Category: Environmental

The beginning of 2019 was marked by important normative changes in safety of dams, mainly mining dams, in order to tighten federal and state regulations.

At the federal level, the main regulatory change was Resolution No. 4 of the National Mining Agency (ANM), of February 15, 2019, which established precautionary regulatory measures to ensure the stability of mining dams, notably those built or raised by the method referred to as "upstream"^[1] or by a method declared as unknown.

At the state level, the highlight was the normative update in Minas Gerais, historically relevant for mining activity. As an example, the following were approved: (i) State Law No. 23,291/2019, which instituted the State Policy on Dam Safety (PESB-MG); and (ii) Semad/Feam Joint Resolution No. 2,765/2019, which was soon thereafter repealed by (iii) Semad/Feam Joint Resolution No. 2,784/2019, promulgated to regulate some aspects of PESB-MG and ANM Resolution No. 4/2019.

Article 13 of the PESB-MG prohibited 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. Thus, mining laws and regulations reinforced the prohibition on using the method of upstream construction or raising of mining dams provided for in ANM Resolution No. 4/2019. Article 13 of the PESB-MG was regulated by Semad/Feam Joint Resolution No. 2,784/19, which established deadlines for rendering inoperative all dams containing mining tailings that use the upstream method, regardless of whether they are already inactive or remain in operation.

ANM Resolution No. 4/2019 had already established the deadline of August 15, 2019, for the preparation of a technical plan for decommissioning or rendering inoperative dams built or upgraded by the upstream or an unknown method, which should be decommissioned or rendered inoperative by August 15, 2021.^[2] The Semad/Feam Joint Resolution set longer deadlines: dams for mining tailings that use or used the upstream damming method should be rendered inoperative within a maximum of three years from the date of publication of the PESB-MG (February 26, 2019).

The resolution also establishes that developers who opt to maintain the activity can migrate to the alternative technology of accumulation or disposal of tailings, observing the same time frame of three years. Finally, the text defines the time frame of 90 days, also counted from the publication of the PESB-MG (February 26, 2019), for developers to present a schedule for the execution of the removal. It is expected that the agencies involved will clarify the apparent conflict in time frame between the resolution approved by the ANM and the rules issued in the state of Minas Gerais.

The legislative changes sought to stiffen, in general terms, the process of licensing and inspection of dams. The PESB-MG, for example, has established the three-phase licensing system and has provided the possibility of simplified procedures/unification of environmental licenses covering different phases of the development. It also determined that the licenses should be issued based on an Environmental Impact Assessment and its respective Environmental Impact Report (EIA/RIMA).

Also with regard to environmental licensing, there is an imposition provided for more rigid and specific restrictions on licenses for accidents and disasters. Thus, already in the stage of issuing the preliminary license, the developer must present a guarantee to ensure social and environmental recovery in the event of loss and deactivation of a dam, as well as prepare technical studies related to the prevention of risks linked to dam break. In the installation license phase, it is mandatory to prepare an Emergency Action Plan (PAE), which should already include a provision for the installation of an audible warning system or another more effective technological solution. Finally, the granting of an operating license will be conditioned on, among other issues, the approval of the PAE and on the proof of implementation of the environmental guarantee with the updating due.

The normative updating of dams also responded to a greater concern of residents and working populations in the Self-rescue Zone (ZAS), defined by the PESB-MG as the portion of the valley downstream from the dam where there is no time for intervention by the competent authorities in an emergency situation. This concern is highlighted by ANM Resolution No. 4/2019, which prohibited the maintenance or construction in a ZAS (regardless of the construction method adopted for the dam) of (i) any permanent or temporary installation, construction, or service, including human presence; and (ii) a barrier to store liquid effluent immediately downstream from a mining dam that may interfere with its safety. The deadline of August 15, 2019, was set for deactivation, decommissioning, and shutdown of facilities, works, and services, and August 15, 2020, for barriers. In addition, automated siren actuation systems were required in ZASs, in a safe location and provided with a fail-safe mode in case of breakage of the structure.

In the same sense, the PESB-MG forbade the granting of an environmental license for the construction, installation, expansion, or raising of a dam in cases where the rupture scenario assessments identify a community in the ZAS.

The mining laws and regulations also provided for mandatory public hearings with the participation of the local community and authorities to discuss the environmental and socioeconomic consequences of the construction and operation of dams. It determined also that the PAE should be submitted for a review by the competent agency or authority. Furthermore, the content of the PAE, especially with regard to the procedures to be adopted in emergency situations, should be disclosed in public meetings to be held in places accessible to the populations located downstream from the dam, which should be reported in advance and encourage participation in the preventive actions provided for in the plan.

Important changes were also made to the system for monitoring and independent oversight of mining dams. Firstly, ANM Resolution No. 4/2019 determined that by February 15, 2020, monitoring systems with full-time monitoring should be installed for mining dams with high Associated Potential Damage (APD) contemplated by the National Dam Safety Policy (Law No. 12,334/10 - PNSB).

In turn, PESB-MG established the frequency of technical safety audits, under the responsibility of the developer, by a technical team of independent professionals, experts in dam safety, previously accredited before the competent body or entity of the State Environmental and Water Resources System (Sisema). For dams with high potential for environmental damage, yearly frequency was established; for average potential, every two years; and low potential, every three years.

Regardless of the technical audit, the competent body or entity may alternatively or cumulatively order new audits, suspend or reduce dam activities, and deactivate the dam in the event of risks identified in the monitoring of the safety of the structures. In the case of dams using the upstream damming method, developers must conduct a semi-annual technical safety audit of the dam until its removal is carried out, in accordance with the terms of Semad/Feam Joint Resolution No. 2,784/19.

Finally, the PESB-MG provides for stricter rules for the liability of managers and legal representatives of developments, since it expressly subjects the chief executive officer, officers, directors, members of the board or technical body, auditors, consultants, agents, or representatives of legal entities to the penalties provided for in article 16 of Law No. 7,772/80, without prejudice to other administrative, civil, and criminal penalties.

All of these normative changes in mining activity, especially in Minas Gerais, create obligations for developers that require new financial contributions and redefinition of strategies. Oversight has become even more rigid, with restrictions on construction and a more rigorous and detailed environmental licensing process. In this new context, the mining sector should have specialized technical support to ensure the safety of its activities from a legal and social and environmental point of view.

^[1] Joint Semad/Feam Resolution No. 2,784/19, article 2, item IV: "upstream method: constructive methodology of dams in which the construction material is placed upstream from the axis of the initial dam.

^[2] Decommissioning or rendering inoperative dams consists of changing its characteristics until it no longer operates as a sediment or tailings containment structure.

Category: Competition

For 25 years, the Administrative Council for Economic Defense (Cade) was a great unknown among the population. This was due, in large part, to the market environment in Brazil, characterized by a history of state intervention and the fact that practically all the (few) decisions by the agency were revised or revoked in court.

This scenario changed when Law No. 8,884/1994 came into force: Cade gained institutional relevance and intensified its activities, starting to review important M&A transactions and to investigate more anticompetitive practices, notably cartels. This was the first step to effectively structure antitrust policy in Brazil. Thereafter, major cases put Cade’s name in the media: the creation of Ambev, the purchase of Kolynos by Colgate, and the merger between Nestlé and Garoto, among other transactions.

In the first decade of the 2000s (long before Operation Carwash), Cade fostered whistleblowing in Brazil, by structuring a solid leniency program that became an important tool in the fight against cartels, which began to be punished with greater rigor.

Cade's intense activities and reputation, not only at national level but also in the international antitrust community, led, as early as 2004, to a debate on the need for reform of the law then in force. The objective was to improve the institutional environment and enable the implementation of an even more vigorous antitrust policy, especially through a suspensive merger control regime.

Law No. 12,529/2011, which replaced Law No. 8,884/1994 and entered into force in 2012, enabled Cade to intervene in market structures, facilitating the prohibition of transactions that generated high market power (from 2012 to 2018, eight transactions were blocked under the new law, the same number of transactions blocked during the life of Law No. 8,884/1994). The change also unified departments, consolidating the functions of investigation and decision within a same agency, and giving greater speed to reviews of acts of concentration. In subsequent years, cartel investigations were driven not only by the signing of leniency agreements but also by new incentives for signing settlement agreements.

Three times Cade was considered the best antitrust agency in the Americas by Global Competition Review (GCR) and, more recently, accepted as a permanent member on the Competition Committee of the Organization for Economic Cooperation and Development (OECD).

The advances made by Cade in the last 25 years have clearly increased its challenges: shortening the duration of investigations of antitrust violations; increasing transparency as to the methodology used to calculate fines in cartel cases; enhancement of its settlement and leniency policy (especially after the cases involving Operation Carwash) to secure deterrence effects; and the formation of a critical mass for the review of practices adopted by dominant companies in order to guide the market on the legality of certain commercial strategies.

