Publications

Category: Competition

The Administrative Council for Economic Defense (Cade) has established new rules on the process in administrative proceedings for assessing merger acts (Apac), through which the agency investigates and punishes the early consummation of these acts, also known as gun jumping, and defined parameters for calculating the applicable fine. The changes were published in Resolution No. 24/19.

Pursuant to Law No. 12,529/2011 (the Defense of Competition Law), the total or partial consummation of a merger prior to obtaining Cade's approval may be punished by a fine between R$ 60,000 and R$ 60 million and cancellation of acts performed, without prejudice to the potential opening of administrative proceedings for investigation of anticompetitive conduct.

Before the new resolution was issued, Cade calculated the fine for gun jumping based on the general factors provided for the calculation of any penalty under the Defense of Competition Law, such as the severity of the infraction, the offender's good faith, economic situation, negative economic effects produced in the market, degree of injury to free competition, and recurrence.

The agency had imposed or negotiated gun jumping fines in 17 transactions thus far. In ten of them, the amount disbursed by offenders was less than R$ 1 million. In six other cases, the fines ranged from R$ 1 million to R$ 3 million. The record fine imposed was R$ 30 million.

The new resolution stipulates that the fine in gun jumping cases starts from a base penalty of R$ 60 thousand, being increased: (a) for the lapse of time, at 0.01% of the amount of the transaction per day of delay, counted from the date of consummation until the notice of the merger or amendment, if any; (b) for the severity of the conduct, up to 4% of the value of the transaction; and (c) for intentionality, up to 0.4% of the average revenue of the economic groups involved, according to the offender's good faith.

The amount of the base fine plus these aggravating factors may be reduced depending on the time of notice: 50% in the event of voluntary notice of the transaction before receiving a complaint or representation by Cade; 30% in the case of notice after receipt of a complaint or representation by Cade, but before the establishment of an Apac; and 20% in the case of notice after an Apac was commenced and before the final decision imposing a conviction.

The purpose of Resolution No. 24/19 is to provide greater predictability for the amount of the fine applicable, but not completely eliminate the discretion of the agency in the dosimetry of the fine. In addition, the resolution provides clear incentives for voluntary reporting of transactions that may be be subject to gun jumping issues. On the other hand, sanctions are also expected to be tightened, especially in the case of high-value transactions between large groups, which, according to the parameters stipulated, will invariably be subject to fines in the millions, even if they do not present any competitive concerns.

Category: Labor and employment

The Labor Reform (Law No. 13,467/17) expanded the use of judicial performance bonds in the labor sphere. Already employed to ensure enforcement due to suppletory application of the Code of Civil Procedure, it was also provided for also by the new law in order to replace the appeal deposit, pursuant to paragraph 11 included into article 899 of the Consolidated Labor Laws (CLT).^[1]

Considering the express provision of law and the ceiling to file appeals in the labor context,^[2] the measure has attracted an increasing number of companies interested in avoiding the potential decapitalization associated with the exercise of their right of defense.

However, even with the precision in the provision, the issue is still far from settled in the judiciary, nearly two years after the Labor Reform entered into force. The decisions coming from the different circuit courts and the Superior Labor Court itself (TST) are varied. While some judicial panels find that the measure cannot be used, others decide that it must comply with certain requirements, and a third group claims that there is no legal provision for imposing requirements on insurance policies, for which reason the measure should always be accepted.

All of this creates a climate of legal uncertainty for litigants in the labor courts regarding the acceptance of a performance bond. Linked to the equity issue involved in the discussion of the claims, the possible dismissal of the use of this form of satisfying appeal costs also constitutes patent curtailment of defense, since it would impede the parties' right to have their claims reviewed on appeal.

How does one prepare in order to mitigate risks of possible rejection of the use of a performance bond in satisfying the costs of a labor appeal?

Although, in fact, the law does not impose any conditions for using performance bonds as an appellate guarantee, the Judiciary's greatest concern in rejecting the measure is that the bond will not be able to effectively guarantee enforcement when enforcement begins.

 A large number of decisions establish that the performance bond cannot be accepted because it contains a date for expiration of validity. The argument is that the guarantee should continue indefinitely, which is not feasible for this modality, as is extracted from article 760 of the Civil Code.^[3]

Therefore, in order to mitigate risks of rejection of the policy, companies must demonstrate that the insurance purchased provides the worker with the same security as an appeal deposit.

