Publications

Category: Public and regulatory law

Reduction of bureaucracy in public procurement is one of the main policy goals of the Brazilian federal government. Among the actions taken throughout 2019 in this regard is the promulgation of Normative Instruction No. 1/2019 by the Digital Government Bureau of the Ministry of Economy. One of the most relevant milestones in improving public-private dialogue, the rule governs the process of contracting for IT solutions by the bodies and entities of the Federal Public Administration that are part of the Information Technology Resources Management System (Sisp).

IN 19/2019 was promulgated in consideration of the recommendations provided in Appellate Decision No. 2,569/2019 by the Federal Court of Accounts (TCU), which identified a series of flaws and inefficiencies in practices and processes adopted by the Federal Public Administration for procuring IT solutions and indicated the need to adopt new parameters to better serve the public interest.

The changes introduced by IN 19/2019 shook up the market for service providers and suppliers of IT products and solutions, who were forced to change certain established practices in contracts with the government. The rule also served to clarify issues that previously lacked detail. One of them is proof of concept or POC, which means tests conducted to demonstrate whether a particular product or service works in practice and what its level of efficiency might be.

In procurement, the Public Administration uses POCs to assess, for example, the technical specifications, functionalities, performance, and suitability for the technological environment of the agency or entity in which the solution will be used, among other factors that are relevant to the procurement.

POCs generate documented evidence that supports the procuring public administrator's decisions to (i) plan a procurement (ascertaining the technical requirements of IT solutions that may meet needs, for example) or to (ii) assess the suitability of an IT solution submitted by a bidder to the technical specifications required in the call for bids (i.e., the Reference Term Sheet).

When a POC is performed during the contract planning stage, some procedures must be followed to remove the risk of targeting (albeit involuntarily) the notice and reference term sheet for the benefit of a particular IT solution or a specific bidder.

Although it does not expressly use the term POC for the purposes of planning a contract, IN 1/19 discusses the topic in its article 11, items I and II, when dealing with “comparative analysis of solutions” to support a Preliminary Technical Study for Procurement, a document that describes the review conducted by the Public Administration of the procurement conditions in terms of needs, requirements, alternatives, choices, intended results, and other characteristics. The objective is to demonstrate the technical and economic feasibility of the procurement.

The Preliminary Technical Study for Procurement must include this comparative analysis of IT solutions from the economic and qualitative point of view, observing market alternatives, different service delivery models, and different types of solutions in terms of specification, composition, or characteristics of the included goods and services, among other factors.

Once completed, the Preliminary Technical Study for Procurement will serve as a basis for preparing the Reference Term Sheets (or basic plan), which define the purpose of the procurement, describes the IT solution, and specifies the requirements of the procurement. Thus, it is essential that a POC be performed according to the procedures listed in the study in order to rule out the risks associated with targeted procurement.

In Appellate Decision No. 2,569/2018, the TCU condemned the practice of recording an opportunity involving the granting of differentiated discounts by IT solution manufacturers to resellers who provide their own human and material resources to perform a POC in a public procurement, an illegal practice that violates competitive bidding which should be avoided by market players in this segment.

Although the procedures set forth in IN 1/19 are binding only on bodies of the federal public administration, it is the case that they reflect best POC practices from the point of view of the government and the case law of the TCU. For this reason, the performance of a POC by those interested in cooperating with the Public Administration in the planning of future procurement should be in harmony with the rules of IN 1/19, assisting in having them be properly complied with by the procuring public entity.

With the constant need for improvement and modernization of the systems and processes used by public bodies and entities, the tendency is towards strong growth in IT solutions in procurement by the Brazilian Public Administration, which will require from interested companies strict compliance with the rules established by IN 1/19.

Category: Litigation

The principle of legal certainty is one of the underpinnings of the rule of law. It could not be otherwise, as it is because of it that society can trust that the rules of the game will not be changed during the course of its activities and the legal transactions entered into.

Legal certainty is materialized in sparse legal provisions, among which article 5, XXXVI, of the Federal Constitution stands out, which deals with accrued rights, perfected legal acts, and res judicata. The latter guarantees that, once a right has been decided on by the Judiciary, the decision becomes law between the parties and must be respected.