Category: Infrastructure and energy

Executive Order (MP) No. 863/2018, which extinguishes the 20% limit on the participation of foreign capital in Brazilian airlines, should be reviewed by the plenary session of the Chamber of Deputies later this month. On last April 25, the joint committee of senators and federal deputies that examined the matter approved the final text of Conversion Bill (PLV) No. 6/2019, which makes changes to the proposal originally submitted by the Executive Branch.

The deadline for approving the conversion of the MP into law expires on May 22, the deadline by which the text must have also been submitted to a vote on by a plenary session of the Federal Senate. If this does not occur, the MP will expire and lose its effects. As the approved PLV does not replace the text of MP 863 currently in force, the amendments made, if approved by a plenary session of Congress, will only take effect upon publication of the law.

The main amendment adopted by the Joint Committee concerns the abolition of the limit on foreign equity interest in airlines. While the original text of MP 863 eliminated any restriction on such equity interest, the PLV re-established the articles of the Brazilian Aeronautical Code that provided for a 20% limit on foreign equity interest and the need for Brazilian officers. To be exempted from observing these articles, the airline must operate at least 5% of its flights on regional routes.

Although it seeks to promote regional aviation, which is still deficient in Brazil, the amendment imposes a burden on potential foreign investors, since regional routes tend not to be profitable, and may limit the entry of international airlines into Brazil independently of domestic companies.

The industry's opening to foreign capital also includes air taxi companies, which were also obliged to respect the limit of 20% foreign equity interest of their capital before the issuance of MP 863. The text amended by Congress is not clear, however, regarding the treatment to be given to air taxi services that have more than 20% foreign ownership. Since their operation is by nature due to demand, it would not be reasonable to require the obligation of 5% of the flights of these companies to be on regional routes.

Another point that draws attention to the amended text of MP 863 is the reinstatement of the minimum baggage allowance per passenger, which places Brazil within the group of countries that do not charge for checked baggage, as opposed to Resolution No. 400 of the National Civil Aviation Agency (Anac), which authorized this charge starting in 2017.

If the new law originated from MP 863 conflicts with Anac's rule, there is no doubt that the law will prevail, which will certainly cause market turmoil. Since the publication of Resolution 400, airlines have been advocating charging as a way to lower the price of air tickets, in accordance with the model of low-cost airlines operating abroad. Reestablishment of the baggage allowance practically makes the low cost model in Brazil impossible, which may also be considered a factor impeding the entry of investors in Brazil.

It will be necessary, however, to wait until May 22 to actually discover the new policies of the Brazilian government for this industry and to be able to evaluate the impact they will have on air services in Brazil.

Category: Intellectual property

Creativity has economic potential. Concrete manifestations of this statement are startups, companies whose goal is to execute their innovations to generate economic value.

Intellectual property law recognizes this situation and provides the necessary legal instruments to protect creativity. Therefore, through the proper use of intellectual property rights, startups have more chance to convert creativity into economic returns.

The Brazilian legislature is aware of the startups’ relevance and promulgates statutes to grant them adequate legal treatment, including the startup’s intellectual property protection.

Complementary Law No. 167/2019 and Inova Simples

In this sense, Complementary Law No. 167/2019, published on April 25th, created Inova Simples, a simplified special regime for startups, with the purpose of stimulating their creation, formalization, development, and consolidation.

According to the law, startups are innovative companies that (i) aim to improve existing systems, methods, business models, production, services, or products (a scenario in which the startup is incremental), or not, when they relate, therefore, to the creation of something new (a situation in which the startup is disruptive); and ii) develop their innovations under uncertain conditions, requiring constant experimentation and validation before they can fully start their business and earn revenue.

The differentiated treatment by Inova Simples consists of a summary procedure for opening and closing startups, which will occur in a simplified and automatic form on an official website of the federal government. The owners of the startup submitted to the system must provide, on their own form, among other information, a description of the scope of the innovative business intention and a definition of the corporate name, in which the expression "Inova Simples (I.S.)" must be included.

To better protect the startup’s intellectual property, the digital form will have a field or icon for automatic reporting to the National Institute of Intellectual Property (INPI) of the scope of the startup’s inventive content for the purposes of trademarks and patents’ registration. The INPI must create a mechanism that directs the startup’s data for summary processing of the startup’s requests for trademark and patent registrations.

Once the registration is correctly completed, the system will create a specific CNPJ number for the startup submitted to Inova Simples, which must immediately open a corporate bank account to capture and pay its capital, which may come from the owners, an investor domiciled abroad, or a public or private credit line, among other sources provided by law.

If the startup is not successful in developing its scope, the holders can cancel the startup’s CNPJ by a simple declaration on the same website where they registered the startup.

Conclusions

The law is unclear on the summary processing of startup trademark and patent application requests.  The details will need further regulation, when it will be possible to analyze the change in an in-depth manner.

On the other hand, the law has the merit of drawing attention from startup’s owners to the importance of protecting the startups’ intellectual property. The possibility that a startup may be legally born with its trademarks and patents registered or applied for is an advance in terms of protection, especially at the startup’s initial moment, when the disclosure of innovations to third parties is necessary in order to obtain investments.

With attention focused on protecting the startup’s intellectual property, it is important that the owners seek appropriate legal advice in this area. Despite limited resources, a “do-it-yourself” attitude is risky. After all, innovation is the startup’s main asset.

Category: Labor and employment

Since November of 2017, when the Labor Reform established that the "premiums" are not subject to the application of labor and social security charges, much has been discussed about the Federal Revenue Service's interpretation of this concept and the requirements to apply it. The issue gains importance when one takes into account that the social security legislation does not define the concept of a premium either.

As we have already discussed in this article, based on the new provisions implemented by the Labor Reform, the main factor capable of generating different interpretations is the lack of clarity in the definition of the requirements "payment out of liberality" and "payment for performance greater than what is ordinarily expected." What would a payment out of liberality be? What would be performance above that ordinarily expected that would authorize payment of the premium?

At that time, we identified two main currents of interpretation for "payment out of liberality."

The first is that liberality would be all that is granted by the company, but not required by the law. In this case, it would be possible to argue that the premiumwould cover any and all forms of variable remuneration, even if contractually agreed upon, since, in an absolute majority of cases, the company is not obliged to pay variable remuneration.

The second is that liberality would be all that is granted by the company and that, aside from not being required by the law, has also not been contractually agreed upon. In this case, the premium would have its scope limited only to payments made spontaneously and unexpectedly by the employer. Premiums paid by way of mere liberality could not be equated with a bonus contractually agreed upon (in contracts, policies, job offers, etc.), inasmuch as this prior arrangement would remove from it the nature of being liberality, transforming it into a contractual obligation.

The requirement of "payment by reason of performance above what is ordinarily expected" could also lead to different interpretations: one of them is that the fixed salary would compensate normally expected performance, and variable remuneration would reward performance above that ordinarily expected. The other is that only the part of the variable remuneration due to exceeding targets would reward performance above the ordinary. The latter would be a more restrictive interpretation.

Very well. The Federal Revenue Service, through Cosit Consultation Resolution No. 151, dated May 14, 2019, expressed its interpretation on these requirements.

In summary, in the Federal Revenue Service’s, as of November 11, 2017, premiums, even if habitual, are not included in the calculation basis for social security contributions,^[1] when they (i) do not arise from a legal obligation or an express agreement, which would rule out the liberality of the employer; and (ii) result from performance higher than that which is ordinarily expected, and the employer must objectively demonstrate the performance expected and also by how much this performance has been exceeded.

In other words, in interpreting the "payment out of liberality" requirement, the Federal Revenue Service opted for the second, more restrictive interpretation, limiting the scope of the premiums to only payments made in a spontaneous and unexpected manner that do not result from contractual arrangements (in contracts, policies, job offers, etc.).

We believe that this interpretation, however, goes beyond what is provided for by law and may be challenged in court, insofar as the Labor Reform did not restrict premiums to payments that have not been expressly agreed upon. In establishing this requirement, the Internal Revenue Service went beyond the limits established by law.

As the Consolidated Labor Laws (CLT) are very clear regarding the possibility of regular payment of a premium, the IRS recognizes that sporadic nature is not a requirement classifying a payment as a premium. If this were not the case, in general terms, the interpretation given to premiums would very much resemble a sporadic gratuity, which was not previously agreed upon and was also not subject to labor and social security charges. In this perspective, the interpretation hollows out the treatment given to premiums by the Labor Reform. Now, if the premium is equivalent to a sporadic gratuity, why would the Labor Reform have created a new concept?

Regarding performance above what is expected, the Internal Revenue Service’s understanding is that it is the duty of the employer to objectively prove the performance expected and also how much this performance has been exceeded. Here, again, the interpretation reveals itself to be contradictory, being incompatible with the very requirement of "liberality." How can the employer objectively prove what performance would be expected and what would be higher than expected without having explicitly defined this parameter?