This condition of parity may be demonstrated by simple measures that do not burden companies, such as stipulating a period of validity compatible with the average duration of labor proceedings before the courts; inclusion of contract provisions allowing the guarantee to be renewed in the event that the expiration date is reached before discharge of the execution; and stipulation of the impossibility of revocation of the guarantee without an effective demonstration of fulfillment of the principal obligation.

These measures demonstrate the observance of litigants of the true legal nature of the system of appeal deposits, which is to ensure the right to an appeal, regardless of the guarantee used.

Therefore, until the matter is settled before the circuit labor courts, the performance bond may be safely used to enable guarantees of appeals and exercise of the right of defense with a lesser burden on the employer, based on the use of reasonableness and observing the principles that underlie the issue of appeal costs.

^[1] “The appeal deposit may be replaced by bank guarantee or judicial performance bond.”

^[2] Currently the amounts of the appeal deposit ceiling range from R$ 9,828.51 to R$ 19,657.02.

^[3] Article 760. The insurance policy or coverage must be nominal, to the order or to the bearer, and must mention the risks assumed, the beginning and the end of its term of validity, the guarantee limit, and the premium due, and, where applicable, the name of the insured and the beneficiary.

Category: Environmental

The breaking of a dam in Mariana in 2015 was not the first incident of its kind in Brazil, but it was a milestone for the mining industry for having caused extensive environmental and social damage in the states of Minas Gerais and Espírito Santo. As occurred after other large-scale events that were under wide media coverage in Brazil, the public understanding regarding the need for regulatory improvements, coupled with the opportunity for political action under the public’s attention, triggered legislative processes and amendments in dam regulations and disaster prevention in general. Thus, an intense process of changes in rules and regulations began after the incident.

In 2016, two norms were published at the federal level. Ordinance No. 187/16 of the National Protection and Civil Defense Bureau approved the Notebook of Guidelines for Supporting the Preparation of Municipal Contingency Plans for Dams, related to risks generated by the presence of dams in cities. Also focusing on disaster prevention, Ordinance No. 5,141/16 of the Ministry of Science, Technology, Innovation, and Communication, in turn, approved the internal rules of the National Center for Monitoring and Alerting of Natural Disasters, a scientific institution empowered to prepare relevant natural disaster alerts aiming at civil protection and defense actions in Brazilian territory, in addition to producing scientific knowledge on the subject and developing and implementing natural disaster monitoring systems, among others.

In the same year, the Government of Minas Gerais enacted Decree No. 46,993/16, which instituted a mandatory technical audit of dam safety in relation to all developments that perform the final or temporary disposal of mining tailings in dams that use or used the upstream elevation method. Through this instrument, the Government also stipulated that, by September 10, 2016, the developments must input an Extraordinary Declaration of Condition of Stability into the Environmental Declarations Database. In line with the new obligations, the Decree also created a type of infraction associated with the failure to perform any type of technical audit applicable to tailings containment dams that is rated as “extremely serious” in the scale of impact set by the regulation. In order to achieve its objectives, the Decree sought to impose obligations, but was not restrictive, as it expressly provided for the continuity of the environmental licensing processes for developments involving the final or temporary disposal of mining tailings in dams built via the upstream elevation method.

Accordingly, in the same year, the State Council for Environmental Policy (Copam) published Ordinance No. 210/16, which established criteria for the environmental licensing process for waste disposal activities, sterile block cave mining, and reuse of such materials when disposed of in piles, dams, or pits and amending provisions on environmental licensing and potential pollution of tailings disposal structures provided for in Copam Normative Ordinance No. 74/04, subsequently replaced by Copam Normative Resolution No. 217/2017.

In turn, in 2017, the National Department of Mineral Production (DNPM) published Ordinance No. 70,389/17, which created instruments for prevention and monitoring at the federal level in accordance with Law No. 12,334/10, which establishes the National Dam Safety Policy (PNSB). The ordinance created the National Register of Mining Dams, the Integrated Management System for Mining Dam Safety, and established the frequency of performance or updating, the identification of the technical responsible person, the minimum content, and the level of detail of the Mining Dam Safety Plan, Regular and Special Safety Inspections, the Periodic Dam Safety Review, and the Mining Dam Emergency Action Plan. Thereafter, Federal Law No. 13,575/17 created the National Mining Agency (ANM) and extinguished the DNPM.

