Category: Labor and employment

Law No. 13,467/17 (the Labor Reform) inserted article 652, f, into the Consolidated Labor Laws (CLT), thus expanding the jurisdiction of the Labor Courts to decide on the ratification of extrajudicial settlements. However, even with this change, parties (companies and workers) are having difficulty having these settlements ratified at trial level, since the judges allege the supposed unconstitutionality of article 652, f, of the CLT.

This was what happened in April of 2018, in case No. 0010308-45.2018.5.03.0038, in which the judge of the 4th Labor Court of Juiz de Fora (MG) dismissed, without resolution on the merits, pursuant to article 485, VI, of the Code of Civil Procedure (CPC), an extrajudicial settlement entered into between a company and a former employee, on the grounds that article 652, f, of the CLT is unconstitutional: "Obviously, the new letter "f” of article 652/CLT is unconstitutional, since it makes this branch of the Judiciary a settlement-ratifying body, completely foreign to its constitutional mission."

Against this decision, the company appealed, and the Court of Labor Appeals (TRT) of the 3rd Circuit, unanimously, in October of 2018, granted relief to the Ordinary Appeal filed so as to recognize the constitutionality of article 652, "f", of the CLT, as well as to fully ratify the settlement between the parties.

In the opinion of the Judge writing for the Court, Appellate Judge Ricardo Marcelo da Silva, the legislature, in enacting Law No. 13,467/17, gave the parties the power to directly resolve the conflict themselves. In addition, the Judge of the case stated: "In fact, the restrictive interpretation suggested by the decision raised on appeal is pathological in that it advocates the need for judicial intervention to resolve any type of labor conflict, regardless of the levels of complexity and controversy involved. The obstacle to a direct and amicable conciliation between workers and employers in cases such as this one violates the principles of fraternity and legal certainty and the right to freedom, which are provided for in articles 3, 5, and 6 of the Constitution."

In our view, an understanding such as that handed down by the Judge of the 4th Labor Court of Juiz de Fora renders ineffective the self-conciliation so celebrated by the Judiciary, whose purpose is the valuing of spontaneous attempts at conciliation of the parties, in order to relieve the Labor Judiciary.

This is because, as highlighted by the reporting judge in the case in question, with extrajudicial conciliation, the parties chose this means to resolve the conflict and entered into a settlement by consensus, and the instrument drawn up has the nature of a perfect legal act, as provided for in article 5, XXXVI, of the Federal Constitution.

By permitting this modality of conciliation, the legislator granted the effect of general release, there being no plausible justification for invalidating a declaration of will manifested in the settlement, and it is the duty of the Judiciary to ratify it, under penalty of being compelled to violate the principle of objective good faith which should guide contractual relations and benefit the moral turpitude of one of the litigants.

There is no doubt that, in these types of settlements, there is a convergence of interests, as the out-of-court settlement reflects the will of both parties.

Even almost a year after the enactment of Law No. 13,467/17, there is great resistance on the part of judges to ratify extrajudicial settlements, whether based on a declaration of the unconstitutionality of this article of the CLT or due to the creation of internal norms, such as those of the Judicial Center for Dispute Settlement Methods of the Court of Appeals of the 2nd Circuit (Cejuscs-JT-2), which greatly hinders the parties' self-conciliation.

In any event, the TRT of the 3rd Circuit, together with many other courts of appeal, has correctly recognized that there is no longer any way to deny the possibility of ratification of extrajudicial settlements in the Labor Courts, since the aim of the legislature, with the enactment of the Law No. 13,467/17, certainly encouraged the parties' autonomy in self-conciliation, thus preventing litigation arising from the labor relationship maintained between them.

Category: Infrastructure and energy

In September, BNDES approved four credit transactions for three different companies in the rail sector, totaling almost half a billion Brazilian Reais for the revitalization of lines, maintenance of equipment, and purchases of new railcars and machinery. This measure is in line with the new governmental policies and directives for the promotion of the railway sector, which, since 2007, when the North Section of the North-South Railroad was subject to a sub-concession, has been suffering from a lack of consistent privatization projects.

For example, the Logistics Investment Plan (PIL), launched in 2012, provided for R$ 91 billion in investments in a package of ten thousand kilometers of railway line to be built on 12 different routes. The model failed because of both the inability to prioritize and regulatory uncertainty: open access and separation of infrastructure and transportation activities, with take-or-pay remuneration by Valec, was not convincing, and therefore none of the projects got off the drawing board. PIL II, in turn, launched in 2015, was more conservative. Based on the previous model of vertical exploration concession, it provided for four thousand kilometers of rail lines concentrated in only four projects, which as of today have not yet been executed.

The Investment Partnerships Program (PPI), inaugurated by Law No. 13,334/16, incorporated the four priority projects of PIL II, but with important regulatory differences and differences in trajectory. Combined with Law No. 13,488/17 and the National Logistics Plan (NLP), approved in 2018, the PPI finally presented the minimum conditions for railway projects to be executed through administrative processes consistent with our legal system. Concern with the logistical diversification of means of transport, and especially with national railway development, intensified due to the recent truck drivers' strike, which, in turn, gave more traction those administrative processes.

Essentially, the PPI signals to the market the government's strategy to promote the development of the national rail network through investments in prequalified projects contemplated in PNL Scenario 2025, which proposes the construction of 3,200 kilometers of railroad lines provided for in the Advance Partnerships Program, which are:

1. Sub-concession of the EF-151-Rail North South (FNS-TC) line, which links Estrela d'Oeste/SP to Porto Nacional/TO. The FNS-TC line was recently approved with some recommendations and determinations by the Federal Audit Court (TCU), which when met by the ANTT may trigger, in 2018, publication of the public bidding notice;

1. Sub-concession of the EF-334-Rail West-East Integration Railway (FIOL) line, an important corridor for the southern part of the state of Bahia, which links Caetité/BA to Ilhéus/BA. Currently, the FIOL line is in the process of public consultation to receive support and contributions to the technical, legal, and economic and financial documents published by the ANTT; and

1. The concession of the EF-170 (Ferrogrão) line, which links Sinop/MT to Itaituba/PA, and which was submitted for public consultation and now awaits the publication of a report by the ANTT.

At the same time, the PPI considered strategic the expansion of the capacity of railroads already granted via concession to the private initiative. In these terms, based on the terms of Law No. 13,488/17, the extension anticipated for some railroads whose concessionaires have requested extension of the term in return for additional investments is in an advanced stage. Such additional investments may occur not only in the network itself, but also in those of interest to the Public Administration, with the PPI and MTPA having made use of this legal permission to pre-qualify the Central-West Integration Railway (FICO) and the São Paulo Rail Beltline also as priority projects.

The strategic planning provided by the PNL, the system for prioritization of projects by the PPI, and the publishing of appropriate legal frameworks have raised the government's decision to promote the development of the national rail network through new investments, particularly private ones, to a higher level of viability and seriousness. In order for the pace not to be lost, the challenge for the next government will be to expand the range of railway projects, rather than to concretize those already pre-qualified, which will require schedule discipline, modeling quality, attractiveness to private investment, and, above all, commitment to Brazil's international competitiveness and participation.

Category: Infrastructure and energy

The infrastructure financing sector in Brazil has undergone significant structural and strategic changes in the last two years. These changes were mainly focused on the strategic redefinition of the National Economic and Social Development Bank (BNDES), which has gradually withdrawn from its centralizing role in financing transactions to assume a profile more complementary to the capital market, with new financing conditions and the adoption of the Long-Term Rate (TLP), which replaced the Long-Term Interest Rate (TJLP).

This new scenario opened up a greater window of opportunity for the private sector to finance infrastructure projects through the capital market. However, the replacement of BNDES in financing transactions will not occur automatically. As long as the private sector has not found a long-term alternative, projects have tended to suffer from a lack of funding.

An alternative to traditional fund raising via capital markets is project bonds, already well known in the foreign market. They are generally tied to a longer maturity, between 20 and 30 years, and more standardized instruments, with high liquidity, easy circulation among investors, and fixed interest rates. With them, it is even possible to raise funds from ordinary investors, although institutional investors are traditionally still responsible for a larger share of the funding.

These credit instruments have as a source of payment the revenues generated by the projects to which they are linked. They are independent from a strong provision of guarantees by the developers and are traditionally based on the guarantees generated by the development itself. This gives them significant advantages over other forms of financing, in order to isolate the risk of a project's outcome, as well as the flexibility for placement in the market, guaranteed by the issuer itself.

In the Brazilian scenario, the main instrument that fulfills this role, and the one most in line with international examples, is the infrastructure debentures benefited by Law No. 12,431/2011.

Incentivized debentures are, in essence, the modality of the local market for project bonds, and stand out, since their establishment, in relation to all other instruments offered. Generally, the debentures are issued for the financing of long-term infrastructure projects and give investors tax benefits that make investment in domestic projects more attractive. However, the debentures depend on the ministry relevant to the sector to prioritize the candidate project for investment.