In the final analysis, according to the Federal Revenue Service’s interpretation, if the company discloses its performance expectation for each position and/or employee without providing for any premium, it may, at the end of the period, decide, out of liberality, which is the moment to reward those who went beyond the performance expected. This procedure would certainly also generate tax questions.

In establishing this restrictive interpretation, the Internal Revenue Service causes obstacles to the payment of premiums by companies, acting against the provisions of article 28, paragraph 9, "z", of Law No. 8,212/91, which expressly excludes premiums from salary for purposes of social security contributions. Instead of clarifying the issue and providing guidelines on the use of premiums, the body maintained the scenario of uncertainty and lack of legal certainty, because, although it does not have the force of law, the Cosit consultation resolution binds the public administration and guides the actions of tax inspectors.

In this context, our understanding is that companies that pay premiums to their employees must pay attention to the above requirements and, if they prove to be incompatible with their practices, evaluate their interest in seeking judicial support in order to recognize that they acted in strict compliance with the law, since, by reason of the aforementioned Cosit Consultation Reolution No. 151/2019, tax inspectors tend to enter assessments against these taxpayers.

^[1] In the Federal Revenue Service’s view, there is a limitation on the number of annual payments only in the period between November 14, 2017, and April 22, 2018, during the validity of Presidential Decree No. 808/2017, according to which the bonus could not exceed the maximum limit of two payments per year.

Category: Labor and employment

The new Collective Bargaining Agreement for Bank Employees 2018/2020 (CCT) brought in an important change by including the first paragraph in section 11,^[1] which provides for offsetting between the value of the 7th and 8th hours granted as overtime and the bonus of function, in the event of de-qualification, in a labor claim, of the position with the bank as being one of trust.

The working hours of ordinary bank employees is six hours a day, while the working hours of bank employees with a position of trust is eight hours per day, remunerated via payment of a bonus of function, pursuant to paragraph 2 of article 224 the Consolidated Labor Laws (CLT).^[2]

There are decisions by the courts of labor appeals, however, which remove the position of trust of bank employees whose differentiated position of trust is not proven by the employer banks. In such cases, the request for the payment of overtime beyond the sixth daily hour is granted as though it were for an ordinary bank employee, without allowing for the offsetting of the bonus already paid during the employment contract in the exercise of the eight-hour working day.

The possibility of offsetting between these amounts has historically been the subject of various requirements by the employer banks, since the initial purpose of paying the bonus of function to bank employees with an eight-hour working day was precisely in order to remunerate the two hours of overtime over six hours, as was even established in Precedent No. 102, item II,^[3] of the Superior Labor Court (TST).

It should be noted that the wording of the above-mentioned precedent merely repeated what had already been determined in 1982 by the former Precedent No. 166 of the TST, which was canceled following its incorporation into Precedent No. 102, in the light of the revision carried out by Resolution No. 129/2005. In addition, transitory Jurisprudential Guideline No. 70 of Subsection I Specialized in Individual Disputes (SDI-1)^[4] of the TST (transitional OJ No. 70), issued in 2010, also provides for the possibility of offsetting between the bonus of function and overtime hours.

Over time, the labor courts began to adopt the view that the classification of bank employees into positions of trust was often designed to avoid bank employees' special work hours. Thus, in contradiction to the understandings previously expressed by the TST (and even later, if we consider transitional OJ No. 70), Precedent No. 109 of the TST was issued,^[5] establishing that bank employees not classified in paragraph 2 of article 224 of the CLT via judicial decision, but that receive a bonus of function, cannot have wages relating to extra hours offset by the value of that bonus.

In other words, necessarily, the new wording of the CCT supposedly contradicted the current case law of the TST on the subject, which has generated great repercussions among the parties covered by the negotiation.

At the outset, the possibility of negotiating collective labor issues related to employees' working hours may be defended as of the publication of Law No. 13,467/2017, known as the Labor Reform, which included article 611-A^[6] in CLT and provided in section I that collective bargaining agreements have prevalence over the law when they establish provisions regarding working hours, subject to the constitutional limits.

In this scenario, the declaration of validity of the new provision by the courts of labor appeals seemed to be surpassed, especially if considered in conjunction with the provisions of article 611-A, section I of the CLT and article 8, paragraph 3,^[7] of the CLT, which determines that, in an examination of collective bargaining agreements, the Labor Courts will examine only fulfillment of the essential elements of the legal transaction, subject to the provisions of article 104 of the Civil Code,^[8] and shall support their activities on the principle of minimum intervention into the autonomy of the collective will.

In the first article published in the Legal Intelligence Portal on the subject,^[9] in March of 2019, we emphasized that it was not yet possible to evaluate the impressions expressed by the Labor Courts on the subject, given the scarce material then existing. However, after approximately six months since the entrance into effect of the new CCT, there are already several divergent positions regarding the validity of the new provision.

Part of the judgments handed down, such as those published in the record of cases No. 0000169-61.2019.5.19.0003 (3rd Labor Court of Maceió/AL), No. 1000153-07.2019.5.02.0701 (1st Labor Court of São Paulo - Southern District), and No. 1000354-70.2019.5.02.0063 (63rd Labor Court of São Paulo - Barra Funda), defends the validity of the new provision, limited to the period of validity of the CCT, on the grounds that it is constitutional, in view of the provisions of article 7, paragraph XXVI, of the Federal Constitution^[10] and article 611-A of the CLT, and that analysis of potential invalidity of the provision could only be done by the Labor Courts if the subscribing trade unions participated in the labor action as necessary co-litigants, in accordance with article 611-A, paragraph 5, of the CLT.^[11]

In turn, other judgments, such as those published in the records of cases No. 1001613-43.2018.5.02.0061 (61st Labor Court of São Paulo - Barra Funda), No. 1000242-15.2019.5.02.0706 (6th Labor Court of São Paulo - Southern District) and No. 1000116-74.2019.5.02.0605 (5th Labor Court of São Paulo - Eastern District), argue for the invalidity of the new provision. One of the bases is that it supposedly constitutes intervention in the judicial activity, exclusive to the Judiciary, and, therefore, is not a question of the prevalence of what is negotiated over what is legislated. Another allegation is that employees hired before the effective date of the provision cannot undergo prejudicial changes in the conditions of the contract, under the terms of article 468 of the CLT.^[12]

The divergence between the positions expressed by the Labor Courts only shows that the issue will still undergo a process of maturation and stabilization, until there is greater consolidation of the case law of the labor courts on the subject or a final ruling by the TST or STF, although the validity of the norm is fully defensible, under the terms of article 7, XXVI, of the Federal Constitution and article 611-A of the CLT.

^[1] “SECTION 11 - BONUS OF FUNCTION
The value of the bonus of function, referred to in paragraph 2 of article 224, of the Consolidated Labor Laws, shall not be less than fifty-five percent (55%), except for the State of Rio Grande do Sul, whose percentage is fifty percent (50%), always applicable over the salary of the actual position plus the additional pay for length of service, already readjusted under the terms of the first section, following the most advantageous criteria and other specific provisions set forth in the Amended Collective Bargaining Agreements.
Paragraph one. If there is a judicial decision that declassifies the employee from the exception provided for in paragraph 2 of article 224 of the CLT, who is receiving or has already received the bonus, which is the consideration for the work performed beyond the sixth (6th) hour per day, such that work is only considered overtime after the eighth (8th) hour worked, the amount owed relative to overtime and related payments shall be fully deducted/offset, with the value of the bonus and related payments paid to the employee. The deduction/offset provided for in this paragraph shall be applicable to the suits filed as of December 1, 2018.

Paragraph two. The deduction/offset provided for in the paragraph above shall comply with the following requirements, cumulatively:

1. a) it shall be limited to the months in question in which overtime has been granted and in which the bonus payment provided for in this section has been paid; and,
2. b) the amount to be deducted/offset may not be higher than the amount earned by the employee, limited to the percentages of fifty-five percent (55%) and fifty percent (50%), mentioned in the head paragraph, such that there can be no negative balance."

^[2] Article 224. The normal working hours of employees at banks, banking houses, and Caixa Econômica Federal shall be six (6) continuous hours on weekdays, with the exception of Saturdays, for a total of thirty (30) hours of work per week.
Paragraph 2. The provisions of this article do not apply to those who exercise positions of direction, management, oversight, supervision, and the like, or that exercise other positions of trust, provided that the amount of the bonus is not less than one third of the salary of the actual position.