Amid this process of changing dam and disaster prevention regulations, a new accident occurred on January 25 of this year, with the breach of a dam located in Brumadinho, also in Minas Gerais. The event pushed forward laws and regulations that were already pending and triggered new processes. Thus, 2019 has also been a year marked by the publication of norms that regulate the mining industry and the operation of dams in general.

Naturally, since it is the State most affected by the events, Minas Gerais was the first to publish specific rules on the subject. Precisely after the Brumadinho accident, State Law No. 23,291/19 established the State Dam Safety Policy (PESB-MG). One of the featured points of the law was the prohibition on the granting of an environmental license for the operation or expansion of dams intended for the accumulation or final or temporary disposal of tailings or industrial or mining waste that use the upstream method. In order to regulate the provision and to govern other issues, Semad/Feam Joint Resolution No. 2,765/19 was published, thereafter repealed by Semad/Feam Joint Resolution No. 2,784/19, which determines the decommissioning of all tailings and waste dams, built using the upstream method, arising from existing mining activities in Minas Gerais.

At the federal level, ANM Resolution No. 4/19, which had been published on February 15, was submitted for public consultation and repealed on August 8 by the publication of ANM Resolution No. 13/19. Possibly as a result of the public and media's desire for quick and firm solutions to a situation deemed urgent, the first resolution established short deadlines for meeting obligations, but after the public consultation, ANM Resolution No. 13/19 extended most of them.

The essence of the norm was maintained, that is, the imposition of measures to ensure the stability of mining dams. As expected, the resolution focuses on structures built or raised via the "upstream" method or a method declared to be unknown, precisely because it addresses concerns arising after the 2015 and 2019 events that involved dams built via the upstream method. It is clear, therefore, that ANM Resolution No. 13/19 represents a new paradigm for a legal framework that was established after 2015.

Already in article 2 it is established that “the use of the method of mining dam construction called the 'upstream' method is prohibited throughout the national territory.” Thereafter, article 3 prohibits developers responsible for any mining dams from designing, constructing, maintaining, and operating them at sites within the grant area or in areas noted on the respective mining title and found within in the Self-Rescue Zone (ZAS).

The deadlines for adaptation to article 3 were some of the ones modified by ANM Resolution No. 13/19, being established as (i) October 12, 2019, for deactivation or removal of facilities, works and services intended for administrative, living, health, and recreation activities, as well as any facility, work, or service that handles, uses, or stores radioactive materials; and (ii) between August 15, 2022, and September 15, 2027, for decommissioning of mining dams, depending on the capacity volume. The resolution created a number of other deadlines expiring within the next decade, including the installation of an automated full-time real-time instrumentation monitoring system and implementation of solutions to reduce operational water input into dams, among others.

ANM Resolution No. 13/19 also establishes a minimum safety factor and the immediate shutdown of dams whose safety factor is momentarily below the minimum levels set by ABNT NBR No. 13,028/17. In addition, it imposes on developers the obligation to report the fact  to ANM, implement control and mitigation actions to ensure the safety of the structure and to assess the need for evacuation of the downstream area until the safety factor returns to minimum levels.

Finally, it should be noted that the resolution amended the text of DNPM Ordinance No. 70,389/17 so as to, among other things, determine that the Dam Stability Control Declaration be signed by the technical person responsible for its preparation and by individual at the higher level in the hierarchy of the company responsible for direction, control, or administration within the internal organization of such company.

As may be seen, in addition to the direct impacts of these incidents on the environment and on mining and the public in Espírito Santo, the events of 2015 and 2019 created a general public expectation of legislative changes and, consequently, established a situation of legal uncertainty for mining companies, with the publication and amendment of existing and newly published regulation.

In addition, at least two legislative amendments that are under discussion and pending approval may be added to the legal framework on the topic: Bill No. 550/19, which seeks to amend Law No. 12,334/10, which established the PNSB, and Bill No. 2,790/19, which seeks to amend Law No. 12,608/12 (Protection and Civil Defense Statute) in order to include prevention of disasters induced by human action.

Category: Litigation

Signed by the President of the Republic on September 20, Executive Order No. 881/19, the Economic Freedom Executive Order, was converted into Law No. 13,874/19, instituting the Declaration of Rights of Economic Freedom, which establishes rules for the protection of free initiative and the free exercise of economic activity.

The principles that guide the new law are (i) freedom as a guarantee in the exercise of economic activities; (ii) the good faith of the private party before the public power; (iii) the secondary and exceptional intervention by the State in the exercise of economic activities; and (iv) recognition of the vulnerability of the private party before the State.

