for investments, which resulted in the expiry of some contracts or in the rebidding of others (sometimes still in an embryonic phase), under the framework of Law No. 13,448/17.

Similar consequences have been seen in other sectors, leading to the design of innovative contract provisions to be introduced in future instruments. An example is that of airports: even before MP 800 (which would naturally be applicable to contracts in force at the time of its promulgation), the modeling of the 4^th Stage of Anac Concessions (Fortaleza, Salvador, Porto Alegre, and Florianópolis) had already considered, for the new contracts, investment triggers linked to demand. The contractual mechanism was defined as an event indicated in the Infrastructure Management Program in which the expected demand would give rise to the obligation of the concessionaire to begin investments in order to maintain the service level. Its purpose was to establish a balance between investment and demand, expenditure and revenue, in order to oblige the concessionaire to deploy certain infrastructure components in the event of a consistent and corresponding increase in the number of users.

The solution was well received by the market, to the point of being replicated in the contractual instruments of the 5^th Stage of Anac Concessions (the first one that followed the model of slots/blocks of airports), and, based on all appearances, it will also be adopted in the contracts for the 6^th Stage (currently in public consultation phase). More than that, the model was exported to the highway sector and renamed a volumetric trigger in the concession contracts for the South Integration Highway - RIS and BR 364/365, which defined application thereof in the Highway Operation Program.

It has become a general guideline to use the consecrated legal category of article 24 of the Law of Introduction to the Rules of Brazilian Law (LINDB), in public law governing transport and logistics infrastructure to balance the investment obligation of concessionaires with (i) maintenance of the service level (distancing itself, therefore, from the old guideline of the Logistics Investment Program, of 2012, to generate externalities in potential detriment to funds inherent to the concession itself) and (ii) the capacity to generate fare revenues. There is a commutativity between the terms of this relationship (investment and demand, expense and revenue), the disruption of which has legal consequences. And that is where the effects of covid-19 come into play, because they have the potential to cause this disruption.

A significant part of the legal understandings on this discussion would tend to lead to a scenario of economic and financial rebalancing of the contract (a subject that we discussed, in a very introductory manner, in another article on this portal, and that we will analyze with the necessary details soon). At a first glance, however, the subject seems to deserve a separate legal framework.

In fact, the rescheduling of investments in concessions does not suggest a remedy to restore the concessionaire due to the materialization of a risk allocated to the granting authority. Moreover, the contractual allocation of risks itself, depending on each specific and concrete provision, could indicate an unrestricted absorption of the risk of demand by the concessionaire (except for scenarios of an extraordinary nature and without prejudice, moreover, to an evaluation of the overlapping or prevalence of acts of God and force majeure provisions, events normally absorbed by the Government in contractual instruments).

In cases of breaking of the balance between investment and demand, what is at stake is not exactly compensation to the concessionaire for a financial loss it has incurred, when, contractually, it would be up to the granting authority to bear such a loss. It is basically a question of avoiding an even greater loss to the detriment of proper performance of the contract itself: the rescheduling of investments is a measure that is necessary to release the concessionaire from making an investment that has become economically unrecoverable, a sunk cost, in the expression of the project financing literature. It is not, therefore, a case of revision of the schedule for investments as a measure to restore a contractual imbalance, but a qualitative renegotiation of investments that, after the agreement, became useless, that is, they will not serve, at least at that moment originally conceived, to maintain the contractually defined levels of service. For example, why add another lane to a stretch of road if there is evidence that there will be no traffic to justify it? Why expand the handling capacity of a port terminal if there will be no increase in cargo? What good is a new runway at an airport if the airlines will not use it?

The discussion of rebalancing, in terms of rescheduling investments, becomes relevant as a measure for possible compensation of the granting authority or of the users: after all, a certain investment by the concessionaire will no longer be made. It would be expected that the economic and financial balance of the contract would be restored in their favor, through, for example, reduction in the amount of the fare, increase in the value of the grant, or shortening of the contract term. However, such restoration measures would have the same financial effect for the concessionaire as would the performance of the investment itself. There is no difference between obliging the concessionaire to incur an unrecoverable or useless investment and rebalancing the contract because such an investment, in spite of its inefficiencies, has not materialized.

In this sense, if we start from the premise that certain investments have become economically irrecoverable, or useless for the maintenance of contractually defined service levels, economic and financial rebalancing of the contract to the detriment of the concessionaire would be equivalent to potential unfeasibility of the concession, since we would be promoting an uneconomical and irrational contract from the point of view of allocative decisions. It would then be up to the granting authority to assess whether the reasons that led it to proceed with the concession continue on the objective contractual basis or whether, on the contrary, they have disappeared. In the second case, there would be no legally acceptable solution for the Government, except early termination of the contract, with due compensation to the concessionaire. In the first case, that is, concluding that those reasons remain, although certain investments cannot be made, at least in the schedule originally devised, rescheduling without contractual rebalancing is justified.