In this context, based on a logical and systematic interpretation of the doctrine of res judicata, the Superior Court of Justice (STJ), in a recent judgment on a motion to resolve diverging positions on the law (Motion on Divergence No. 600.811/SP), established an important hermeneutic rule. The Justices of the special body of the Superior Court established, in a close judgment of 8 votes against 7, that the force of res judicata is so strong that it prevails even over a previous res judicata that deals with exactly the same matter.

Understanding the case

In the case in question, three motions to stay were filed against the purchase of the same property at an auction: the first was dismissed without prejudice and became final and unappealable in 1998; the second was granted relief (canceling the auction) and became final and unappealable in 2001; and the third was dismissed (upholding the purchase at the auction) and became final and unappealable in 2010.

The parties then began to debate which of the decisions should prevail: the one that first considered the merits and became final in 2001 or the one that became final in 2010. At the trial level, without much basis, the judge established that the decision that reviewed the merits and first became final should prevail, such that the purchase was undone. In deciding the appeal filed by the purchaser of the property, the 21st Chamber of Private Law of the São Paulo State Court of Appeals upheld the lower court’s decision.

The controversy was then submitted to the scrutiny of the Third Panel of the STJ, with Justice Paulo de Tarso Sanseverino writing for the court, who reaffirmed the original trial decision such that the decision that assessed the merits and first became final would be respected. Dissatisfied, the purchaser of the property filed a motion for divergence, arguing for the validity and effectiveness of the decision that last became final.

The theories defended

The defenders of application of the decision that first became final maintain that, in the case of lis pendens or res judicata, the second claim fails to meet a procedural requirement, such that it constitutes defective pleading. In this sense, Nelson Nery Jr. and Rosa Maria de Andrade Nery argue:^[1] “The first prevails, because the second did not even form or, at least, offended the first res judicata, and is thus unconstitutional (Federal Constitution article 1, head paragraph, and 5, XXXVI) and illegal (Code of Civil Procedure article 267 V, 301 VI, 471, 485 VI). The second res judicata was never formed because there was no suit, proceeding, or judgment (see commentary, Code of Civil Procedure article 267, V and VI). Strictly speaking, it is not even necessary to appeal against this judgment handed down in violation of res judicata, nor to file an action for relief from judgment.”

Also due to the prevalence of the first judgment, but based on the invalidity by operation of law of the second judgment, Sérgio Gilberto Porto states:^[2] “The argument that the repeated judicial fact, that is, the new decision, in itself, offended a res judicata that already existed and that, as such, was assured by the Federal Constitution (article 5, XXXVI) seems irrefutable, and thus invalid pleno jure, behold, given that a constitutional command prevails over an ordinary rule (article 495, Code of Civil Procedure) which establishes a deadline for filing an action for relief from judgment. Thus, the only plausible solution to prevent violation of the Constitution is to not apply the period for preclusion in article 495, in the case of sectoin IV of article 485 of the Code of Civil Procedure, when there is a conflict in sovereignly adjudicated decisions.”

Teresa Wambier,^[3] in turn, cites Liebman in stating that "there will have been no authentic judicial activity, but the appearance of judicial activity, or the external form of judicial activity." Continuing on, the renowned professor also cites José Carlos Barbosa Moreira,^[4] stating that “there is no way to sustain that those who plead, before the Judiciary, review of a decision already decided, by means of a decision on which the authority of res judicata weighs, have an interest in the suit.”

On the other hand, those who argue for the prevalence of the decision that became final later do so based on the argument that all judicial decisions are valid and effective, such that the subsequent decision overrides the previous one and replaces it.

In this sense, Arruda Alvim^[5] argues that “in the event that the second proceeding reaches res judicata, the judgment rendered therein shall be unchangeable and preponderant. In other words, the formation of res judicata affects, in this case, the proceeding that began first, destroying the legal effects of the mere judgment.”

The lesson of Eduardo Talamini is to the same effect:^[6] “Nor may it be said that although the second judgment exists, the solution of the conflict between the two incompatible commands occurs with the prevalence of the first. Two considerations rule out this conclusion. The first is that the law expressly provided for actions for relief from judgment against the second ruling (Code of Civil Procedure, article 485, IV). This means that once the time limit has elapsed without this specific means of objection having been exercised, the defect of the second judgment becomes irrelevant. And then, 'the first judgement is devoid of value, since the second judgement implies negation of any prior judgment to the contrary.' It is not denied that positive law could have resolved such a conflict differently, but to that an express ruling in that regarding would be necessary, such as there is, for example, in Portuguese law (see Portuguese Code of Civil Procedure, articles 75 and 813, f). Hence the second consideration: in the absence of an express rule otherwise, the general principle applicable to all fields of public law intended to resolve conflicts between legal commands applies: the later act takes precedence over the prior act (criterion of 'temporality'). This may not be the ideal solution to the impasse. Incidentally, the ideal situation would be for the impasse to not even exist. In any case, if it does occur, that is the 'least bad’ solution.”