The year 2018 recorded records in the financing of infrastructure projects based on this kind of project bond. In the year prior, incentivized debentures in infrastructure had already been one of the investments with the highest degree of growth: more than R$ 9 billion placed to raise funds in the market. In 2018, there were another R$ 11 billion issued in sixteen transactions in the first half of this year alone.

The expectation is wide and abundant growth for the near future and, although there are still uncertainties in the market regarding the security of the new government's economic policy, more than 450 new projects have already obtained authorization through ministerial orders to raise funds in the market via incentivized debentures. These projects represent total investments in the R$ 250 million range, only through the Brazilian variation of project bonds.

More than half of the incentivized debentures issued in 2018 were linked to new projects, which represents a strengthening not only of the capital market, but of the infrastructure sector as a whole and encourages, as a basis, the growth of other alternative forms of financing, such as public offerings of promissory notes, real estate funds, financial bills, and CRIs.

The 2018 growth in issuances of debentures in infrastructure, which are supposed to exceed by the end of this six-month period more than three times the amount issued in 2016, was mainly driven by the federal government's commitment to promote the area, especially the portfolio in the energy sectors (a large flagship), transportation, and basic sanitation, and changes in policies established since September of 2016. The security of these sectors, which have become more stable by having more solid regulations, turns them into a priority for investors.

These measures generated a strengthening of the capital market, which occupied the space provided by BNDES in financing for infrastructure projects, in a trend very much sustained by the interest of common investors, especially individuals attracted by the new, more competitive, and healthy rate of interest for the market, for longer repayment terms of these project bonds and for tax benefits. With the increase in the demand by the market for incentivized debentures, the price for the issuance fell, which made it even more competitive.

It is evident that the Brazilian debt market is developing and strengthening and that in this process incentivized debentures in infrastructure have become the most favorable instrument for raising funds in the sector. Although in rapid growth, they account for just over one tenth of the total investment in infrastructure in Brazil. To gain relevance, these transactions still need to undergo improvements in terms of both volume and soundness.

Category: Labor and employment

The extension of paternity leave and maternity leave for cases of birth of twins has generated recurrent discussion, although a bill on the subject was already rejected in 2009.

Currently, paternity leave is five days and can be extended for a further 15 days if the employer is enrolled in the Citizen Company Program, under the terms of paragraph 1 of article 10 of the Transitional Constitutional Provisions Act and article 1, II of Law No. 11,770/2008. However, such periods have been the subject of litigation before the Judiciary because they are considered insufficient in some special situations.

The Federal Circuit Court of Appeals of the Southern Circuit has been more flexible in this regard and has in some cases recognized the right to extend the period of leave to parents of twins. The decisions were based on the Principle of Integral Protection of Children, on the argument that two children need two parents at their disposal: if only one child has the mother available for 180 days, the second child would have the right to have the father available for an equal period of time.

Along the same lines, a judgment was recently handed down by the 1st Federal District Court of Florianópolis, in case No. 5009679-59.2016.4.04.7200/SC, filed against the Federal Attorney General's Office. After an analysis of the principles and history behind the institution of maternity leave, the federal judge granted an extension of paternity leave based on an analogical application of article 392-C of the Consolidated Labor Laws (CLT), which guarantees to employees who adopt or obtain legal custody for adoption purposes enjoyment of leave for the whole period of maternity leave.

There is, however, much controversy on the subject. In a similar case, the Judiciary of the State of Pernambuco rejected a request for extension of leave made by a future father of twins during the mother's pregnancy. It was argued that there was no legal basis for extending the leave, which led the father to reduce his work day and resort to the help of relatives and nannies.

His petition was reassessed and granted relief in a recent decision on appeal, when his daughters had already been born for ten months.

Demands such as these are still not frequent in the Labor Courts, but the precedents of the circuit courts of appeals of Santa Catarina and Pernambuco reveal a possible tendency in the extension of paternity leave in specific situations, such as when it is understood that there is unequal legal treatment of a single baby who has the mother at his full disposal, compared to twins who would share the mother's attention during the leave.

In cases of extension of paternity leave, employment agreements are suspended for the period, and the employee cannot be terminated.

Category: Labor and employment

Ordinance No. 1,287/2017, published in December by the Ministry of Labor, prohibits the granting of a "negative service fee" under the Worker's Food Program (PAT). This fee represents a discount granted by meal and food card operators as a way to become more competitive and attract customers. In practice, the purchasing company acquires a monthly credit to be distributed via cards to its employees, but disburses a smaller amount due to the discount granted.

Because it is a common practice, the promulgation of the ordinance caused great concern among companies that contract for this type of service, afraid that they will have their registrations with the PAT canceled. The consequences would be even alarming, since the cancellation of registration may result in assessments, fines, and collection of tax and social security payments, even retroactively.^[1]

The issue gained new prominence in March of this year when the Ministry of Labor confirmed in Technical Note No. 45/2018 that the prohibition on the negative service fees also applied to contracts signed before the publication of Ordinance No. 1,287/2017. Consequently, a large number of lawsuits were filed by companies that contract for these services and subsequent injunctions were granted to suspend the effects of the technical note and the ordinance.

Pressed, the Ministry of Labor chose to revoke Technical Note No. 45/2018 in an opinion signed last August 28. However, the relief for businesses is only apparent.

Contrary to what one might imagine, the Ministry of Labor did not reconsider its understanding. On the contrary, despite acknowledging "the chaos created" and that the technical note was "inopportune", the body ratified its position by saying that the content of the note was "valid, legitimate, and effective" and concluded its opinion stating that it is the duty of the tax auditor, at the time of the audit, to “enforce" the application of the text of Ordinance No. 1,287/2018.

In this context, the possibility of assessment of companies that have contracts with the application of negative service fees has been strengthened. Given the high risks to which they are exposed, it is strongly recommended that companies in this situation review and consider taking some measures, including legal measures, to mitigate them.

^[1]Registration in the PAT allows companies to deduct from their taxable income, for the purposes of Corporate Income Tax, expenses with employee food programs. In addition, it removes the salary nature from the benefit offered to employees and exempts from social security payments over the amounts granted.

Category: Tax

On March 15th, 2017, the Federal Supreme Court (STF) judged Extraordinary Appeal No. 574.706/PR (with recognized general repercussion), in which it was established that the ICMS is not included in the tax base for contributions to PIS and Cofins.

After the decision was handed down, on March 15th, 2017, the Attorney General of the National Treasury filed a motion for clarification (which is still awaiting a decision) in order to request (a) temporal softening of its effects and (b) clarification regarding the amount of ICMS subject to exclusion from the tax base for contributions to PIS and Cofins.

Nevertheless, on October 18th, 2018, the RFB, by its General Coordination of Taxation and its General Coordination of Administrative and Judicial Litigation, issued Cosit SCI No. 13, which provides several considerations about item 'b' above.

In order to comply with final and unappealable court decisions that deal with the exclusion of the ICMS from the tax base of Contributions to PIS/Pasep, in the cumulative or non-cumulative determination regime, the following procedures must be observed:

1. a)the amount to be excluded from the monthly tax base of the contribution is the monthly value of ICMS to be collected, according to the understanding reached in the judgment of Extraordinary Appeal No. 574.706/PR, by the Federal Supreme Court;
2. considering that to determine the Contribution to PIS/Pasep for the period the legal entities segregate the calculation and record of each monthly tax base, according to the Tax Situation Code (CST) established in the legislation regarding the contribution, it is necessary to segregate the monthly amount of ICMS to be collected in order to identify the ICMS installment to be excluded in each of the monthly tax bases for the contribution;
3. said segregation of the monthly ICMS to be collected, for the purpose of excluding the proportional value of the ICMS in each of the tax bases of the contribution, shall be determined based on the percentage ratio between the gross revenue related to each tax treatment (CST) of the contribution and the total gross revenue received each month;
4. to determine the ICMS amounts to be collected, calculated, and recorded by the legal entity, it is preferable to consider the amounts recorded in its ICMS and IPI digital tax books (EFD-ICMS/IPI), which are transmitted monthly by each of its establishments that are subject to said tax; and
5. in the event that the legal entity is exempted from recording an ICMS entry in the EFD-ICMS/IPI in some of the periods covered by the final judicial decision, it may alternatively prove the values ​​of the ICMS to collect, month by month, based on the tax collection forms, attesting to their payment, or via some other means that are able to demonstrate the ICMS amounts to be collected, defined by the States with jurisdiction over each of its establishments.