Of course, the issue will bring in a number of challenges, both for the Government and for concessionaires, in order for the rescheduling of investments to be effectively applied. The lack of a contractual provision does not seem, however, to be sufficient reason to avoid  facing them, nor does absence of express legal permission, in which we recognize the good time for the government to rethink the re-promulgation of MP 800 or its equivalent, duly perfected and adapted to the complexity of the current crisis.

Along these lines, the bill for the General Concessions Law (PL 7063/17), for which the rapporteur's opinion was approved by the Chamber of Deputies at the end of 2019, even provides that a provision for ordinary review of concessions may cover adaptation of investment plans and their respective schedules, without, however, detailing the relevant rights, obligations, constraints, and procedures. Therefore, it should not be esteemed to be a sufficient legislative effort to set a regulation at the same legal level as those challenges.

In addition, there are tendencies, also during the planning stage, to make it difficult to reschedule investments in concessions, and this point deserves attention: if we do not understand that legal permissiveness on the subject is indispensable, a prohibition on implementing rescheduling, or even an unreasonable legislative constraint thereon, could repel the measure from the legal system, possibly absolutely. The provisions of PL 2711/19, which seek to amend Law No. 8,987/95, seem to provide, for example, for an almost automatic reduction in the contractual term due to delays in the delivery of works, without opening room for potential discussions.

From the point of view of the legal experience, it will be especially important to establish rescheduling of investments as a self-executive measure, to be applied directly by the concessionaire, even if with the subsequent consent of the granting authority, and to what extent economic and financial rebalancing of the contract, in favor of the latter or the users, will be unauthorized (and, if not, when and how it will occur).

There are many technical and legal grounds to support rescheduling of investments, even more so under the strong effects of covid-19 on the variables of the investment and demand equation of concessions, under a common or public-private partnership arrangement. If the most recommended alternative in each case is to preserve the concession, the rescheduling of investments will serve to turn a measure used in the best legal technique into a general guideline of public law regarding transport and logistics infrastructure.

Category: Labor and employment

After the promulgation of Executive Order No. 927 (MP 927), Caixa Econômica Federal (CEF) published Circular No. 893, on March 25, to regulate the temporary suspension of the mandatory payment of FGTS for the periods of March, April, and May of 2020, in addition to guiding employers on the subject.

Referring to the text of MP 927, the circular reinforces that all employers may use the prerogative of temporary suspension, including families hiring domestic workers, regardless of prior adhesion. However, the requirement to declare the information by the 7th of each month (April, May, and June) was maintained through the Conectividade Social [“Social Connectivity”] or eSocial systems, as the case may be.

In order to declare the information, the circular guides employers who use the Sefip (Company FGTS Payment and Social Security Information System) to follow the guidelines contained in the GFIP/Sefip Manual for Sefip 8.4 Users in its chapter I, item 7.

Employers who use this platform must select mode 1 (Declaration to the FGTS and Social Security), which is intended for situations in which the FGTS due in the accrual month is not paid, so as acknowledge the FGTS debt.

The circular also instructs families hiring domestic workers who are eSocial users to observe the guidelines contained in the Domestic Employer ESocial Guidance Manual in its item 4, subitem 4.3. This means that they must issue the eSocial Collection Document (DAE) payment form, but they are exempted from printing it and settling it.

In the event that the employer does not provide the FGTS with the information by the 7th of each month of accrual, the employer must do so no later than June 20, 2020. If these deadlines are duly observed and met, no fines and charges shall be levied due in the manner set forth in article 22 of Law No. 8,036/90. Otherwise, the accruals relating to the months of March, April, and May of 2020 will be considered to be arrears and will be subject to fines and charges, in addition to other penalties provided for by applicable law and regulations.

Reinforcing the text of MP 927, the circular published by the CEF highlights that the information provided constitutes a declaration and recognition of the resulting credits, constitutes an acknowledgment of debt, and constitutes an adequate and sufficient instrument for the payment of the FGTS debt.

Once the period for suspension of the obligation to pay the FGTS is over, employers may opt for installment payment of the amount due within up to six payments, that is to say, December of 2020, as already provided for in MP 927. However, no minimum amount may be applied to the installments: the full amount must be divided equally and the interest of the employer (domestic or otherwise) may be accelerated.

If the employment contract is terminated during the period of suspension of payment or payment in installments, the deferment of payment forfeits its effects and the employer is obliged to pay the amounts, including any outstanding installments. In both cases, no fines and charges are levied, as long as the payment is made within the legal deadline established.

MP 927 had already pointed out that default on installments resulting from an ongoing Debt Instalment Agreement that would mature in March, April, and May of 2020 does not constitute an impediment to the issuance of a certificate of good FGTS standing. However, the circular clarified that these installments were not covered by the prerogative of deferment in payment - default thereon will result in the collection of the fines and charges provided for in article 22 of Law No. 8,036/90.

The operational procedures for payment and installment plans dealt with in the circular will be detailed in the operational manuals that regulate them.