^[3] Precedent No. 102 of the TST
BANK EMPLOYEE. POSITION OF TRUST (upheld) - Res. 174/2011, made available in the State Labor Court Gazette (DEJT) on May 27, 30, and 31, 2011 
I - A demonstration, or lack thereof, of the exercise of a position of trust referred to in article 224, paragraph 2, of the CLT, depending on proof of the actual duties of the employee, is not subject to review by means of a writ of review or motion to review.  
II - Bank employees who perform the function referred to in paragraph 2 of article 224 of the CLT and receives a bonus of not less than one-third of their salary already receive the two overtime hours over six. (former Precedent No. 166 - RA 102/1983, published in the Gazette of the Judicial on October 11, 1982 and October 15, 1982)

^[4] 70 - CAIXA ECONÔMICA FEDERAL. BANK EMPLOYEE. CAREER PLAN IN COMMITTEE. CHOICE FOR EIGHT-HOUR WORKDAY. INEFFICACY. EXERCISE OF MERELY TECHNICAL FUNCTIONS. NO ESTABLISHMENT OF EXERCISE OF POSITION OF TRUST. (published in the Electronic Gazette of the Labor Judiciary on May 26, 27, and 28, 2010)
In the absence of the special trust referred to in article 224, paragraph 2, of the CLT, the employee's adherence to the eight-hour workday in Caixa Econômica Federal’s Career Plan is ineffective, which is results in return to the six-hour workday, with the seventh and eighth hours worked being due as overtime. The difference in bonus of function received in the view of ineffective adherence may be offset with the overtime hours provided.

^[5] Precedent No. 109 of the TST: Bank employees not classified within paragraph 2 of article 224 of the CLT that receives a bonus cannot have the overtime wages offset by the value of that bonus.

^[6] Article 611-A, subsection I. Collective conventions and collective bargaining agreements take precedence over the law when, among other things, they set forth provisions with respect to: I - agrees as to working hours, subject to the constitutional limits.

^[7] Article 8, paragraph 3.  In examining collective conventions or collective bargaining agreements, the Labor Courts shall exclusively examine fulfillment of the essential elements of the legal transaction, respecting the provisions of article 104 of Law No. 10,406, of January 10, 2002 (the Civil Code), and shall support their activities on the principle of minimum intervention on the autonomy of the collective will.

^[8] Article 104. The validity of the legal transaction requires:
I - competent agent;
II - purpose that is lawful, possible, determinate, or determinable;
III - manner provided for or not prohibited by law.

^[9] https://www.machadomeyer.com.br/pt/inteligencia-juridica/publicacoes-ij/trabalhista-ij/clausula-11-da-cct-dos-bancarios-compreensao-historica-e-expectativas

^[10] Article 7, subsection XXVI. The following are rights of urban and rural workers, in addition to others that seek the improvement of their social condition: XXVI - recognition of collective bargaining conventions and agreements;

^[11] Paragraph 5. The trade unions subscribing a collective convention or a collective bargaining agreement must participate, as necessary co-litigants, in individual or collective actions whose subject-matter is the cancellation of provisions of these instruments.

^[12] Article 468 - In individual contracts of employment, it is only lawful to change the respective conditions by mutual consent, and provided that they do not directly or indirectly result in prejudice to the employee, under penalty of nullity of the provision in breach of this guarantee.

Category: Labor and employment

New decision by the Superior Labor Court (TST) reopened discussions on the concept of a stigmatizing disease adopted by the labor courts. In an opinion published in April, the Justices of Subsection I Specialized in Individual Disputes (SDI-1) of the TST, unanimously, denied relief to a motion for clarification filed by a company and upheld a decision by the Seventh Panel of the TST that recognized prostate cancer as a stigmatizing disease.^[1]

The judgment and appellate opinion by the Court of Labor Appeals of the 9th Circuit (TRT) had denied the claimant's petition for reinstatement on the grounds that the evidence produced in the record did not demonstrate the alleged discriminatory dismissal by the company. At the time, it was further alleged that the claimant's experience had been praised, admired, and recognized by the employers, especially because he was a well-paid executive.

The reversal of the appellate decision handed down by the TRT brought into question the very definition of a stigmatizing disease, since Precedent No. 443 of the TST, by presuming as discriminatory dismissal of employees "carrying the HIV virus or other serious disease causing stigma or prejudice," did not define what these serious diseases would be, which led to the most varied of interpretations by the labor courts.

In order to discuss the recent decision by the TST, it is important to define the concept of "stigmatizing" and to analyze whether it has in fact been relativized. Strictly speaking, "stigmatizing" is something that can provoke people's prejudice and lead to distancing by co-workers, as well as judgment of a certain condition.

By projecting the same reasoning for "stigmatizing diseases," it is concluded that the concept refers to diseases that, solely and exclusively, may lead to reprehensible behavior by other colleagues in relation to employees with the disease, for no apparent reason, including failing to engage them in important subjects, events, and routines.

It is the case that the concept of a "stigmatizing disease" also has a subjective connotation, if our understanding is that the same diseases may be considered stigmatizing in one place of work and not in another, depending on how they are viewed by co-workers. This situation makes the "stigmatizing disease" the result of jurisprudential construction, which creates insecurity for employers, including in determining whether or not certain employees may be dismissed because of low productivity, for example, but also show some compromise to their clinical condition. This is because, if the employee has a disease considered stigmatizing, and there is no effective demonstration of low productivity, for example, the dismissal will be considered discriminatory by presumption.

Cancer, on the other hand, starting from the assumption that it does not give rise to stigma or prejudice, since it is not even contagious in nature, would necessarily rule out the presumption of a discriminatory disease and would not alter the review/burden of proof in any judicial debate. However, the understanding hitherto advocated by most labor courts is likely to be reconsidered in the face of the new TST decision, which again increases legal uncertainty for companies.

This is a paradigmatic decision, since the SDI-1 of the TST is the body that reviews the decisions of the panels and unifies the case law of the TST. The understanding may change the way the labor courts have interpreted the text of Precedent No. 443 of the TST and even expand the list of diseases considered stigmatizing.

For this reason, it is recommended that all issues related to employee history, performance, and evaluation be duly formalized and documented in order to rule out the presumption of discrimination in the dismissals of those who are suffering from stigmatizing diseases.

^[1] See therecord of Case No. TST-RR-68-29.2014.5.09.0245.

Category: Labor and employment

Published in May of last year, Resolution No. 4661 of the National Monetary Council (CMN) established new guidelines for investment of funds by plans managed by private complementary pension entities (EFPC) and changed some benchmarks for the investments made by these institutions, raising doubts and causing challenges for their managers.

One issue to be solved is the allocation of investments in real estate assets, specifically direct investments in real estate, since Resolution No. 4,661 determined that EFPCs may no longer acquire real estate and must conduct a procedure to divest the properties held in their own portfolio within 12 years.

To make this change, the resolution authorizes these institutions to set up real estate investment funds (FIIs), of which they may hold up to 25% of the units issued. If the FII is organized with properties within the EFPC’s inventory prior to the issuance of the new rule, there will be no concentration limit, that is, the entity may hold up to 100% of the units issued by the FII.

It is precisely this point in the new resolution that raises doubts about the allocation of real estate as a result of EFPCs’ investments. Let us imagine that an entity has invested in credit instruments whose collateral is a property, a perfectly ordinary circumstance and permitted by CMN Resolution No. 3,792, which regulated the matter previously. Should the EFPC execute this guarantee today, under the aegis of Resolution No. 4,661, it will no longer be able to hold the property directly.

It is clear that the objective of the rule was not to prevent the recovery of a secured credit, causing losses to the EFPC. As the institution can no longer acquire/own the property directly, would it be necessary to set up an FII for this? Would it be possible to equate this property with those held in inventory, taking into account that, strictly speaking, it was not owned by the EFPC when Resolution No. 4,661 entered into force? Since the rule does not present an obvious answer to this situation, an expansive interpretation of the concept of inventory would be necessary in order for the entity to recover on its investment in a viable and balanced way from an economic and financial point of view.

If such a property cannot be considered part of the inventory, the solution presented by Resolution No. 4,661 to organize an FII to house it (with concentration per issuer limited to 25%) reveals itself to be complex for EFPC managers, who often will not find partner investors to organize the FII and be able to respect the concentration limit. What then would be the option available to the entity to recover its credit with a property as collateral considering that it cannot hold real estate directly?

Moreover, even if the issue of the concentration limit is overcome, it is necessary to consider that the structure of FIIs presents a series of high costs due to their administration and, as such, represents an unattractive option for the implementation of this change in the rules imposed on EFPCs.

In this context, the National Supplementary Pension Board (Previc) needs to clarify what treatment should be given to real estate subject to recovery of credit instruments granted prior to Resolution No. 4,661 and possibly to relax the restrictions applicable to investments in the real estate segment, seeking to offer EFPCs more interesting options and cost-effective ways of adapting to the provisions and limits of the rule.

Category: Real estate

It is enough to observe some of the most pulsating cities today to see that entrepreneurial creativity seems to be inversely proportional to available urban space. Proof of this are the various projects around the world with new ways of making better use of the rooftops of buildings or raised slabs.