Legal Provisions: Law No. 9,715, of 1998, article 2; Law No. 9,718, of 1998, articles 2 and 3; Law No. 10,637, of 2002, articles 1, 2, and 8; Decree No. 6,022, of 2007; Federal Revenue Service of Brazil Normative Instruction No. 1,009, of 2009; Federal Revenue Service of Brazil Normative Instruction No. 1,252, of 2012; ICMS Agreement No. 143, of 2006; COTEPE/ICMS Act No. 9, of 2008; ICMS Protocol No. 77, of 2008.

From an analysis of the excerpt transcribed above, two conclusions are necessary: (i) in the RFB's view, only the ICMS actually collected by the establishment (after the deduction of the non-cumulative credits and any tax benefits granted by states to taxpayers) may be subject to the exclusion from the tax base of the contributions to PIS and Cofins and; (ii) the monthly segregation of the ICMS to be collected, for the purpose of excluding the proportional value of the ICMS from the tax bases of each of the contributions, shall be determined by the percentage ratio that exists between the gross revenue related to each of the tax treatments of the contribution and the total gross revenue received each month.

Cosit SCI No. 13 makes clear the RFB's understanding on the matter. Therefore, taxpayers who adopt a different position about the exclusion of ICMS from the tax base of the contributions to PIS and Cofins, as well as those that record amounts collected in excess as credits (for eventual offset after final judicial decision), shall be contested.

Considering that Cosit SCI No. 13 lends itself to fulfilling final court decisions about the exclusion of ICMS from the tax base of the contributions to PIS and Cofins, taxpayers who have individual decisions that differ from the understanding settled in Cosit SCI No. 13 are authorized, in our opinion, to use their individual and concrete decisions instead of the one mentioned in the RFB act.

In light of the above, and especially the fact that the subject matter of Cosit SCI No. 13 is still awaiting a decision by the STF on the motion for clarification presented by the Attorney General's Office (which would prevent the RFB from promulgating rules on the subject), we understand that the interpretation adopted by the RFB is subject to questioning by taxpayers.

Category: Labor and employment

Every labor relationship is based on mutual trust between the parties. Every day, new products are created, new production techniques are implemented, and new markets are pursued. Employees have access to information that, if disclosed, may jeopardize the earnings of their companies and their very existence.

Trust, honesty, and loyalty in relationships with employees are therefore essential for companies to pursue their business strategies without fear that their practices will be disclosed to competitors and eventually undermine their relationship with the market.

Information of this nature is automatically protected during the course of the employment contract, which is governed by the principle of trust between the parties, but what happens after termination of the contract?

The Consolidated Labor Laws (“CLT”) or any other labor legislation has no answer to this question, but it can be found in the Industrial Secrets Protection Law (Law No. 9,279/96), which, in article 195, XI, determines that one commits a crime of disloyal competition when one "discloses, exploits, or uses, without authorization, knowledge, information, or confidential data, usable in industry, commerce, or the provision of services, excluding that which is within public knowledge or which is obvious to a person skilled in the art, to which he had access through a contractual or employment relationship, even after the end of the contract.”

Thus, most standard employment contracts already provide for a confidentiality clause that transcends the employment relationship. It so happens that, in view this legal provision, two other questions are posed: does this restriction prevent employees from obtaining a new employment position, thus violating the principle of free professional practice provided for in article 5, XIII, of the Constitution? From a technical point of view, what information should be considered confidential?

The answer to the first question is not simple. Employers often insert in the body of the employee's employment contract, regardless of the time, a non-competition clause, which may be understood as similar to the confidentiality clause, although different. If the jurisprudential understanding were that the two clauses resemble each other and should be performed together, there may be no limitation on the employee without due consideration.

Fortunately, the majority view in labor case law is that the two provisions are different, principally because the impediment on disclosure of the confidential information of the employer does not restrict the former employee's professional activity after termination of the contractual relationship, because the information is protected by law, and the performance in a competing company of similar or even identical functions to those previously performed is not protected by the confidentiality clause.

Since Law No. 9,279/96 itself defines what is considered confidential information, if the employee discloses information of public knowledge or that a specialist would be able to obtain for himself, it does not infringe on any provision of law. That is what is found from a simple reading of article 195, XI, of the Law. However, this framework covers any information that may be characterized as an industrial secret. In theory, if the employee discloses the values ​​of wages or benefits of the company, this could be considered breach of an industrial secret, given the scope of the principle.

The STJ has already handed down a decision to the effect that a protected industrial secrecy is that which is expressed by the employer during and after the employment relationship, such that indication of the points of the contract subject to protection must be carried out by the employer, lest that point not be protected in relation with its employees.

In the judgment rendered in the appeal pursuant to internal rules of court in an interlocutory appeal in the context of Special Appeal No. 21.167 RS, of the authorship of Justice Sidnei Beneti, in which the practice of unfair competition by a former employee was discussed because he had used confidential information obtained during the period in which he was employed by the appellant, it was emphasized that the employment contract entered into with the nonmovant party did not show any exclusivity and confidentiality clause for the information considered confidential by the employer. As a result of this omission, it was concluded that no crime of unfair competition occurred.

Therefore, it is recommended that employers draft in the contract an express clause containing the confidential information protected by industrial secret (Law No. 9,279/96).

Another controversial point on the subject is the jurisdiction to adjudicate suits whose cause of action relates exclusively to this subject. If the suit only deals with this issue, the jurisdiction is that of the Common Justice because it is an infraction against Law No. 9,279/96. However, the Labor Courts have constantly invoked this jurisdiction when there is another proceeding in progress involving both parties and it deals, even if remotely, with the same issue.

It should also be noted that ordinary suits have been accepted, with a petition for preliminary injunctive relief, to prevent the disclosure of confidential information in a preventive manner, provided that the imminent risk of disclosure of this information by the employee is demonstrated.

The subject is controversial and brings about many questions based on different perspectives. However, more and more lawsuits on this topic have reached the courts seeking to protect the industrial secrets of employers vis-à-vis their former employees.

Category: Public and regulatory law

Decree No. 9,507/18, published on September 24, extends the possibility of hiring outsourced workers by the direct federal public administration and public companies and companies controlled by the Federal Government.

After the judgment on the Objection of Breach of Fundamental Precept No. 324 and Extraordinary Appeal No. 958252, in which the Federal Supreme Court (STF) recognized the legality of outsourcing in all stages of the productive process of private sector business activities, the enactment of Decree No. 9,507/18 revoked Decree No. 2,271/97, which governed the same subject, but specifically established that activities should be performed indirectly (outsourcing): conservation, cleaning, security, surveillance, transportation, copying, reception, reprography, telecommunications, maintenance of buildings, equipment, and installations.

In addition, the former decree referred to the direct federal public administration, government agencies and foundations, while the new decree covers public companies and companies controlled by the Federal Government.

With its entry into force set for January 22 of next year (repeal period of 120 days), Decree No. 9,507/18 will be in line with Law No. 13,467/17 (the Labor Reform), which extended the concept of outsourcing. The text of the decree provides for the publication of an act by the Ministry of Planning, Development, and Management that will define the services to be hired preferentially through outsourcing.

The new decree concentrates its provisions on an indication of situations in which the use of outsourcing is prohibited. For the direct federal public administration, government agencies and foundations, services may not be outsourced when they: (i) involve decision-making in the areas of planning, coordination, supervision, and control; (ii) are considered strategic for the body; (iii) are related to police, regulatory, public service, and sanctioning power; or (iv) are inherent to the functional categories covered by the body's career plan, except for when there is a legal provision to the contrary or in the event of an extinguished position within the scope of the general staff.

Auxiliary, instrumental, or ancillary activities to the abovementioned services may be carried out by outsourced workers, except for activities related to the exercise of police power, which cannot be performed indirectly.

For public companies and companies controlled by the Federal Government, services that require the use of professionals with assignments inherent to the positions included in their job and salary plans cannot be outsourced, except in cases of temporary services, technology upgrades, or service specialization, and also when the company cannot compete in the competitive market in which it operates.

The new decree stipulates that contracts entered into with outsourced companies must contain clauses that cover the labor risks to which the public administration is subject, since there is only secondary responsibility on the part of the public administration when it fails to properly supervise the obligations assumed and provided by the company hired.

Category: Tax

The tax amnesty enacted by the Rio de Janeiro State was just regulated through Decree 46.453/2018, published on October 11, Resolution Sefaz 333/2018 and Resolution PGE 4280/2018, both published on October 22. The deadline for enrollment into the amnesty program is of 30 days from November 1, 2018.

According to this program, the taxpayer can settle tax debts related to ICMS, IPVA (in the case of natural persons) and fines imposed by the State Accounting Court, with an amount higher than 450 UFIR-RJ (currently BRL 1,482.25), with due dates before June 30, 2018, whether assessed or not, enrolled into the State outstanding debtors list or not and including those already being collected in court.