To instrumentalize these principles and the rights on which they are based, Law No. 13,874/19 amends provisions in specific legislation. Under the Civil Code, the rules for piercing of the corporate veil were modified to hinder improper loosening of the institute of legal personality. To this end, article 49-A has been included and the wording of article 50 has been amended.

In line with what is already provided for in article 1,024 of the Civil Code,^[1] article 49-A embodies the principle of equity autonomy in stating that “a legal entity is not to be confused with its partners, associates, founders, and officers and directors.” The sole paragraph of article 49-A provides that equity autonomy is a lawful means of allocation and segregation of risk between the equity of the partner and the company.

As regards article 50, the original wording stated generally that abuse of legal personality, characterized by misuse of purpose or mixing of assets, would authorize piercing of the corporate veil in order to reach the assets of the partners or officers and directors of the legal entity.

The new wording of article 50 brought in by Law No. 13,874/19 rightly stiffened the scenarios giving rise to piercing of the corporate veil. Among the changes implemented we highlight the possibility of piercing the corporate veil of only the partner or officer or director who has benefited, even if indirectly, from the abuse. Paragraphs were also inserted into article 50 that regulate the alternative requirements to be fulfilled in order to allow the corporate veil to be pierced.

The requirement of misuse of purpose shall be fulfilled when the legal entity is used for the purpose of harming creditors or for the commission of unlawful acts of any kind. In the original wording of the Executive Order, the term “intentional” was stated, that is, deviation of purpose is only occurs when the element of willfulness or intent is present in the commission of the injury. However, the term was deleted from the final wording of the law.

Still in relation to the requirement of mixing of assets, paragraph 5 establishes that “mere expansion or alteration of the original purpose of the economic activity” does not constitute deviation of purpose for the purposes of piercing the corporate veil.

Law No. 13,874/2019 clarifies that mixing of assets is the absence of de facto separation between the assets and shall be characterized by:

“I - repetitive fulfillment by the company of obligations of the partner or the officer or director or vice versa;

II - transfer of assets or liabilities without effective consideration, except for those of proportionally insignificant value; and

III - other acts of non-compliance with equity autonomy.”

Based on the wording of paragraph 3 of article 50, it may be stated that the requirements of deviation of purpose and mixing of assets also apply to extension of obligations of the partners or officers and directors to the legal entity.

Another relevant change is contained in paragraph 4 of the new wording of article 50. This provision expressly establishes that the mere existence of an economic group does not authorize piercing of the corporate veil of the legal entity in order to reach the equity of parent companies or affiliates. The article in question formalizes the understanding that, even in cases of an economic group, it is necessary to demonstrate the requirements have been met, either of misuse of purpose or of mixing of assets among the companies.

Although the premise that the legal entity is not to be confused with the economic group is obvious, there are judgments that admit improper loosening of the institute of piercing of the corporate veil. To this end, they find that the existence of an economic group gives rise to a presumption of fulfillment of the requirement of mixing of assets, especially when one of the companies is in judicial reorganization or insolvency, or even in the case of family businesses.

The fact that the new wording makes it clear that the existence of an economic group, by itself, does not allow piercing of the corporate veil will hinder the abuses committed based on the improper loosening of the institute.

Thus, the changes brought about by the new law regarding piercing of the corporate veil, while privileging the equity autonomy of companies, make the scenarios for application of the piercing more restricted, which is positive, since piercing of the corporate veil must be exceptional.

^[1] Article 1,024. The private assets of the partners cannot be foreclosed on for the debts of the company, only after the corporate assets have been executed.

Category: Labor and employment

In the previous article, we discussed the measures that can be taken by startups to protect their intellectual capital and the strategic information of their businesses by means confidentiality obligations and obligations relating to intellectual property.

Now we will discuss non-compete and non-solicit obligations.

Although these obligations are inherent in the employment relationship in the course of the employment contract, there is no specific legislation governing the scope of these obligations after termination of employment.

In any event, the Labor Courts maintained the understanding that it is fully possible to agree on non-compete obligations even after the termination of employment of employees and executives provided that the parties expressly define:

• the competing companies and/or the market segment in which the employee will not be able to work;

• the geographic area of the non-compete obligation;

• the time frame for the restriction agreed upon with the employee, which may not exceed 24 months after termination of employment; and

• the amount of compensation to be paid in consideration for the restriction, which must be compatible with the compensation previously received and take into account the extent of the scope of the restriction agreed upon with the employee.