Some of them add to the economic use of rooftop slabs the ambitious proposal to rethink the function of buildings in the urban context. This is the case of the Bosco Verticale in Milan, a building covered in trees that, in addition to serving as an architectural reference, functions as a natural air-conditioner, reducing the temperature of the units by two to three degrees celsius. In the same area, green spaces, top floors of buildings intended for agriculture, forests, and living spaces emerge in an attempt to combat current problems such as pollution and global warming. There are countless companies that install and operate urban farms on top of buildings in cities like Boston and Chicago (USA), Toronto (Canada), Shanghai (China), and Rotterdam (Holland).

This idea for financing the green economy has also boosted the solar energy market. In New York, for example, where the public is sensitive to environmental issues, the high price of electricity, coupled with tax incentives and financing possibilities, has significantly increased the demand for solar panels in buildings, either individually or through the creation of solar condominiums for the production of alternative energy. Formats like these are present in large quantities, for example, in Los Angeles (USA), Maputo (Mozambique), and Hamburg (Germany).

Another sector in which the players are coordinating and that must undergo major transformations is urban air transport. Thanks to the relatively new phenomena of drone delivery, something that has hitherto been seen as futuristic is already happening in cities in China, and also in Helsinki (Finland) and Lugano (Switzerland). It is estimated that, in two to three years, such equipment will take the urban airspace of cities such as Los Angeles, London, and Singapore. Companies in the industry are investing hundreds of millions of dollars in building an infrastructure network of vertiports, drone landing sites on the tops of buildings in various cities around the world.

The demand has been so great that buildings reserve in advance their top floors for this purpose. The proposal of vertiports is to create a hub of connectivity between the area where they will be installed and the rest of the city. They will serve as logistics points for product distribution and reception of passengers and promise to add to the building a value that goes well beyond the use of the landing platform for the personal benefit of the building’s residents. Busy air traffic in cities seems to be a reality closer than one might think.

The above examples are proof of an increasingly disputed, and in that same measure, more valuable urban space. Giving a new economic use to a portion of a previously unused property, in addition to adding value to the property, intensifies the fulfillment of its social function as an integral part of an ordered city.

This concept is in no way alien to the Brazilian legal system, which, through Law No. 13,465/2017 (previously covered by Presidential Decree No. 759/2016), definitively regulated the property rights of top floors (slab right), a type of surface right intended to legalize irregular settlements due to the numerous cases of informal housing in urban centers in Brazil and the evident need to attribute value to these properties as a measure to integrate them into the formal city.

The slab right imposes a in rem right to the level that puts over or under a base construction by opening a separate enrollment in the real estate registry, which allows the owner of the slab, for example, to offer it as a guarantee for a line of credit. The new property will have an individualized registration with the city government and, with this, it must collect taxes and submit plans for municipal approval, thus becoming a computable area in the records of the municipality and subject to urban administrative rules and planning guidelines. Thus, due to its regularization, the new property-slab becomes more secure and has greater market value, generating a gain for all agents involved: the owner/taxpayer, the municipal power, and society as a whole.

Excepting here the possible legal comments on the system, the slab right serves as a tool for the owner of a property to individualize its slab for use, without the law restricting the form or purpose of that use. The legal provision also establishes that the owner may individualize the slab over its property, even when keeping the title thereto. So it is possible that the owner of the slab and the base-construction be the same person.

Now, would not the system also work as a way of generating value in the above examples of use? Would it be possible to think of the slab right as an accelerator of opportunities in this current scenario of new demands and dynamic solutions?

Undoubtedly, a great obstacle to bringing this into effect arises from the actual operation of the slab right. A priori, the slab must have access independent of the base construction, have its usage plan submitted for municipal approval, and its taxpayer individualized. For its institution, it also depends on the granting of a public deed, collection of transfer tax, and recording in the respective enrollment of the base-construction property. In the case of a recent creation, the real estate registrars still have little familiarity with them, in addition to divergent and non-consolidated understandings regarding the requirements for their registration, which gives rise to a subjective approach on the occasions in which slab rights are effectively created.

A long path still needs to be walked for the slab right to serve as an effective tool. Nevertheless, the creation of a law governing this modality alone evidences a change of mindset regarding the use of urban space and the importance of having this urban space be integrated into the formal city.

This approach is a no-return path. We live in the era of density, verticality, and growing concern with the sustainability of the urban environment. Enabling life in these centers necessarily requires meeting new demands, sometimes through innovative and multidisciplinary measures, which may be promoted to the status of "solutions" only when their implementation is economically viable. It is to be concluded that as important as thinking up solutions for the urban demands of the present time is the development of tools able to put into operation the model of the city that we want to build.

Category: Labor and employment

Incentives linked to shares are part of the essence of the business model of startups. The most common are stock option plans, restricted stock units (RSUs), restricted shares, phantom stock, and phantom stock options.

This article deals specifically with stock option plans, instruments through which a company gives certain employees the right to acquire part of its stock (stock options) after the expiration of a vesting period and for an exercise price potentially more advantageous than what was set at the beginning (strike price). The plans may also restrict the sale of the shares acquired (or part thereof) for a certain period (lock-up).

The vesting period is that between the beginning date and the date after which the beneficiaries may purchase the shares/exercise the options. During this period, beneficiaries may lose their options if they resign or are terminated for cause. The exercise of the options after vesting may also be conditioned on or accelerated upon the occurrence of some event (such as investment rounds that result in contributions by investors).

The strike price is the amount to be paid to exercise the option. It is set when the company grants the options and must be calculated taking into account the fair value of the company at that time.

If the company appreciates during the grace period, the beneficiary will acquire the shares. Otherwise, the options will expire and the beneficiaries will lose them. This is the risk inherent in this type of incentive.

The greater alignment of interests between employees and founders/partners, preservation of the company's cash flow, the potential to maximize gains in liquidity events, the ability to attract and retain talent and executives, the spreading of a feeling of ownership, and non-application of labor and social security charges are factors that drive the expansion of stock option plans among startups.

However, the use of this instrument requires caution, since structuring and implementing it in an incorrect manner may transform the benefit into salary, exposing startups and employees to labor, social security, and tax liabilities.

For startups, this means an additional potential cost with labor and social security charges of approximately 66%. For beneficiaries, it represents an additional potential cost with income tax of up to 12.5%.

Such care is also essential for startups in investment rounds, as labor, social security, and tax risks can negatively affect decisions by potential investors with little appetite for legal risks.

What then are the main requirements that should be observed by startups?

For labor and tax authorities, the exposure of beneficiaries to financial risk and the existence of onerousness are essential if the plan is to be deemed legal.

Financial risk may be demonstrated both by the opportunity cost (because the options will only be exercised if the value of the shares is greater than the strike price) and by the exposure to financial loss.

Onerousness requires that employees effectively disburse their own funds to exercise the options and acquire the shares, either by paying an exercise price fixed based on the value of the shares at the beginning, or by means of payment of an amount for the acquisition of the options themselves.

In this context, startups and their employees may expose themselves to risks with the implementation of stock option plans that establish exercise prices that are substantially lower than the fair value of the shares at the beginning, with financing mechanisms for the payment of the strike price, or that allow the receipt only of the difference between the value of the shares and the exercise price (cashless exercise) or, further, if they do not impose periods of restriction on the sale of shares.

In the coming weeks, we will address the other incentives linked to shares, such as RSUs, restricted shares, phantom stock, and phantom stock options.

Category: Litigation

The exhaustive list of cases for filing interlocutory appeals provided for in article 1,015 of the Code of Civil Procedure (CPC) was the subject of a recent review by the Superior Court of Justice (STJ) in the judgment of Special Repetitive Appeals No. 1.704.520 and No. 1.696.396, which occurred on December 5, 2018.

On that occasion, the Court voted, in a majority opinion, on the admissibility of interlocutory appeals against decisions that are not expressly provided for in the CPC if exceptional urgency is found in the review of the subject matter of the case, thus mitigating the exhaustive nature of the cases listed in article 1,015.

Justice Nancy Andrighi proposed that it is possible to immediately file an interlocutory appeal against decisions not listed in article 1,015 of the CPC when there is a need for an urgent judgment, that is, when uselessness of a future examination in the context of an appeal is found.

Even though the STJ itself had previously acknowledged the suitability of interlocutory appeals based on an extensive interpretation of the list set forth in article 1,015 of the CPC, as in the case of decisions relating to jurisdiction (Special Appeal No. 1.679.909), the stance proposed by Justice Nancy Andrighi went a step further, stating that the mitigation of the exhaustive nature of the list does not depend on an extensive or analogical interpretation of the express cases in which an interlocutory appeal may be filed, but only on the need for immediate judgment.

Until then, some courts also accepted the filing of interlocutory appeals against decisions not listed in article 1,015 of the CPC, albeit as a minority position and on an exceptional basis. However, the new stance set by the STJ in the judgment of Special Repetitive Appeals No. 1.704.520 and No. 1.696.396 reflects an understanding of the matter still little accepted by Brazilian case law and by a significant portion of legal scholars.