Benefits

The program allows the payment of the consolidated tax debt (updated amount plus fines and interest) according to the following alternatives:

(i) a lump sum payment, paid up until the last working day of the issuance month of the payment form (DARJ), with a reduction of 85% of fines and 50% of default interests;

(ii) in 15 installments, with a reduction of 65% in fines and 35% of default interest;

(iii) in 30 installments, with a reduction of 50% in fines and 20% of default interest; or

(iii) in 60 installments, with a reduction of 40% in fines and 15% of default interest.

Debts related exclusively to fines resulting from non-compliance with ICMS’ obligations, whether or not enrolled into the State outstanding debtors list, can be included in the program if the fault occurred until March 31, 2018, according to the following payment alternatives:

(i) in a lump sum payment, paid up until the last working day of the issuance month of the payment form (DARJ), with a reduction of 70% of fines and 50% of default interest;

(ii) in 15 installments, with a reduction of 55% in fines and 35% of default interest;

(iii) in 30 installments, with a reduction of 40% in fines and 20% of default interest; or

(iii) in 60 installments, with a reduction of 20% in fines and 15% of default interest.

The law also allows taxpayers to cumulate these discounts with the fines reduction provided by the articles 70, 70-A, 70-B and 70-C of Law 2.657/96, which are:

(i) 50% in the case of payment within 30 days counted from the date of the knowledge of the Tax Assessment;

(ii) 20% in the case of payment within 30 days counted from the knowledge of the 1st administrative instance’s decision;

(iii) 10% in the case of payment within 30 days counted from the knowledge of the 2nd administrative instance’s decision;

(iv) 90% and 70% for fines for not complying with ancillary obligations, if these have been settled within 30 days or before the tax inspection, respectively; and

(v) 50% in penalties for infractions committed by micro and small enterprises, defined by Federal Complementary Law 123/2006.

Procedure for enrollment of debts not registered in State outstanding debtors list

Before the enrollment into the program, taxpayers should be aware of all pending decisions and give up administrative defenses. Taxpayers with access to the Fisco Fácil Portal should be aware of the notifications in the portal and electronically give up administrative defenses.

If the taxpayer does not have access to the Fisco Fácil Portal or has opted to partially withdraw from the administrative defenses, it is necessary to file the waiver personally in the State Revenue Office and, in the same act, to require the enrollment of debts in the Complementary Law 182/2018 program.

For taxpayers with access to the Fisco Fácil Portal, the request must be formalized exclusively through the website for the cases of (i) tax assessment with fine; (ii) infraction notices with only fines; (iii) declared debts of ICMS regarding own operations; (iv) declared debits of ICMS regarding internal tax substitution; (v) declared debts of ICMS regarding interstate replacement; and (vi) declared debits of ICMS regarding differential of rate, regulated by EC nº 87/2015. In the case of other debts, the enrollment must occur through a petition filed with the designated State Revenue Office.

The taxpayer who does not have access to the electronic portal must submit a request for enrollment in the designated State Revenue Office, according to the form that will be available in Sefaz website, for each establishment’s state registry.

After the enrollment, taxpayers will receive a proceeding number to follow up the status of their payment in installments program.

For lump sum payments, the deadline is November 30, 2018. For installment payments, the first installment must be paid in November 30, 2018, and the other installments will expire on the 10th day of each month. Payments will be made exclusively at Bradesco Bank.

There will be no charge for state service fees in cases of installments requested through the Fisco Fácil Portal and in requests for lump sum payments.

Procedure for enrollment of debts registered in State outstanding debtors list

Enrollment of debts registered in the State outstanding debtors list into the special payment program, in the case of lump sum payment, may be made by the following means:

(i) through a form issued in the State Attorney’s Office website, filed with Central State Attorney's Office or designated Regional State Attorney's Office, and the payment form (DARJ), which is payable exclusively in the Bradesco Bank, within a maximum period of 5 (five) days or until the last working day of the month, whichever occurs first;

(ii) directly on the website of the State Attorney's Office, with the issuance of the payment form (DARJ), which is payable exclusively in the Bradesco Bank, within a maximum period of 5 (five) days or until the last working day of the month, whichever occurs first; or

(iii) by agreement with the correspondence which may be forwarded by PGE, by payment in a lump sum payment, exclusively in the Bradesco Bank, within the deadline set forth in the payment form (DARJ) sent.

Enrollment of debts registered in State outstanding debtors list into the special payment program, in the case of installment payment, will be done exclusively via a form issued in the State Attorney’s Office website, filed with Central State Attorney's Office or designated Regional State Attorney's Office. In addition to the referred form, the taxpayer must submit the following documents:

(i) power of attorney with specific powers of confession, in the case of an application by a proxy;

(ii) consolidation of the company's social contract;

(iii) National Registry of Legal Entity (CNPJ) card;

(iv) proof of establishment for companies and proof of residence for individuals;

(v) proof of the payment of the first installment, through the DARJ issued by the State Attorney’s Office website;

(vi) a copy of the petition waiving the right on which an action is based or any judicial measure referring to the debit enrolled;

(vii) a copy of the declaration for be made aware of the existence of Tax Enforcement, in accordance with the form established by the State Attorney’s Office;

(viii) Assumption of Responsibility issued in the State Attorney’s Office website, duly signed by the company’s administrator or by his proxy.

The amount of legal fees due to the Public Attorneys of the State of Rio de Janeiro in the case of enrollment into the program will be:

(i) for the debts enrolled into the State outstanding debtors list which are not objects of tax enforcement: 3% for a lump sum payment and 6% for installment payments; and

(ii) for the debts which is being collected in court: 4% for a lump sum payment and 8% for installment payments.

These amounts relate only to the enrollment into the State outstanding debtors list or to the filing of the Tax Enforcement. In addition to these amounts, the fees fixed in other proceedings whose objects are the debts paid will be due in full.

The State Attorney’s Office System shall formalize the liquidation of the installment payment, when the revenue from the value of each of the installments is confirmed.

General terms and conditions

Taxpayers can use LC 182/2018 to pay (i) the remaining amounts of the consolidated tax debts of previous payment in installments programs, except for those related to other amnesty or remission programs; (ii) the ICMS related to tax substitution; and (iii) fines resulting from non-compliance with ancillary obligations.

It is expressly prohibited the payment of tax debts enrolled into the program with the conversion of judicial deposits into State’s revenue. Therefore, taxpayers must have to pay the amount due with the relevant reduction stated in the amnesty program and then request the withdrawal of the judicial deposit.

The enrollment into the amnesty program implies in the irrevocable and irreversible confession of the tax debt, expressly renounces of any defense or administrative or judicial appeal as well as the withdrawal of those already filed. If there is an administrative proceeding in progress regarding the debt, the taxpayer must have to inform the waiver of defenses and appeals within 30 days counting from the enrollment into the amnesty program.

The enrollment into the amnesty program requires the regularity of the taxpayer over the entire installment period. Taxpayers can be excluded in case of (i) non-payment of three consecutive installments; (ii) existence of unpaid installment for more than 90 days; and (iii) default or irregularity of any other principal or ancillary obligations due for more than 60 days, which will be regulated by a Joint Resolution to be issued by State Revenue Office and State Attorney’s Office.

The taxpayers can be notified about issues involving the enrollment of debts by electronic means, through the Taxpayer's Electronic Domicile (DEC) or by the e-mail provided in the enrollment form.

Category: Compliance, investigations and corporate governance

Law No. 12,846, also known as the Anti-Corruption Law, was enacted five years ago, on August 1^[1]. Not only an important improvement in the legal framework to combat corruption, it has led to the strengthening of a culture of integrity and corporate governance in both private and state-owned companies.

The glass half full

Firstly, there was a shift in focus in order to concentrate anti-corruption efforts on the role of the corruptor, especially legal entities and economic groups. Prior to Law No. 12,846, anti-corruption enforcement in Brazil focused on sanctioning government officials and public servants.

The Anti-Corruption Law brought in strict liability in administrative enforcement, without the difficult task of proving intent, willful misconduct or culpability of the individual. In addition to facilitating the fight against illegal payments through administrative sanctions proceedings (speedier and more objective, without the rigidity and excessive guarantees typical of criminal proceedings), strict liability encourages companies to invest in the prevention of unlawful conduct and in the promotion of a culture of compliance.

As the unlawful acts committed by employees began to give rise to direct liability for companies, even if carried out without authorization or even the knowledge of the organization, companies began to invest more heavily in compliance and integrity programs, monitoring, codes of conduct and internal policies, corporate training, employee awareness, and complaint channels, among others. According to a survey by KPMG and Amcham in 2017, "compliance" and "integrity" are among the top three priorities of companies, and about 60% of Brazilian companies have increased significantly their compliance investments in recent years.