For this second line of understanding, restoring force to the decision that first became final requires the filing of an action for relief from judgment against the decision that was handed down and became final last. The filing of the action for relief from judgment is necessary because, although absurd, the judicial decision issued last must prevail due to the force that every judicial decision is endowed with.

How is the issue to be resolved?

Although a close result, the STJ joined the understanding that every judicial decision is endowed with effectiveness and validity until it is overruled. Accordingly, the decision that becomes final last must take effect and override the first one until, via an action for relief from judgment, the effects of the first decision are reinstated. In the absence of any action for relief from judgment, the decision which became final last will have completely superseded the first decision.

^[1] Commented Code of Civil Procedure and extraordinary legislation, 11th ed. São Paulo: RT, p. 714.

^[2] Coisa Julgada Civil [“Civil Res Judicata”]. 4th ed. São Paulo: Revista dos Tribunais, 2011, p. 166.

^[3] Nulidades do processo e da sentença [“Nullity in proceedings and judgments”]. 7th ed. São Paulo: Revista dos Tribunais, 2014, p. 356.

^[4] Nulidades do processo e da sentença [“Nullity in proceedings and judgments”]. 7th ed. São Paulo: Revista dos Tribunais, 2014, p. 384.

^[5] Direito Processual Civil [“Civil Procedure Law”], 1/380, 8th printing, Ed. RT, 1972 in RJTJESP 88/125.

^[6] Coisa Julgada e sua Revisão [“Res Judicata and its Review”], 1st ed., São Paulo: Revista dos Tribunais, 2005, pp. 155/156.

Category: Corporate

Executive Order No. 892/19 (MP 892), which substantially changed the framework for legal publications by corporations, expired on December 3rd. Essentially, MP 892 had extinguished the obligation to publish corporate acts in official gazettes and widely circulated print newspapers, pursuant to Law No. 6,404/76 (the Brazilian Corporations Law). These publications would be done only by electronic means, which would reduce costs and bureaucracy related to companies’ administrative and corporate routine.

Published on August 5th of this year, MP 892 expired and lost its effectiveness, since it was not reviewed by the floor of the House or Senate. In a vote of the mixed committee that reviewed the executive order, Senator Rose de Freitas (Podemos-ES) put forward arguments for rejecting the text, claiming that, if approved, the MP would make room for fraud in electronic documents of companies “whether due to technical failures in the digital certification systems, whether because the MP authorizes the Brazilian Securities and Exchange Commission (CVM) to waive the authorization of digital certification by means of a rulemaking act of the commission.”

In her opinion, Senator Rose de Freitas also considered the executive order to no longer be relevant, since the topic had already been discussed and governed by the Brazilian Congress in 2019, through Law No. 13,818/2019 (which provides that, starting in 2022, balance sheets shall be published in summary form in the print edition of the newspapers and, in full, on the website of the same newspaper).

The Senator also emphasized that the executive order was promulgated in a direction contrary to the law approved by the Brazilian Congress and did not provide for a transitional rule for it to enter into effect, that is, it would be valid once the rulemaking acts of CVM were promulgated (for publicly traded companies) and the Minister of Economy (for publicly traded companies), which she said would cause "unavoidable and immediate damage to the print media industry, without such losses being equalized over time in a more proportionate manner."

Although MP 892 was very well received by companies operating in Brazil, the mechanism of publishing in newspapers originally provided for by the Brazilian Corporations Law in the 1970s will remain unchanged until 2022, when Law No. 13,818/19 will enter into force, or before then, if a new legislative initiative to reduce or change the current requirements arises.

Category: Labor and employment

Executive Order No. 905/19 (MP 905), which instituted the Green and Yellow Employment Contract, implemented various changes to unemployment insurance and accident assistance.