The understanding set forth by the STJ, therefore, is a notable inflection point in the topic of the exhaustiveness of the list of article 1,015 of the CPC and should still be the subject of a wide debate in the legal community. It is necessary to observe, above all, the reaction of the lower courts to this understanding on the matter.

Category: Corporate

Law No. 13,818/2019, published on April 25, amended articles 289 and 294 of Law No. 6,404/1976 (the Brazilian Corporations Law) and brought in important changes to the criteria previously required for the publication of corporate documents.

One of the changes introduced by Law No. 13,818, which entered into effect on April 25, is the waiver of publication of the company's management documents provided for in article 133 of the Brazilian Corporations Law, including the financial statements of closely-held companies with shareholders' equity of less than R$ 10 million and less than 20 shareholders. Since 2001, this measure was only waived for closely-held companies with shareholders' equity of less than R$ 1 million, an amount that has not been updated in almost 20 years.

Law No. 13,818 also provides for exemption, as of January 1, 2022, of the publications in the Official Gazette ordered by the Brazilian Corporations Law, such as call notices, minutes of meetings, financial statements, and so on. In this sense, the law determined that "publications must be made in a newspaper of wide circulation published in the locality in which the company's headquarters is located, in a summary form and with simultaneous disclosure of full copies of  documents on the same newspaper page on the Internet, which shall provide digital certification of the authenticity of the documents kept on a separate page issued by an accredited certification authority under the Brazilian Public Key Infrastructure (ICP-Brasil)."

In addition, Law No. 13,818 establishes the criteria allowed for publication of short-form financial statements.

Therefore, the innovations introduced give companies more flexibility and reduce the bureaucracy and maintenance costs of corporate governance, especially for smaller companies.

Category: Litigation

In a decision handed down at the end of last year in Special Appeal No. 1.639.035/SP, the Superior Court of Justice (STJ) established a paradigmatic precedent by reinforcing the theory allowing for the objective extension of arbitration clauses to transactions involving a series of related contracts, where the main contract contains an arbitration clause, even allowing for the setting aside of valid forum selection clauses found in the ancillary contracts.

Origin of the case

The origin of the case is a loan agreement, which Paranapanema S.A. entered into with Banco UBS Pactual S.A. (currently Banco BTG Pactual) and Banco Santander Banespa S.A. (now Banco Santander S.A.), through which it received approximately R$ 100 million from each of the financial institutions.

The agreement provided for the discharge of the company's debt with the banks in one of two ways: (i) payment in Brazilian currency; or (ii) payment in kind through the Company's common shares, to be issued in a capital increase. Paranapanema opted for the second form of payment and, in order to guarantee the transaction, the parties also entered into swap contracts that, in summary, would ensure a minimum return to creditors if, during a pre-established period, the shares were valued at an amount lower than that which was contractually fixed.

While the financing agreement contained an arbitration clause, the swap contracts contained forum selection clauses, electing the courts of the city of State of São Paulo as having jurisdiction to hear and settle any conflicts arising therefrom.

When a dispute arose regarding the payment of the additional amount provided for in the swap contracts, Santander initiated an arbitration proceeding against Paranapanema and BTG before the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC) - CAM-CCBC Proceeding no. 17/2010 - seeking an order directing Paranapanema to pay the difference between the market value of the shares in a given period and the value of its debt claim.^[1]

Unsatisfied with the arbitration award, which ordered it the payment of the amount claimed by Santander, Paranapanema filed an annulment action seeking to nullify the award rendered, in accordance with article 32 of Law no. 9,307/98 (the Brazilian Arbitration Act), alleging that there were no arbitration clauses in the swap contracts and, as such, the arbitral tribunal did not have jurisdiction to rule on the case.^[2] In other words, in Paranapanema’s view, the matter should not even have been submitted to arbitration, since the swap contracts under discussion (which were the basis of the claims made by Santander) did not contain valid arbitration clauses and instead conferred exclusive jurisdiction to the courts of São Paulo.

In the annulment action, the 18th Civil Court recognized that there had been a violation of the principles of impartiality and independence in the formation of the arbitral tribunal and ordered the annulment of the arbitral award. However, it dismissed the argument of lack of jurisdiction of the Tribunal raised by Paranapanema. In an appeal, the 11th Chamber of Private Law of the São Paulo Court of Appeals (TJSP) upheld the annulment of the arbitral award and recognized the connection between the loan agreement and the swap contracts, stating that: “[i]f the main loan agreement reflects a true sine qua non condition for the existence of those ‘swap’ contracts, which are mere annexes to it or ancillary agreements, the arbitration clause in the main contract extends to the related ancillary contracts.

Both Paranapanema and BTG appealed the decision rendered by the TJSP, bringing the controversy to the STJ, through Special Appeal no. 1.639.035/SP.

Judgment of Special Appeal no. 1.639.035/SP

In a majority decision, the 3rd Section of the STJ denied the appeal filed by Paranapanema and BTG.

In his vote, the Rapporteur, Justice Paulo de Tarso Sanseverino, emphasized that, in view of the “connection between the contracts entered into by the parties”, he accepted that the arbitration clause in the main contract extended to the swap contracts, “which are linked to a single economic transaction”. Justice Marco Buzzi and acting-Justice José Lázaro Alfredo Guimarães agreed with the Rapporteur’s vote.

By relying on the principle of “legal gravitation” (gravitação jurídica), according to which an ancillary contract follows the main agreement, the Rapporteur recognized that the arbitration clause in the main contract binds the parties to arbitration even in disputes arising from the ancillary contracts (including when such contracts contain a valid forum selection clause).

In this sense, the Rapporteur expressed his view that the inclusion of the forum selection clauses in the swap contracts would not have the effect of setting aside the “clear will of the parties to arbitrate conflicts arising from the legal transaction”, thus validating the position expressed by the TJSP.

Justice Luis Felipe Salomão captained the dissent, followed by Justice Ricardo Villas Bôas Cueva, arguing that, in line with the case law of the STJ, “related contracts, although joined by a causal link, do not lose the autonomy and individuality inherent to them.”

He emphasized the important role played by the principle of party autonomy in arbitration and the individuality of the legal relations created by each independent contract, ruling out the possibility of objective extension of the arbitration clause.

Justice Salomão concluded his dissenting opinion to the effect that extension of the arbitration clause to related contracts (especially in the case of contracts containing specific forum selection provisions) depends on an examination of the facts – in particular the "investigation of the parties’ will” – in order to determine whether the inclusion of a forum selection clause in subsequent agreements (when an arbitration agreement has been included in the original contract) may have been sufficient to "indicate the parties’ lack of agreement to solve their disputes via arbitration."

Final Considerations

In view of the decision, parties involved in complex transactions, governed by various contractual instruments, must be attentive to the way in which they express their will, therein clearly stating, if appropriate, their choice of whether or not to extend the arbitration clause contained in the ‘umbrella’ contract to the other contracts. Given that including forum selection clauses in the ancillary contracts may not be enough, they may have to include explicit reference to their desire to set aside the original agreement to arbitrate expressed in the main contract.

In any case, it is certain that the principle of party autonomy plays a very important role in arbitration, and that, when deciding matters related to the jurisdiction of an arbitral tribunal and the extension of an arbitration clause, the interpreter of the contract must always investigate the facts and nuances of the case and the relationship between the parties and the agreements they have entered into.

^[1] When signing the financing agreement, Santander and BTG entered into a parallel agreement, in which the former undertook to guarantee the settlement of Paranapanema's debt with the latter. As a result, Santander had settled Paranapanema's debt with BTG and assumed BTG’s credit. Santander had also initiated arbitration proceedings against BTG seeking to recover these amounts paid on behalf of Paranapanema and, therefore, included BTG in the arbitration against Paranapanema to avoid potentially conflicting decisions between the different arbitrations.

^[2] In the annulment action (lawsuit no. 0002163-90.2013.8.26.0100, filed before the 18th Civil Court of the Judicial District of São Paulo), Paranapanema also claimed that there had been a breach of the principles of impartiality and independence by the arbitral tribunal, since BTG and Paranapanema had not reached an agreement as to the appointment of a co-arbitrator and one had been appointed for them by the CAM-CCBC. Paranapanema alleged that, given that it was a multi-party arbitration and that the two (2) respondents had not been able to appoint their co-arbitrator, Santander should not have been allowed to appoint its own co-arbitrator.

Category: Tecnology

After 176 amendments were presented and various public hearings were held, the joint committee formed by senators and deputies to review the Executive Order (MP) 869/2018, which amended Law No. 13,709/2018 (General Law on Data Protection - LGPD), voted on May 7 in favor of approval of the wording proposed in the report by Deputy Orlando Silva, also rapporteur for the special committee that approved the bill that originated the LGPD.