There has also been a change in the perception of reproach, as society and public authorities come to understand that the role of the private corruptor should be as repudiated as that of the corrupt government official. Historically, corruption was combated by the Criminal Code, with crimes of active bribery (article 333 - offer or promise an undue advantage to a public official) and passive bribery (article 317 - request or receive an improper advantage due to a public function), as well as other laws focused on government officials and public agents, such as the Law on Administrative Misconduct (Law No. 8,429/92) and the Law on Public Tenders (Law No. 8,666/93). Today, corruption is combated primarily by the punishment of corrupt legal entities, especially by using monetary sanctions (fines and disgorgement of unlawful advantages) and non-monetary sanctions (prohibition on contracting with the government, loss of incentives, suspension of activities).

It has also become clear that legal punishment is not the only way to achieve ethics and integrity in the corporate world: in the era of transparency and full information, responses by the market, consumers, and employees may bring about extremely costly reputational sanctions for corrupt companies, such as devaluation of stock prices,^[2] loss of sources of financing, rejection of products by consumers, and flight of talent, among many others. Likewise, integrity awards encourage ethical conduct and compliance practices, such as compliance awards, transparency and governance rankings, appreciation of shares,^[3] and creation of intangible value. Further: companies punished that enter into leniency or deferred prosecution agreements tend to act as “watchdogs” in the markets in which they operate, as they, with more stringent rules, have a competitive disadvantage compared to competitors who commit unlawful acts.

The Anti-Corruption Law has also created an administrative liability framework capable of imposing sanctions on an entire business group. Article 4, paragraph 2, extended strict liability to the economic group, including controlling, controlled, affiliated companies or consortium members. In spite of the valid intent to stimulate the fight against corruption in the context of economic conglomerates, the Anti-Corruption Law has not created clear parameters to define the scope of this joint and several liability, especially in the context of equity investments and mergers and acquisitions. The authorities need to use this mechanism in enforcements against conglomerate entities and their shareowners only to the extent that they contributed to the commission or perpetration of an unlawful act.

Another significant change was the expansion of monitoring and due diligence work for entities outside the organization. For example, one of the criteria for assessing the effectiveness of a compliance system is the existence of due diligenceinto third parties, which includes suppliers, distributors, representatives, and agents. In other words, the outsourcing of the activities and the risk of unlawful conduct can no longer be used as an excuse to perpetuate irregular conduct. Likewise, in the context of acquisitions and investments, it is advisable to conduct diligence into the companies acquired in order to mitigate the risk of succession for liabilities related to unlawful conduct.

In addition, the new legal system creates a strong incentive for officers and directors to act diligently, preventatively, and proactively. Traditionally, the criminal liability of officers and directors depended on proof of their actual participation in wrongful acts, whether with intent (even in the softened modality of assumption of risk) or culpability (the modalities negligence or omission). A recent precedent of the Federal Supreme Court (Criminal Action 470, known as "Mensalão") expanded criminal liability of officers and directors with the so-called “fact domain theory”, which resulted in punishing officers and directors who, having a special duty to act and prevent unlawful acts by virtue of their supervisory position, permitted (by intent or culpability) unlawful acts of employees under their supervision. As a result, officers and directors began to invest more heavily in training and tools for monitoring and control in their reporting lines.

It is worth noting that the system of administrative liability of companies has been able to achieve greater efficiency in conducting investigations and recovery of funds than the traditional proceedings of criminal law. Through negotiated justice and collaboration, Brazilian authorities were able to enter into leniency agreements and recover significant sums from business groups.

In the scope of state-owned enterprises and state-controlled companies, the improvement of governance and compliance and integrity systems came about with the enactment of Law No. 13,303/2016 (State Companies Law) and other decrees^[4]. Among other goals, these rules introduced greater transparency and professionalism to the management of state-owned companies and, above all, are intended to curb (or reduce) the political appointment model for management positions, one of the main factors in the spread of corruption in Brazil. For example, the appointment of officers and directors of state-owned enterprises and state-controlled companies depends on minimum requirements for technical capacity, professional experience, and academic training and unblemished reputation,^[5] which makes it difficult for political parties to appropriate the positions thorough political appointments. Some types of appointments are expressly prohibited.^[6]

The half empty glass

If, on the one hand, the new Anti-Corruption Law proved able to improve the efficiency of prosecution of unlawful conduct, on the other, it revealed a lack of transparency among control and inspection bodies. We saw, in recent years, a lack of coordination and legal uncertainty among the public authorities to combat corruption. The Brazilian constitutional legislator was very generous in distributing competencies to bodies in charge of protecting administrative morality and the public purse.

The Public Prosecutor's Office (MP) is responsible for protecting public and social property at the federal and state levels.^[7] The Federal Accounting Court (TCU) and its state counterparts have the duty to supervise the use of public resources in general.^[8] The Attorney General's Office (AGU) reserved its mission to defend the interests of the Federal Government in and out of court, including against acts of corruption.^[9] In addition, Law No. 10,683/2003 created the Federal Comptroller's Office (CGU) as an advisory body to the head of the Federal Executive Branch in matters related to administrative morality. There are, therefore, four federal entities competing for space in the control of corruption.

Brazil has a "multi-agencies" institutional design, where several public bodies and entities have the authority to carry out preventive and repressive actions regarding acts of corruption, in the administrative, civil and criminal spheres. If, on the one hand, a multi-agency system makes it difficult for the private entities to capture the State (since there will always be some public entity that is not integrated into the corrupt scheme), on the other hand, this system, if not working properly, can result in destructive competition between agencies and will bring enormous legal uncertainty to private defendants, which will ultimately discourage the use of leniency agreements. Currently, several leniency agreements entered into by the Federal Prosecutor’s Office (MPF) are being challenged by other anti-corruption authorities, in large part to protect their spheres of competence and institutional/corporate interest.

For example, at the request of the MPF, an injunction was revoked in an administrative misconduct action against an engineering company that entered into a leniency agreement, an injunction that decreed a freeze on its assets. In the context of an interlocutory appeal filed by the AGU,^[10] the 4th Federal Circuit Court of Appeals (TRF-4) ruled that the AGU's participation in the discussions regarding the full compensation of damages and the amount to be compensated was necessary. Therefore, the leniency agreement entered into with the MPF would not be valid, as it would depend on ratification by the AGU. Thus, until there is ratification by the AGU, the action of misconduct should continue and the assets should remain frozen.

More recently, the 13th Federal Criminal Court of Curitiba has prohibited the use of evidence obtained by Operation Carwash against informants and companies that confessed crimes and agreed to collaborate with the prosecutors in charge of the investigations.^[11] The decision directs the control bodies (such as the TCU and CGU) and other entities (such as the Central Bank, the Federal Revenue Service, and Cade) not to use evidence of the leniency agreements against cooperating parties without authorization. With this decision, prompted by a request by the MPF, informants and companies are now protected against a raid by other control bodies over the same illegal acts covered by a leniency agreement. For the prosecutors of the MPF, the measure is necessary in order to avoid having the legal uncertainty created by the lack of coordination among the various control bodies discourage new cooperating parties, thus harming the fight against corruption.

How then does one ensure the coordination of public authorities and legal certainty for parties to leniency agreements? This can occur, for example, through: (i) a process of adherence by the other bodies to leniency agreements entered into by one of them as a requirement to be able to use the evidence therefrom; (ii) the creation of cooperation agreements and memoranda of understanding between the authorities, to ensure coordinated action;^[12] (iii) legal rules that encourage effective cooperation between authorities, with peremptory deadlines for a response, under penalty of tacit consent; (iv) creation of a committee or commission with representatives of all bodies with the power to negotiate a unified leniency agreement for a given company; or (v) creation of leniency negotiation programs and policies approved by the authorities, such that leniency agreements signed by any authorities in compliance with these programs must honored by the other agencies.

And the future?

Without a doubt, the first five years of the Anti-Corruption Law have been very positive and there’s potential for even greater developments in the future. However, new measures will be necessary to continue to perpetuate the culture of ethics and corporate governance. Among the challenges ahead, we highlight the following: (i) expansion of powers and improvement of the CGU's structure and budget; (ii) creation of objective calculation criteria for the imposition of fines and other sanctions; (iii) changing the existing statutory limitation rules, which currently result in impunity; (iv) revision of the limits on judicial venue due to the prerogative of function for politicians; (v) promotion of cooperation among all control bodies to create greater legal certainty; and (vi) more debate about the expansion of the Anti-Corruption Law to also curb private corruption (as in the United Kingdom and France, for example).

The seed for an effective fight against corruption has not only been planted, as we are already reaping its first fruits. However, moving to a full-fledged culture of integrity takes longer, requires the steady support of society, and will likely take more than a generation.

^[1] In force as of January 1, 2014.

^[2] For example, with Operation Carwash, the market value of Petrobras went from R$ 380 billion in 2010 to R$ 120 billion in 2015. JBS and BRF had a 10.59% and 7.25% drop in their share price, respectively, when Operation Weak Meat (Carne Fraca) was launched.