Current unemployment insurance rules

The benefit is assured for (i) employees who have their employment contracts terminated without cause at the employer's initiative; (ii) employees with a suspended contract by virtue of a qualification program offered by the employer; (iii) fishermen during closed season; and (iv) workers rescued from conditions analogous to that of slavery.

The beneficiaries of the unemployment insurance were not considered obligatory Social Security covered persons and, therefore, did not contribute to the amount received as a benefit. However, according to social security laws and regulations, the workers maintained the status of insured for up to 12 months, extendable up to 24 months, even exempt from contribution, starting on the date on which they ceased to exercise paid activity, due to termination without cause or unpaid suspension/leave.

What changes with MP 905

The executive order changed part of the legal definitions by:

• expressly defining that the unemployment insurance beneficiary is a compulsory insured of Social Security system during the months of receipt of the benefit;
• including, in the list of contribution wage payments, the monthly portion of the unemployment insurance, it being the responsibility of the Special Bureau of Social Security and Labor to carry out withholding of the contributions; and
• expressly stipulating that the status of the insured will be maintained for up to 12 months after the cessation of the contributions, starting from the date on which they ceased to exercise paid employment due to termination without cause or unpaid suspension/leave, or ceased receiving unemployment insurance.

According to the changes brought about by MP 905, workers will contribute to Social Security during the period in which they receive unemployment insurance. In contrast, the trigger for counting the term for loss of status as an insured will no longer be the date of termination, but the end date of receipt of the benefit.

Changes in the accident assistance

The accident assistance was guaranteed to Social Security insureds who exhibit permanent sequelae that reduced their working capacity as a result of an accident of any kind.

The benefit was maintained until the eve of retirement, in any form, or until the date of death of the insured.

MP 905 amended the text of the law such that the accident assistance is granted only in the cases of specific sequelae to be defined by the Special Bureau of Social Security and Labor. With the change, not all accidents will be compensated, unlike what was previously provided for.

In addition, although MP 905 maintained the percentage of the benefit to be paid by Social Security, the continuity of payment of the accident assistance is linked to maintenance of the conditions that led to recognition of the benefit.

This article is part of a series about the major changes brought about by MP 905. Click here to read our other analyses on the topic.

Category: Social security

Executive Order No. 905/19, published on November 12, established the Green and Yellow Employment Contract and included in the Consolidated Labor Laws (CLT) rules on the supply of food to employees and the consequences thereof for the labor, social security, and even tax sphere. With the change promoted, food provided and paid through tickets or vouchers are exempt from labor, social security, and tax charges.

The Superior Chamber of Tax Appeals of the Administrative Tax Appeals Board (Carf) adopted the understanding that the food assistance allowance, paid in cash or in food vouchers and tickets, would be part of salary for the purposes of payment of social security contributions. Thus, the social security contribution on the benefit amounts was due.

In January of 2019, the Federal Revenue Service of Brazil (RFB), through the publication of Cosit Response to Public Inquiry No. 35/19, changed Carf's understanding, establishing a new understanding that the social security contribution should not be levied on food when it is given in natura^[1] or when it is paid via ticket or voucher.

However, the response to public inquiry did not exclude food paid in cash from the social security contribution, on the grounds that such remuneration is of the nature of a wage and, therefore, this amount should be part of the taxable base of the social security contribution.

It was in this context that MP 905 added to the CLT (article 475, paragraph 5), in an express manner, that the provision of food to employees, whether in nature or by means of vouchers, coupons, checks, electronic cards intended for the purchase of meals, or foodstuffs: (i) is not of the nature of wages; (ii) is not subject to the application of social security contributions; and (iii) is not included in the taxable base for other payroll charges, especially FGTS and IRRF.

The objective is to close any debates regarding the application of social security contributions and other payroll taxes on employees' food, making the administrative and judicial bodies apply the same understanding.

However, the executive order was silent regarding the payment of food in cash, which leads to the conclusion that the RFB and the Judiciary will continue to apply the understanding of Cosit Response to Public Inquiry No. 35/19 for the payment of food in cash, assigning it the nature of wages and ordering the application of social security contributions.

MP 905 ordered that changes relating to this matter shall only take effect when an act of the Minister of Economy attests to compatibility with the tax results targets provided for in the annex itself of the Budgetary Guidelines Law and compliance with the provisions of Supplementary Law No. 101/2000, which deals with public finances directed to responsibility in tax management, and the provisions of the Budgetary Guidelines Law related to the matter.