With the wording approved by the joint committee, MP 869/2018 will now proceed to a vote by the Chamber of Deputies and, later, the Federal Senate. If approved, the text will follow for presidential signature and will be converted into law.

According to what was proposed in the report, the main changes to the LGPD will be the following:

Health area: with respect to the legal bases for the processing of personal data, including sensitive data, wording has been added so that, in addition to health professionals and health entities, health services may also process personal data for protection of the data subject's health. Regarding the prohibition of shared use among controllers of sensitive personal health data for the purpose of obtaining economic advantage, the wording proposed cites as an exception the provision of health services and pharmaceutical assistance, to the benefit of the interests of the data subjects and to enable data portability and financial and administrative transactions resulting from the use and delivery of health services. Also, very important wording has been added for health care operators, prohibiting the operators of these plans from processing personal data for risk selection in contracting with and exclusion of beneficiaries.

Data subjects' rights: The current wording of the LGPD provides that the data controller must report correction, elimination, anonymization, or blocking of data to the processing agents with whom they have shared it, for them to perform the same procedure. According to the proposed addition to this wording, the person responsible will not need to carry out such reporting in cases where this is demonstrably impossible or involves disproportionate effort. Regarding the right to review decisions made on the basis of automated data processing, the proposed wording provides for the review to be done by an individual, as provided for in regulations by the Brazilian authorities. These rules should take into account the nature and size of the processing agent or the volume of data in the processing operations.

Penalties: In cases of infringement of the LGPD, the proposed wording also adds the penalties of partial suspension of the operation of the database; suspension of the exercise of the processing of personal data; and partial or total prohibition on the performance of activities related to processing of data. These penalties will only apply in cases of repeat offenses. A paragraph was also added to provide that the amount collected via the fines applied be allocated to the Fund for the Defense of Diffuse Rights, provided for in the Public Civil Action Law and the law that created the Federal Management Council of the Fund for the Defense of Diffuse Rights.

National Data Protection Authority (ANPD): the ANPD's link with the Presidency of Brazil and its legal nature as a body of the federal public administration should be re-evaluated after a two-year term. Various attributions were also added to the ANPD, such as preparing guidelines for the National Policy for the Protection of Personal Data and Privacy; entering into commitments with processing agents to eliminate irregularities, legal uncertainty, or contentious situations; promulgating simplified and differentiated standards, guidelines, and procedures (including deadlines) for micro and small businesses to adapt; and ensuring that data processing for the elderly is carried out in a simple, clear, and accessible manner.

Category: Tax

Law No. 13,655/2018, published in early 2018, included new general principles in the Law of Introduction to the Norms of Brazilian Law - Lindb (Decree-Law No. 4,657/1942) and since then, much has been said about the applicability of the changes in all areas of law, especially tax law.

This is because one of the amendments, promoted by article 24, provides that "review, in the administrative, oversight, or judicial spheres, of the validity of an act, contract, agreement, process, or administrative rule whose production has already been completed shall take into account the general guidelines of the time, it being thus forbidden to, based on later change in a general guideline, declare invalid situations already entirely established."

This provision was included in the rule as a new instrument in favor of legal certainty of the system. In the same spirit, the mandate of article 23 came about,^[1] which provides that, when an administrative, oversight, or judicial decision addresses the interpretation adopted in relation to an undetermined legal norm, it is the duty of the judge to provide for a transitional system, thus ensuring adequate time for subjects to adapt to the new interpretation.

When the two articles are analyzed together, it is clear that the legislator's intent was to bring in new normative provision that, based on comprehensive and clear wording, guarantee legal certainty to the subjects in all areas of Brazilian law.

This article intends to analyze the scope of the effects brought in by article 24 of Law No. 13,655/2018 and of the argumentative combat inherent to its application in administrative tax procedure.

From an objective interpretation of the provision reviewed, it is noted that its wording establishes that administrative and judicial courts, when carrying out a reassessment of acts performed by private individuals, must take into consideration what the majority guidance given in the period reviewed was. Specifically in the tax context, the issue has frequently been raised by taxpayers in judgments handed down by the Administrative Council of Tax Appeals (Carf)^[2] in order to request the cancellation of tax assessments, on the grounds that the taxpayer adopted the guidance in effect at the time.

The Attorney-General of the National Treasury opines in favor of the inapplicability of article 24 of the LINDB in administrative tax procedure. One of the points raised by the Attorney-General's Office is that it is not possible for ordinary law (Law No. 13,655/188) to prescribe general guidelines on tax law, since article 146^[3] of the Federal Constitution of 1988 establishes that regulation is within the exclusive competence of complementary laws.

The taxpayer argues that article 146 only applies to special and specific rules of tax law, that is, rules that regulate tax matters such as conflicts of jurisdiction, limitations on the power to tax, and applicability of taxes, among many other issues. The requirement of a complementary law is not unrestricted, that is, for any and all tax law rules. That being the case, rules of public law in general that do not deal with the specific situations of article 146 of the Federal Constitution may not be imposed via ordinary law. Also along these lines, the taxpayer argues that Law No. 13,655/2018 came to regulate the LINDB, which is imposed on the entire legal system, not excluding tax law.

To refute the application of article 24 of the LINDB, the National Treasury affirms that only accounting courts are under its scope, on the justification that the LINDB governs exclusively administrative law.

However, from a reading of the justification of the bill that gave rise to Law No. 13,655/188, one notes that the main concern of the legislator was the fact that, the more the legislation and the State's actions advance, the more legal security recedes due to uncertainty and unpredictability regarding the processes and controls of the Public Administration.

Thus, the main purpose of the legislator was "to include in the Law of Introduction to the Norms of Brazilian Law (Decree-Law No. 4,657/1942) provisions to raise the levels of legal certainty and effectiveness in the creation and application of public law."

Public law, as is well known, encompasses various branches of law, such as constitutional, financial, environmental, social security, and, above all, tax law. Thus, the National Treasury’s interpretation in a restrictive manner that the amendment promoted by Law No. 13,655/2018 would not cover tax matters is unreasonable. The norm introduces general provisions for and on the application of public law, which includes tax law.

Even if there were any doubts about the applicability of article 24 of the LINDB in the analysis of tax issues, professors Carlos Ari Sundefeld and Floriano de Azevedo Marques Neto, authors of the bill that was converted into Law No. 13,655/2018, insisted on clarifying the question once and for all.^[4] In articles published on the subject, scholars emphasized that tax law is a branch of public law, the primary application of which is done the Public Administration, being fully subject to articles 20 to 30 of the amended Law of Introduction to the Norms of Brazilian Law.

From there, it is concluded that the applyer of the law, including tax law, must observe the guidelines brought in in the new rule. Regarding the discussion held here, article 24 obliges Carf to confirm the majority rule at the time of the facts during the review, such that, if it is proved that the understanding was favorable to the taxpayer at that time, the levy must be rejected.

Regarding this issue, the National Treasury also states that the law was silent in not determining what the majority case law would be and that, given the structure of Carf and the constant change in the composition of the adjudicatory panel, it would not be possible to determine what the "majority understanding" of the body would be.^[5] However, it would not be necessary for legislators to be concerned with establishing what majority case law would be, since the majority is based on common sense, the largest part of the whole.

Nor is the argument valid that the possibility of changing the composition of the adjudicatory panels of the body precludes the implementation of majority case law. Taxpayers have already been successful in demonstrating that some matters had a consistent understanding during a certain period within the Carf,^[6] proving the current understanding regardless of change in the composition of the members.

Even in view of these and many other considerations that confront the arguments against the application of the rationale of article 24 of the LINDB to administrative tax procedure, it is verified that the current tendency of the Carf is to rule out its applicability.

The three adjudicatory panels of the Carf’s Superior Chamber, responsible for consolidating the administrative case law of the body, have already ruled in favor of the inapplicability of article 24 of the LINDB, although on different grounds.

The 1st Panel is of the understanding that article 24 of LINDB would not be applicable to the Carf, believing that that body does not exercise the activity of review, but rather of judge.^[7] In turn, the 2nd Panel argues that administrative adjudicatory bodies could not determine what the majority position is for the entire Tax Administration.^[8] The 3rd Panel was the last one to rule on the subject, expounding an understanding to the effect that the legal text of the instrument refers to review of the validity of an act, process, or norm, and not to review of acts in the sphere of administrative litigation.^[9]

The ordinary panels of the Carf, although they do not have settled case law on the controversy, for the most part follow the same tendency, in favor of inapplicability of the provision.

Despite this, taxpayers still have hope. There are already judicial decisions on the matter, such as the judgment^[10] conducted by the Court of Appeals of the State of São Paulo (TJSP) in September of 2018, which dismissed a levy done at the time when the case law moved in the opposite direction. In the decision, it was evident that the interpretation regarding the application of article 24 of the LINDB was instrumental in forming the judge’s persuasion.