^[3] Companies on the Corporate Governance Index of the BM&FBovespa registered appreciation in their shares 122% higher than shares of companies of the IBOVESPA. "The data confirm: good governance practices increase share prices" - Revista Exame, July 3, 2017.

^[4] For example, Federal Decree No. 9,203 (regulates public governance in the federal administration) and São Paulo Municipal Decree No. 58,093 (regulates public governance in public companies and state-controlled companies in the City of São Paulo).

^[5] The State Enterprises Law establishes minimum eligibility requirements for officers and directors (including the board of directors and board of executive officers): (i) 10 years of professional industry experience; (ii) 4 years with a managerial or executive position, a committee position, a member of a faculty or researcher, or a market professional; (iii) compatible academic training; and (iv) not be ineligible (following the provisions of Complementary Laws No. 64 and 135). An eligibility committee will be created to review the above requirements.

^[6] For example, the State Enterprises Law prohibits the appointment of representatives of regulatory bodies, ministers or secretaries of state, members of the decision-making structure of political parties in the last 36 months, trade unionists, representatives of entities that have signed contracts or partnerships with state companies as a person with other forms of conflicts of interest.

^[7] Federal Constitution of Brazil, article 129. III.

^[8] Federal Constitution of Brazil, article 70.

^[9] Federal Constitution of Brazil, article 131.

^[10] Interlocutory Appeal 5023972-66.2-17.4.04.0000/PR

^[11] Moro trava investigações para proteger empresas e delatores da Lava Jato [“Moro locks investigations to protect companies and informants in Operation Carwash”], Folha de S. Paulo, ed. June 13, 2018, p. A4.

^[12] The first initiative in this direction was a memorandum of understanding between the MPF ​​and CGU on the confidentiality of the information exchanged during the negotiation, which later culminated in MPF ​​Guidance No. 01/2017. Another initiative was the memorandum of understanding between the CGU and AGU, which later culminated in Ordinance No. 2278.

Category: Public and regulatory law

Regulation of the use of cannabis for medicinal purposes is a subject widely debated and developed in European and North American countries. In Brazil, however, the debates are still at an embryonic stage. We will try to point out in this text some of the current challenges encountered by those wishing to commercially exploit the production of cannabis for medicinal purposes.

Classification as prohibited substance and Anvisa’s oversight

The regulation of narcotics and psychotropic substances in Brazil, including cannabis, can be found at several levels. Brazil is a signatory to and internalized the two major international treaties of the UN on the subject: the Single Convention on Narcotic Drugs of 1961 and the Convention on Psychotropic Substances of 1971. In general, the signatories of these conventions undertake to collaborate to combat the production and trafficking of narcotic and psychotropic substances, each country being responsible for issuing its own regulations on the subject in accordance with the principles of the conventions.

At the national level, the provisions set forth in the Federal Constitution and in Law No. 11,343/2006, of August 23, 2006, widely known as the Drug Law, should be highlighted. The Constitution treats drug trafficking as a public security issue to be tackled by police authorities, and the Drug Law establishes measures to prevent drug use and regulates the unauthorized production and illicit trafficking of narcotic and psychotropic substances.

Regarding the cultivation of cannabis, the Drug Law strictly prohibits the planting, cultivation, harvesting, and exploitation of plants and substrates from which drugs can be extracted or produced. However, the same legislation establishes exceptions, regarding the possibility of cultivation for medical and scientific purposes, under specific supervision and with the authorization of the Federal Government.

Cannabis is currently classified as banned by the National Agency for Sanitary Surveillance - Anvisa, through SVS/MS Ordinance No. 344, of May 12, 1998, but access to it may be permitted for medical and scientific purposes. Cannabidiol (CBD) and Tetrahydrocannabinol (THC) are currently the only cannabis extracts permitted by the sanitary surveillance agency for individuals only and subject to specific regulations. This permission is the result of numerous lawsuits brought by parents of children and also by adults with severe medical conditions for which these substances are the only remedy that achieves positive treatment results.

Regarding the regulation of the use of cannabis for medicinal purposes, Anvisa, in turn, has not indicated a firm position on the subject. Its regulatory agenda varies according to the composition of its internal departments. Over a period of time, the organization has positioned itself in favor of regulation of cannabis for medicinal purposes, publicly advocated by the president at the time, but no concrete measures have been taken. Currently, the organization does not prioritize regulation of cannabis for medicinal purposes, and the potential for issuance of new standards does not appear to be on the horizon.

Legislative and judicial slowness

In the legislative context, there are three bills presented before the National Congress (numbers 10,549/2018, 7,270/2014, and 7,187/2014) whose intention is to regulate cannabis for recreational and/or medicinal purposes, but none of them has been submitted for a vote. In different ways and at different levels, these bills seek to remove the unlawful nature of cannabis and, consequently, the development of any recreational, business, and/or medicinal activities related to the plant.

The subject is also debated within the scope of the Federal Supreme Court (STF), in the Direct Action of Unconstitutionality No. 5,708, in which political parties and various civil rights organizations are petitioning the court to establish a time limit for Anvisa to regulate the medicinal use of cannabis, among other requests.

Importation and commercial activity

Anvisa is also the agency responsible for regulating and authorizing the importation of cannabis. The specific regulation provides that entities wishing to import cannabis for research purposes must register with the Integrated Foreign Trade System (Siscomex), regulated by the Brazilian Internal Revenue Service, and obtain an import license.

In addition to this license, Anvisa will be responsible for issuing a specific import authorization exclusively for education, research, and laboratory analysis entities, as established by the agency in Resolution No. 11, of March 6, 2013. Such activities must be expressly stated in the contract or bylaws and in the entity's registry with the Federal Revenue Service. Market players seeking to establish themselves in Brazil should perform one or more of these activities in order to conduct their business in Brazil in relation to medicinal cannabis.

Since the current regulations do not deal with cannabis for medicinal purposes in a thorough manner, entities cannot conduct research and develop business in a free manner to ensure the development of medicinal cannabis as a commercial product.

General overview

The medical cannabis sector in Brazil faces a series of challenges and obstacles, for which no solution was offered by the regulators or by the Legislative and Judiciary branches. There is enormous uncertainty among market players regarding the possibility of developing their businesses in the medicinal cannabis sector in Brazil, which hampers and will likely continue to hamper investments by domestic and foreign players in the sector.

Category: Litigation

In force since September 5, Ordinance No. 1,189/2018, issued by the Ministry of Justice, establishes new rules and improves those rules that were already in force for the process of creating parental advisory ratings for audiovisual materials, which includes television products, movies, and other materials related to the video market, electronic games, and applications, among others.

The Ministry issued recommendations regarding limitations on access by certain age groups to audiovisual materials containing three thematic niches - "sex", "drugs”, and "violence”, and whether the scenes are more or less explicit mitigates or aggravates the rating.[1]If the product is shown in movie theaters or made available on the video market, the Ministry of Justice must rate the material in advance, that is, before it reaches the market. On the other hand, television stations may rate their materials through the aforementioned rating in advance, by the Minister of Justice, or through self-rating, which is carried out by the broadcaster itself and then submitted for validation by the Ministry.

In general, the first procedure is more advantageous since the deadline set forth for a review by the Ministry of Justice is lower: 30 days, as compared to 60 days for reviewing the self-rating. This avoids some disturbances, such as changes in the issuer’s time slot due to a recommendation by the Ministry of Justice after reviewing the self-rating.

One of the innovations brought about by the ordinance relates to the presentation of programming calls. Based on its article 4, item III and paragraph 3, programming calls displayed during commercials must be accompanied by the parental advisory rating of the material advertised, that is, only materials with a rating equal or inferior to the material that is being displayed may be presented.

Another innovation is the possibility of express authorization by parents or guardians for the admission of minors into public spectacles. According to article 7, in events classified as not recommended for children under 18 years of age, teenagers aged 16 years or above shall be allowed access provided that they present the specific authorization from parents or a responsible person. Children and teenagers aged 10 years and over shall be allowed access to events that are classified as not recommended for children under 16, 14, and 12 years of age, under the same conditions. However, children under the age of 10 may only access and remain in events when accompanied by their parents or a guardian.

The process of parental advisory rating is different from censorship, as it does not represent an imposition by the Ministry of Justice invading the private and individual sphere of citizens' choice on what to watch or consume, nor even prohibit television broadcasters from choosing which programming to broadcast on their channels.

The regulations are educational and informative and aim to protect the physical and mental integrity of children and teenagers, as clarified by the very text of the sole paragraph of article 6 of the ordinance: "family power is exercised by the possibility of choice of the contents". It is, in fact, prior information offered to civil society to decide on what content their nuclear families should have access, especially in order to protect children and teenagers in accordance with the Statute of the Child and Teenager (“Estatuto da Criança e do Adolescente” or just “ECA”) and the Brazilian Federal Constitution. It is important to make it clear that the provisions of the ordinance on parent advisory ratings do not apply to sports competitions, electoral programs and advertisements, advertisements and advertising in general, and journalistic programs.