We will cover the main changes of MP 905 in the next articles in this series. Click here to read our other analyses on the topic.

^[1] Furnishing of meals to employees or provision of food baskets, in accordance with article 58 of RFB Normative Instruction No. 971/2009.

Category: Corporate

To regulate the application of Executive Order No. 892/19 (MP 892), which amended Law No. 6,404/76 (the Brazilian Corporations Law) with respect to the publication of acts and information of corporations, in September, the Brazilian Securities and Exchange Commission (CVM) and the Ministry of Economy issued new rules, respectively, on publicly and privately-held companies effective beginning in October.

Not yet converted into law, MP 892 determined that publications previously made in the Official Gazette and widely circulated newspapers should be made on the websites of CVM and the market managing entity where the company's securities are admitted for trading, in addition to the company's own website, in this case referring only to publicly traded companies.

In charge of regulating the application of the new rules for these companies, the CVM issued CVM Resolution 829, of September 27, 2019, providing that all publications and relevant information required by the Brazilian Corporations Law and CVM instructions regarding public companies should be made using the Empresas.NET System and on their own website, thus doing away with the need for digital certification of the documents.

The Ministry of Economy was responsible for disciplining the matter in relation to closely-held companies. To that end, Ordinance No. 529, of September 26, 2019, provides that the publication of acts of privately-held companies and the disclosure of their information (...) must be done in the Balance Sheet Center (CB) of the Public Digital Bookkeeping System (SPED), in addition to the companies’ own websites. Digital certification of the authenticity of documents kept on the website is required by a certifying authority accredited by the Brazilian Public Keys Infrastructure (Infraestrutura de Chaves Públicas Brasileira in Portuguese, or ICPBrasil).

Both Ordinance No. 529 and CVM Resolution No. 829 enter into effect on October 14, 2019. Thus, since then, publicly-traded and privately-held companies have been authorized to publish their acts only on the CVM's Empresas.NET System, or the SPED's CB, respectively, as well as on their own websites.

An issue that still hovers over the topic concerns the scope of the effects of MP 892 and Ordinance No. 529 in relation to limited liability companies (including those considered large). Although both rules generally refer to privately-held companies as well, the fact is that there was only an express amendment to article 289 of the Brazilian Corporations Law, without any mention of the provisions of the Civil Code dealing with publications. It seems that the spirit of the rule is to foster economic activity as a whole, reducing costs and red tape, regardless of the corporate form adopted. However, to date, the Brazilian Department of Business Registration and Integration (DREI) of the Ministry of Economy has only issued guidance to boards of trade regarding publications by corporations.

The topic is controversial and will probably still be subject to debate. The Federal Supreme Court (STF) is currently processing Direct Suit of Unconstitutionality No. 6,215 (ADI), for which Justice Marco Aurélio Mello will provide the written opinion. Filed by the Rede Sustentabilidade [“Sustainable Network”] Party, the ADI disputes the validity of MP 892. The Supreme Court has not yet ruled on the matter.

On September 20 of this year, MP 892 was slated to be processed on an urgent basis in the Legislature and, if not reviewed or converted into law by December 3, 2019, will lose its effectiveness. It will then be up to the Brazilian Congress to discipline, via legislative decree, the legal relations arising from it.

Registration of branches in states other than that of the headquarters

On August 6 of this year, DREI issued Normative Instruction No. 66, which deals with the approval, by boards of trade of the headquarters of a company, of acts related to the opening, alteration, transfer, and extinguishment of a branch in another state of the federation.

Instead of going through various states, the company may adopt a very simplified process that allows for a sole filing with the board of trade of the locality of the company's headquarters. The systems required to perform this procedure are still being adjusted in some regions.

Until the consultations regarding feasibility from the boards of trade and city governments are also integrated, it will be necessary to conduct the study initially in the locality of the branch. Once the feasibility study is approved, the corporate act may be filed with the registry of the headquarters. Thus, it will be up incumbent on the board of trade where the headquarters is registered, after granting the act, to electronically forward the information relating to the branch office to the body of the other state, which, in turn, must receive and store it.

The change of corporate name filed at the headquarters will be automatically extended to the branches, provided that the feasibility studies are presented completed together.

In practice, so far, there are states where recording already produces effects in relation to state registrations, and others where this is not the case. As for city registries, the systems are not yet interconnected, and registrations and updates must be done independently.