This indicates the need for the Carf to recognize the guidelines drawn by article 24 of Law No. 13,655/8 and respects the intent of the legislator to preserve legal certainty, at risk of being a dead letter of the law. These are times of change, which will certainly bring more benefits to the legal system.

^[1] Article 23.  The administrative, oversight, or judicial decision that establishes a new interpretation or guideline regarding a rule of undetermined content, imposing a new duty or new condition of law, should provide for a transitional system when indispensable for the new duty or condition of law to be complied with proportionally, equitably, and effectively and without prejudice to general interests.

^[2] Administrative court of appeals that definitively reviews the validity of tax credits of taxpayers at the federal level, whether individuals or legal entities.

^[3] Article 146. The following is incumbent on complementary laws:
I - govern conflicts of jurisdiction, in matters of taxation, between the Federal Government, the States, the Federal District, and the Municipalities;
II - regulate the constitutional limitations on the power to tax;
III - establish general rules in matters of tax legislation, especially on:
(...)

^[4] Sources:
https://www.jota.info/opiniao-e-analise/artigos/lindb-direito-tributario-esta-sujeito-a-lei-de-introducao-reformada-10082018
https://www.conjur.com.br/2018-jun-01/opiniao-lindb-direito-previsibilidade-mudancas-interpretativas

^[5]  Except for provisions relating to Carf’s restatements of law, the reproduction of which is obligatory.

^[6] For example, the issue of limitation on the percentage of 30% for the offsetting of tax losses or negative calculation bases in merger operations, deductibility of amortization with goodwill, among others.

^[7] Appellate Decision No. 9101-003.839, of October 3, 2018.

^[8] Appellate Decision No. 9202-007.145, of August 29, 2018.

^[9] Appellate Decision No. 9303-006.839, of May 17, 2018.

^[10] Judgment handed down by the 6th Chamber of Public Law of the Court of Appeals of the State of São Paulo - Administrative Proceeding No. 0013375-90.2014.8.26.0224 - Opinion drafted by Appellate Judge Reinaldo Miluzzi.

Category: Tecnology

Presidential Decree 881/2019, called the Declaration of Economic Freedom Rights, is organized into five chapters and changes a series of laws, among which the most relevant are the Civil Code and the Brazilian Corporations Law. It has gained repercussion as a bet to catapult entrepreneurship, de-bureaucratize economic activity, and contribute to innovation, freeing startups from some bottlenecks caused by the Public Power.

General issues

The first three chapters of the law are the heart of the bill. The first, in addition to linking the Declaration of the Rights of Economic Freedom to the market system enshrined in the Economic and Financial Order of the Constitution, with the primacy of freedom of labor, initiative, and competition, conducts a balancing exercise to cut the limits of the application and extension of the economic rights declared, with an emphasis on tax law and federalism. In addition, the following basic principles are established: (i) presumption of freedom in the exercise of economic activities; (ii) presumption of good faith of private parties; and (iii) minimal and exceptional intervention by the State in the exercise of economic activities.

The second chapter outlines the economic rights of any individual or legal entity for Brazil’s economic growth and development, with emphasis on: (i) freedom of labor, economic activity, and livelihood; (ii) guarantees against undue intervention and unequal treatment provided by the Public Administration; (iii) presumption of good faith; (iv) the right to innovate and test products without the need for release from economic activity; (v) autonomy of the will in the context of legal business affairs; (vi) guarantees of a reasonable length of time in the context of administrative processes, especially those related to the obtaining of authorizations for the exercise of business activities; and (vii) digitization of the filing of documents.

In the third chapter, the rule is directed to the Public Administration in order to specify the duty to avoid the abuse of regulatory power, which includes obligations with respect to free competition and free initiative, to avoid deviation from function, and to observe legal competences.

In addition, MP 881 makes practical changes to specific legislation in order to implement some of the rights enunciated, including changes to the Civil Code (corporate and contractual issues), the Brazilian Corporations Law, and Cadin regulations, among others.

Changes

The motivation of economic freedom is noble, and the goal of facing paternalism, bureaucracy, and administrative irrationality is unquestionable, but it should not surprise anyone that the enunciation of economic rights lacks large regulatory innovations. Economic rights are, in reality, a logical consequence of the basic rights and principles of the Federal Constitution, such as the dignity of the human person, freedom of work, the pursuit of full employment, the principles of the public administration, private property, free enterprise, free competition, and other principles of the economic order.

The attentive reader should not have found any great novelty in the list of economic rights, because they are all already in the Federal Constitution and, as such, under normal conditions, this declaration of rights would be completely unnecessary.

But, if we are not in normal times, and in fact the Brazilian State has a structural problem in the observance of constitutional commands in general and predictability and legal certainty in particular, as indeed Brazil does have, would MP 881/2019 be able to do what the Federal Constitution has not done to date?

Skepticism is uncomfortable, but the conclusion that we are dealing with a normative text whose practical effect may be quite limited seems to be required, less perhaps due the ideas that motivated the content of the text (which are the same ones present in our Federal Constitution) and more due to a structural problem of the Brazilian State that, unfortunately, the promulgation of a rule will not be able to resolve.

It is important to say what is fundamental, and what MP 881/2019 ends up condescending to in order to change the status quo: the rule in Brazil is that economic activity in the strict sense does not depend on authorization from the Public Power, by virtue of the provisions of the sole paragraph of article 170 of the Federal Constitution. There are obviously conditionalities, requirements, regulations, but the State cannot, under the pretext of "regulating" economic activity, end up conditioning it on the discretion of the Public Administration and its authorization. It is never too much to remember that this is already so, regardless of MP 881/2019.

The most obvious example is related to municipal permits. This power and duty exists through the legislative competence of the local interest in conjunction with the constitutional dictates of urban politics. But the foundation of this power and duty is related to urban land management and the social function of urban property, not to the regulation of economic activity in the strict sense. Although various municipalities believe they have the prerogative of authorizing (or not authorizing) economic activity in their territory, including approving legislation in this sense, this does not change the constitutional framework. Such laws must be considered unconstitutional and not capable of having effects in the legal system.

Some novelties in the text recognize already established factual situations (such as low-risk economic activities carried out in homes) or lack future regulation and therefore do not have immediate application. While recognizing the importance of improving the business environment, the change seems, in principle, rather timid.

Specifically for startups, two provisions call one’s attention: items VI and VII of article 3. Both seem to point to the creation of a regulatory sandbox, a fashion word that simply means a space for experimenting with new products and services within controlled institutional contexts (both from the point of view of commercial scale and legal consequences).

The legislative innovation is interesting and must be celebrated, but putting it into practice is still uncertain. In addition to the fact that part of it is subject to subsequent regulations, there are controversial points such as the ability to ignore infra-legal norms under certain conditions based on "internationally consolidated technological development." What is the criterion for defining "consolidation"? If it is consolidated, is there innovation? The truth is that changes in the law due to social transformation is not a new subject (it is possible to have legal norms up to the present day, regarding carriages driven via animal traction) and that tension between the established law and social innovation is a healthy part of this transformation process in that there are always losses and gains, benefits and new risks. The fundamental point is that there be fewer legal enunciations and more an attitude on the part of the Public Power to contain its regulatory urge. Frequently, the problem is the inability of the Public Power to receive novelty without wishing immediate intervention, or presuming that actors engaged in innovation are disturbing the order. Unfortunately, legal texts alone are not able to change mentalities and postures, as indeed we are tired of seeing.

On the other hand, there are more structuring initiatives to support startups that are not included on this menu. The chronic problem of legal certainty in the tax field (caused not only by the labyrinth of laws, but also by the inconstancy of the authorities in interpretative changes that produce retroactive effects) and the creation of exceptions in the labor and consumer context (that allow for a better control of the contingencies, responsibilities, and costs) seem to be more effective measures to foster innovation. They would benefit not only startups, but also small and medium-sized businesses.

Next steps

There are advances in MP 881/2019. At the very least, it is an acknowledgment from the public authority itself that the Public Power’s mindset and ways of acting are not in the right places. From a practical point of view, however, it will still be necessary to await supplementary regulations and the actual progress of the presidential decree in the National Congress.

It will be very important to evaluate how the authorities of the other States and the Judiciary will receive and treat the presidential decree. Very little (or nothing) changes immediately. In addition, the argument remains that a large part of the expected consequences would be a logical consequence of the Federal Constitution, which may lead to an initial questioning of the effectiveness of the presidential decree in question: what would one respect MP 881/2019 if the Federal Constitution itself is not observed?

Thus, there is little that may be celebrated as effective, little to be done, and, for now, one must await its further developments. As a final note, one may question whether the vehicle of a presidential decree would be the most appropriate to propose a declaration of economic rights. In the context in which the habit of ignoring logical aspects of the Federal Constitution and its repercussions in the context of economic freedoms is discussed, one has to ask whether the best remedy for this would be to propose a presidential decree with the requirements of urgency and relevance that may be subject to reasoned questioning.