Moreover, the topic was the subject of Direct Suit of Unconstitutionality No. 2.404/DF, filed by the Brazilian Labor Party (Partido Trabalhista Brasileiro or PTB) and by which objection was raised regarding article 254 of ECA on the grounds that the act of "transmitting, through radio or television, a show at a time other than that authorized or without notice of its rating” constituted an administrative infraction.

The Federal Supreme Court (STF) was of the position that the expression "at a time other than that which is permitted" is unconstitutional, considering that the Brazilian Federal Constitution (article 21, item XVI) provided that the Federal Government's competence to carry out ratings has indicative effects, as the name itself suggests, and "it is incumbent on the public authority, by federal law, only to report on the nature of public entertainment and spectacles." In summary, the Court considered unconstitutional the sanctioning nature applicable to article 254, emphasizing that the rating is informative and not mandatory.[2]Therefore, it is essential to reinforce the informative and indicative nature of the rating of audiovisual materials referred to in the ordinance of the Ministry of Justice, since it deals with the issue in a didactic manner and preserves the individual sphere and the right of parents and guardians to choose the programming that they deem appropriate for their children and wards.

The new ordinance also addresses the matters involving visual arts, such as artistic and cultural ensembles, historical and artistic performances, which were the subject of discussion by the media after the cases of La Bête and Queermuseu, about which there was no provision in former Ordinance No. 368/2014. Article 53 of Ordinance No. 1,189/2018 establishes the creation of a working group to prepare a specific guide regarding visual arts, especially for museums and art exhibitions, within 90 days. It is hoped that the Brazilian Advisory Rating System for exhibitions and visual arts events will be as didactic, simple, and pragmatic as the system for audiovisual materials. Everyone has much to gain from these initiatives by the Executive Branch.

[1] For more information regarding the Brazilian advisory rating system, please access the Practical Guide for Advisory Ratings, produced by the Ministry of Justice (available at the following link: http://www.justica.gov.br/seus-direitos/classificacao/guia-pratico. Accessed on September 17, 2018).

[2] For more information regarding ADI 2.404/DF, visit the STF’s website (http://portal.stf.jus.br/processos/detalhe.asp?incidente=1902202. Accessed on September 17, 2018).

Category: Litigation

The Supreme Court of Justice (STJ) recently took a position on a controversial subject that is the subject of doubts and uncertainties: whether the appropriate appeal against decisions rendered with respect to execution and enforcement of judgment is an interlocutory appeal or an appeal.

Unlike in the systematic framework of the Code of Civil Procedure of 1973 (CPC/73),^[1] the Code of Civil Procedure of 2015 (CPC/2015) introduced via its article 1,015 specific scenarios allowing for the filing of an interlocutory appeal, whose exhaustive interpretation is still under discussion in Brazil’s courts of appeal. The purpose of this text is to discuss the sole paragraph of the aforementioned article, which provides for the filing of an interlocutory appeal against interlocutory decisions rendered in the enforcement and liquidation of judgment phase, as well as in the execution and probate process.

With the provision for the free filing of an interlocutory appeal to challenge interlocutory decisions rendered in the execution and enforcement phase, and here in parallel with paragraph 3 of article 475-M^[2] of the CPC/73, which provided that an interlocutory appeal would lie against decisions that resolved an objection to execution of judgment, except those objections that called for extinguishment, subject to appeal, the - CPC/2015 did not expressly determine what the appropriate appeal against a decision that resolves objections to execution of judgment, whether an interlocutory appeal or an appeal.

In addition to this question, the split understanding of the courts on the subject, possibly influenced by the provisions of the CPC/73, finally appears to have achieved a unified guideline from the STJ.

In the judgment on Special Appeal No. 1.698.344/MG, the written opinion of which was prepared by Justice Luis Felipe Salomão, the Fourth Panel of the STJ amended a decision handed down by the Minas Gerais Court of Appeals to hear an appeal filed against a decision that accepted an objection to execution of judgment. In this sense, it established that decisions that partially accept or reject the objection presented are subject to an interlocutory appeal, as the procedure for execution or enforcement of judgment shall continue.

According to the interpretative logic of the CPC/2015, read in the appellate decision published on August 1 of this year, article 1,015 expressly states that an interlocutory appeal lies against interlocutory decisions, while article 1,009 governs the submission of appeals against judgments. In this sense, it is important to question the nature of decisions rendered in the execution and enforcement of judgments. For judgments, the ruling emphasizes that in the current procedural system, there are two criteria set forth in paragraph 1 of article 203^[3] of the CPC/2015: (i) content equivalent to one of the situations provided for in articles 485 or 489; and (ii) closure of the pre-trial phase, the trial phase, or execution phase. An interlocutory decision, in turn, is any pronouncement of a decision-making nature that does not fall under paragraph 1, as provided for in paragraph 2 of article 203 of the CPC/2015.

Thus, emphasizing that "if the execution is extinguished, it shall be a judgment, as per the aforementioned article 203, paragraph 1, final part; otherwise, it shall be an interlocutory decision, as per article 203, paragraph 2, CPC/2015,” the Fourth Panel concluded that “the execution shall be extinguished whenever the judgment debtor obtains, by any means, total suppression of the debt (article 924 CPC/2015), which shall occur with the recognition that there is no obligation to be demanded, whether because the debt has been discharged or because it is acknowledged that it does not exist or has been extinguished", as is thus subject to appeal.

Along these lines, the STJ settled an understanding that, for decisions that partially accept the objection or dismiss it, it shall be necessary to file an interlocutory appeal, as they do not entail extinguishment of the execution phase in progress and, therefore, are decisions of an interlocutory nature. In turn, decisions that extinguish the execution phase must be challenged by means of an appeal.

The STJ's understanding on the subject, based on the procedural logic of the CPC/2015, brings greater certainty to the filing of appeals against decisions rendered in execution proceedings and greatly contributes to avoiding an inadequate pathway for challenging decisions resulting in reduction of harm to parties.

^[1]   Article 522 of the CPC/73 allowed the party to file an interlocutory appeal against any and all decisions likely to cause damage that is serious and difficult to repair, as well as in the event of denial of certiorari to an appeal and with respect to its effects.

^[2]  “Article 475-M. The objection shall not have supersedeas effect, and the judge may assign such effect to the extent that its grounds are relevant and the continuation of the execution is manifestly liable to cause damage that is serious or difficult or uncertain to repair. Paragraph 3. Decision that resolve the objection are subject to appeal by means of an interlocutory appeal, except when it implies extinguishment of the execution, in which case an appeal shall lie."

^[3]  “Article 203. The judge's pronouncements shall consist of judgments, interlocutory decisions, and bench orders. Paragraph 1. Subject to the express provisions of special procedures, a judgment is the pronouncement by which the judge, with a basis on articles 485 and 487, terminates the trial phase of the common proceeding, as well as extinguishes the execution."

Category: Labor and employment

The Federal Supreme Court (STF) recognized by a majority of votes (7 to 4)^[1] the lawfulness of outsourcing companies’ core business activity.

The decision by the STF was handed down with recognized general repercussion in Allegation Breach of a Basic Precept (ADPF) No. 324 and Extraordinary Appeal (RE) No. 958252, actions in which the legality of outsourcing and the constitutionality of Supreme Court Precedent No. 331 (TST) were discussed, which prohibited outsourcing of a core business activity.

These actions were filed before the Outsourcing Law (signed along with the Labor Reform, Law No. 13,467/2017), which entered into force on November 11 of last year.

The Reform reinforced the permission to outsource companies’ core activity by including in the Outsourcing Law article 2: "The provision of services to third parties shall mean the transfer done by the customer of the performance of any of its activities, including its main activity, to a private legal entity providing services that has economic capacity compatible with their performance."

Thus, the great issue discussed before the STF concerns the legality of the outsourcing carried out before the Labor Reform came into force, when only the dictates of the TST's Precedent No. 331 were applied.

In analyzing the case, most justices on the STF defended the position that perpetuation of the illegality of outsourcing of core activity, as enshrined in Precedent No. 331 of the TST, would violate the constitutional principles of free initiative and free competition. The justices also took into account the violation of the constitutional principle of legal certainty, since there was no law governing the matter.

In this sense, the following theory of general repercussion was set: "Outsourcing is lawful, as is any other form of division of labor between different legal entities, regardless of the corporate purpose of the companies involved, therein maintaining the secondary liability of the contracting party."