In addition, it is recommended that post-employment non-compete obligations be agreed upon as soon as the employment contract is signed. Such a measure is intended to prevent employees from claiming in the future that the imposition of this obligation during the term of employment was a detrimental change, which could render the instrument void and the non-compete obligation unenforceable.

Recently, the Labor Courts even granted an injunction^[1] in favor of a company ordering an employee to refrain from working with a competitor after resigning, as his employment contract contained an express provision regarding the non-compete obligation upon termination of the relationship between the parties.

The decision was based on the fact that the conduct of the employee, who had access to confidential and strategic company information, could harm his former employer and, as a discouraging measure, imposed a fine of 60 thousand Brazilian Reais per day.

In addition to non-compete obligations, parties may also agree that employees are prevented from pursuing customers or inducing employees of the former employer to join them at a new company. Known as a non-solicit obligation, this restriction differs from the non-compete obligation as it generally does not require the payment of consideration. On the other hand, its enforceability is complex since it is difficult to prove breach.

Given the dynamics and daily life of startups, agreeing on non-compete and non-solicit obligations is critical and of utmost importance to maximize the protection of the company’s confidential and strategic information.

^[1] Case No. 000643-06.2019.5.02.0062.

Category: Labor and employment

There is much discussion today regarding the best ways to decommission, to deactivate, the rigs used in the oil and gas exploration and production process, as most of them are approaching or are already at the end of their useful life.

The discussion around decommissioning is relevant considering the numerous technical and legal impacts that the process can have. It is therefore essential to conduct it in accordance with the best practices observed around the world.

According to the IHS Markit Offshore Decommissioning Study Report,^[1] about 600 offshore units worldwide will be decommissioned over the next five years and decommissioning spending is expected to increase by approximately US$ 2.4 billion in 2015, to US$ 13 billion per year by 2040.

In Brazil, more than 160 offshore units are in operation, according to the ANP (National Agency of Petroleum, Natural Gas, and Biofuels), and 67 of them have been operating for over 25 years. Within this universe, there are 74 fixed platforms scheduled to be deactivated. In approximately 20 cases, the report to the ANP has already been sent and the decommissioning is already scheduled starting in 2020.

Considering the high cost of decommissioning an oil rig and the increased need for this service, it is expected that the process will attract investments from companies operating in this area in the coming years, which should generate new business and jobs.

Given this, it is essential to discuss the legal impacts arising from decommissioning in different scenarios: regulatory, environmental, tax, and also labor, since the process requires the use of skilled labor.

Evaluating decommissioning from the strictly labor point of view, we believe that Law No. 5,811/72 is applicable to employees who will render services in this area. This is because, as is well known to those who operate in the industry, this legislation contains various provisions for employees who work on platforms, such as the possibility of remaining on board for up to 15 days, among other rules that distinguish employees of this industry from others, which use the Consolidated Labor Laws (CLT) as the sole form of regulation.

Without this law, the exploration and production of oil and gas in Brazil would be practically impossible, due to the adversities and peculiarities of the activities involved.

In this sense, considering the challenge in the rig decommissioning process, which prevents employees from coming and going on the same day, as would be the case with any regular worker in another industry, the application of the rules established by Law No. 5,811/72 are of paramount importance in carrying out the activities provided for.

Article 1 of the law states, however, that it applies only to employees “who provide services in exploration, drilling, production, and oil refining, as well as the industrialization of shale, the petrochemical industry, and transportation of oil and its derivatives through pipelines.”

Based on an isolated analysis of the legal provision, it would not be possible, therefore, to ascertain its applicability to employees who will provide decommissioning services, as this activity is not explicit in the text. Therefore, it is necessary to analyze the issue together with the technical standards issued by the regulatory agency, the ANP.

According to article 1 of ANP Resolution No. 27/2006, which regulates the decommissioning of facilities used for exploration and production, this process is part of the oil production phase: “The Technical Regulation defining the procedures to be adopted in the decommissioning of facilities and specifying conditions for the return of concession areas in the production phase is approved.”

Thus, considering that the agency responsible for issuing technical standards related to the exploration and production of oil and gas in Brazil expressly relates decommissioning to the production phase, it may be concluded that the process is covered by Law No. 5,811/72, since, as specified in its article 1, the legislation applies to employees who also work in this stage of the production chain.

^[1] Available at: https://news.ihsmarkit.com/taxonomy/term/46897