For the time being, the written opinion has not yet been published, and the STF has not yet formally ruled on the modulation of its effects. However, since it has general repercussion, the decision has binding effect and applies immediately to all cases pending before the Labor Courts. It is estimated that the decision will "unlock" almost 4,000 stayed appeals that deal with this issue and await a judgment before the STF.

The question now is whether or not there will be modulation of the effects of that decision. The modulation of the effects of decisions handed down by the STF is more commonly discussed in tax matters, in which there is a conflict between Law No. 9,868/99, which provides for the prosecution and judgment of direct suits of unconstitutionality and actions for a declaration of constitutionality, and the Civil Procedure Code of 2015 (CPC).

While article 27 of Law No. 9,868/99 requires a qualified quorum^[2] (a majority of 2/3 of the members), the CPC has no provision in this regard. Some scholars maintain that the silence of the CPC in this regard should not be understood as agreement with Law No. 9,868/99, but rather as a sign that the previous law has been overcome and that, now, a qualified quorum is unnecessary in this matter.

The truth is that although the Supreme Court has discussed this issue many times, there is no clear and objective decision to date regarding the quorum needed to modulate the effects of a decision on the constitutionality of laws or normative acts.

One indicator is that justices Roberto Barroso, Celso de Mello, and Gilmar Mendes argued in the past that the quorum required for these cases is an absolute majority, but the debate became moot after seven votes against modulation.^[3] Justices Gilmar Mendes, Rosa Weber, and Luiz Fux also defended the absolute majority quorum.^[4] At that time, however, the issue was not decided because the petition for modulation was made based on Law No. 9,868/99, which would prevent it from being set aside.

While the publication of the appellate decision is awaited and an analysis of the modulation of effects is pending, the recommendation is that companies move to review their past and possible impacts of the STF’s decision on their day to day. Companies should check whether there are decisions recognizing employment relationships based only on the argument that a core activity was performed that may be reversed at a higher level of appeal, for example.

Another positive impact concerns the possibility of re-discussion of Consent Orders (TAC) signed with the Public Prosecutor's Office that provide for the impossibility of outsourcing core activities.

Therefore, even if the decision applies only to those cases that have not yet reached a final and unappealable decision, that does not mean that companies are prevented from making use of it. Pending modulation of the effects of the decision, the recommendation is that companies conduct a critical analysis of their labor liabilities in search of opportunities.

[1] Affirming the decision were Justices Luiz Fux, Luís Roberto Barroso, Alexandre de Mores, Dias Toffoli, Gilmar Mendes, Celso de Mello, and Cármen Lúcia. Justices Edson Fachin, Rosa Weber, Ricardo Lewandowski, and Marcus Aurelius dissented.

[2] "Article 27. In declaring the unconstitutionality of a law or a normative act, and in view of the reasons of legal certainty or exceptional social interest, the Federal Supreme Court may, by a two-thirds majority of its members, restrict the effects of that declaration or decide that it has only effect as of its final and unappealable decision or some other time that may be set."

[3] RE Judgment 723.651, which discussed the application of the IPI in the importation of vehicles for own use.

 [4] Judgment of the motion for clarification in RE 377.457, which dealt with the Cofins exemption.

Category: Real estate

In a decision on September 19, the São Paulo Court of Appeals (TJ-SP) maintained the repeal of an injunction that had suspended the right of filing in the city. The licensing processes of projects registered with the Municipal Government (PM-SP) under the old law continue their normal proceeding.

The injunction had been granted in February of this year, in the context of a Direct Action of Unconstitutionality (ADIn), filed by the Public Prosecutor’s Office of the State of São Paulo (MP-SP), by its attorney general, to declare the incompatibility of the so-called “filing right" with the Constitution of the State of São Paulo’s. In accordance with article 162 of Municipal Law No. 16,402/16 (São Paulo Land Use and Occupancy Act), this mechanism ensures the application of the legislation in force on the date of filing of the licensing procedure upon the city government, even if supervening laws change the rules applicable to the land.

Although the motivation of the ADIN was based on a specific case of a business located in a special zone of environmental protection (Zepam) and, therefore, with more restrictive rules, the effects of the injunction were applied indiscriminately to all the licensing proceedings whose licensing had been filed under the old Zoning Law, regardless of the stage of their implementation. In other words, projects still at an early stage, with no decision handed down, were affected likewise to those that were already in an advanced stage of construction to comply with execution permits issued, thus causing great insecurity for the real estate sector and the city government, which suspended the processing of all cases from then on.

On May 16, by a majority of votes (17 against 7), the Special Commission of the TJ-SP amended the preliminary ruling, thus re-establishing the right of filing and allowing the resumption of of the PM-SP´s review of the licensing processes.

Against this decision, in order to remedy alleged obscurity, contradictions, or omissions, the Public Prosecutor's Office filed a motion for clarification, which was rejected in a decision by the TJ-SP on September 19, thus maintaining the repeal of the injunction and, likewise, the normal course of licensing processes before the PM-SP.

A judgment on the merits is still pending and is expected in 2018. The expectation of the market is that the content of the decision will be maintained and has as positive indicators the last decisions and their reasoning.

Category: Labor and employment

Article 507-A of the Consolidated Labor Laws (CLT), included by the Labor Reform (Law No. 13,467/2017), stipulated that, for employees whose remuneration exceeds twice the ceiling of the General Social Security Regime (RGPS), it will be possible to enter into arbitration agreements, provided that it is per their own initiative or their express agreement, under the terms established in Law No. 9,307/1996 (Arbitration Law).

With this, arbitration which, according to article 114, paragraph 1, of the Federal Constitution (CFRB), was accepted by labor courts only in the case of collective bargaining disputes, was also accepted in individual claims by employees.

This change has led already established arbitration chambers, such as the American Chamber of Commerce (Amcham), to open up space for labor arbitration, and has created several new chambers around Brazil to deal specifically with the matter, with its own rules and specificities.

Like judicial claims, arbitration is a form of autonomous resolution, by which a third party is appointed to settle the dispute between the parties. The difference, however, lies in the fact that, in judicial claims, appointment of the third-party results from the law, while in arbitration the choice is made by joint appointment by the parties.

In addition, the arbitration proceeding provides the parties with several advantages not envisaged in a lawsuit, such as the fact that it: (i) is usually faster; (ii) is more specialized (the parties choose one or more arbitrators specializing in the issues of the claim they wish to discuss, such as a discussion involving stock options); and (iii) is endowed with confidentiality (confidentiality can be attributed thereto if the parties so agree).

Regarding the issue of procedural costs, arbitration may prove to be more advantageous since, although it tends to be more expensive compared to judicial claims, the Labor Reform has also introduced reciprocal fees for loss of suit in labor procedure, a factor that considerably affects the amounts involved.

Arbitration can be agreed upon in two ways:

1. By an arbitration agreement: signed on the basis of the will of the parties, which stipulate that, in the event of a conflict between them, they will be assisted by an arbitral tribunal, and not by the Judiciary. With the existence of an arbitration agreement, a negative assumption is created, so that if one of the parties files a lawsuit despite having previously entered into an arbitration agreement with the other party, the latter may raise the existence of such a negative assumption, which will lead to termination of the proceeding without a resolution on the merits (article 337 of the Code of Civil Procedure), unless it is demonstrated that consent in the agreement was defective, which would imply its annulment.

1. Arbitration agreement: After the occurrence of the conflict, arbitration is submitted to one or more arbitrators.

When the arbitration proceeding is initiated, it is necessary to observe all the rules of the arbitration itself, namely the guidelines of Law No. 9,907/96, such as confirmation of the capacity of the persons involved, the subject of arbitration (alienable property rights), among others.

Among the precautions to ensure that the validity of the labor arbitration is not later questioned, it is also recommended that there be a document pursuant to which the employee takes the initiative to initiate the arbitration procedure or manifests his express agreement with such a measure.

At the end of the arbitration proceeding, the arbitrator(s) shall issue an arbitral award, which shall constitute a judicially enforceable instrument, being unappealable and subject to fulfillment sua sponte or executed with the competent court.

Before the Labor Reform, the case law of the courts of appeal did not allow the use of arbitration proceedings in individual disputes, in that regard invoking, among other arguments, the fact that the rights of the workers are inalienable and, therefore, incompatible with arbitration. However, when the matter is reviewed under a constitutional approach, there is no legal prohibition on carrying out arbitration in the labor sphere in individual disputes, not least because arbitration is authorized in an infraconstitutional manner.

Thus, although expressly authorized by law, the use of arbitration in individual dispute by employees who receive remuneration higher than twice the maximum limit of the RGPS is a relatively new proceeding, which may even encounter some resistance on the part of the labor courts. However, it is already a reality and does not find any obstacle of a constitutional and/or infraconstitutional nature. Thus, if the procedure is followed correctly and if the peculiarities related to the Arbitration Law are observed, arbitration awards must have their validity recognized by the Labor Courts.