Category: Labor and employment

Startups are, by definition, the work environment of young people, a demanding public when it comes to instantaneousness in relationships and communications, an entirely flexible routine and less bureaucracy. This innovative profile makes day to day work very informal.

It is common, therefore, for these companies to stop adopting measures to control working hours (allowing alternative schedules), to stop requiring the presence of employees at the company, and to stop monitoring meal breaks or minimum breaks between two work days.

But the truth is that labor laws do not exempt startups from complying with the rules regarding work days, and lack of control can represent a risk that exposes startups to substantial liabilities in the case of inspection or labor suit.^[1]

How can the interests of these companies and their employees be reconciled with the legal obligations? Especially after the Labor Reform there are many measures that may be adopted, depending on the profile of the startup.

The first of them is to identify employees who fall within the concept of a "position of trust"^[2] or who have "external work hours,"^[3] for which it is not necessary to control work hours.

Another measure is to identify employees who work on a teleworking basis, predominantly from any location, whether it is a residence, a coworking space, or another place of their choice. These professionals are also not subject to control of work hours, which guarantees broad flexibility for both them and the startup.

Having analyzed the employees for whom control of work hours is not required, one must study the best alternative for control for the other workers, according to the reality of each startup.

Traditional control mechanisms (electronic time cards, for example) do not fit into the work environment of startups. It is against the local culture. An alternative that deserves to be highlighted is the implementation of alternative work day controls through negotiation with the employees' trade union, such as control by exception, which tends to be the least disruptive in this environment. Through this system, employees record only overtime hours, when performed. This increases the practicality of the control, reduces efforts and, consequently, the costs inherent thereto.

Another alternative whose use has been growing is the work hours self-management system. Here, the parties negotiate through the employees’ trade union or individually (in the case of hyper-sufficient workers)^[4] what modality of control will be adopted. Currently, there are, for example, smart phone applications that allow for remote and electronic control. It is also an option that reduces effort and costs, mainly because the process is entirely electronic.

There is also the flexibilization of the modular work day, in which employees fulfill the eight hours provided for within a range established by the company: for example, starting the work day between 7 a.m. and 10 a.m. and completing it after their entrance. With the greatest flexibility in the entry and exit times, employees can organize their personal appointments and the company can count on professionals to work at varied times.

It is also possible to institute a work hours banking system, where excess work hours in one day may be offset with fewer hours worked in another. The offset may be done (i) in the same month, without any formality; (ii) within six months, per an individual agreement with the employee; or (iii) in one year through a collective bargaining agreement with the employees' trade union. This alternative is sometimes much desired by employees, who may negotiate days off and days around holidays, offsetting them with additional work on other days.

As for breaks for meals and rest, startups may deal with them in two ways. The first of these is pre-annotation of the break time. In this case, employees will not record the actual lunch time, as it will already be filled in automatically. The second possibility is the reduction of the time break, which may be implemented through collective bargaining or agreement between the parties, in the case of hyper-sufficient employees.

^[1] Except if the establishment has less than ten employees, in which case laws and regulations do not require recording and control of work hours.

^[2] Employees who, under the law, hold management positions, who are equated to officers and heads of departments or branches.

^[3] Employees who, under the terms of the law, carry out activities that are incompatible with the fixing of working hours, and such conditions must be noted in the Work and Social Security Ledger and in the employee register.

^[4] Employees who, per the terms of the law, possess a higher-level degree and receive a monthly salary equal to or greater than two times the maximum benefit limit of the General Social Security Regime. This group of employees may individually negotiate the cases listed in article 611-A of the Consolidated Labor Laws and the result of the negotiation will have the same legal effectiveness and preponderance over collective bargaining agreements.

Category: Capital markets

CVM Instruction 606, published on March 25, promoted changes in CVM Instruction 555 in order to regulate the Incentivized Infrastructure Investment Funds (FI-Infra) under the terms of article 3 of Law No. 12,431/11. The objective of the measure was to incentivize the participation of the capital markets in the financing of infrastructure projects, whose progress has been hampered by the conditions of the political and economic scenario.

The FI-Infra will be governed by CVM Instruction 555, duly adjusted to include some rules from Law No. 12,431/11, which limits the investment in certain assets as a requirement for granting tax benefits to the fund's unitholders.

Among other changes, the new text allows the FI-Infra to be targeted also to non-qualified or professional investors, according to specific regulations.

"Individuals, especially in the case of retail investors, will be able to rely on professional management to better assess the risks and returns associated with these long-term assets, as well as greater portfolio diversification, essential for dilution of investment risks," said Antonio Berwanger, Market Development Superintendent of the Brazilian Securities and Exchange Commission (CVM).

Among the changes made, the instruction relaxed the FI-Infra investment limits in other types of funds, such as Real Estate Investment Funds (FII) and Debt Receivables Investment Funds (FIDCs), and assets such as Real Estate Receivables Certificates (CRIs) and Agribusiness Receivables Certificates (CRAs). Thus, the limit per issuer goes from 20% to 40% for funds for qualified investors (with more than R$ 1 million invested) and there will be no limits for professional investors (more than R$ 10 million).

As a consequence of the changes, other types of funds may migrate to the IF-infra system. Article 3 governed this migration, to be carried out by a decision of the unitholders in a general meeting. In such cases, the tax treatment of the income of the unitholders of an FI-Infra and of the unitholders of investment funds in units of investment funds (FIC) whose portfolio consists of at least 95% units of FI-Infras and the capital gains received by such unitholders with the sale of their units will be: (i) 0% income tax in the case of foreign investors not resident in countries that do not tax income or tax it at a maximum rate of less than 20%; (ii) 0% income tax in the case of individual unitholders; and (iii) 15% income tax in the case of a legal entity, in the form of exclusive withholding tax.

In relation to the purchase of assets, FI-Infras directed to the retail public may now acquire assets still in the pre-operational phase, a necessary condition for financing in the infrastructure sector. There was also loosening of concentration per issuer.

Under the new rules, retail FI-Infras, which previously could not have more than 5% in a single asset, that is, they needed 20 assets from 20 different groups to form a portfolio, may invest in only five. The instruction further amends other classification rules and exempts administrators and managers from penalties in the event of passive disqualification.

Experts believe that the changes in CVM Instruction 555 should stimulate the creation of FI-Infra funds, since managers can offer clients a differentiated investment option, as well as flexibility in the portfolio classification. With this incentive, the implementation of the new normative provisions clearly tends to favor expansion of the volume of finds destined to infrastructure projects.

Category: Infrastructure and energy

Approved in the Federal Senate in December of 2018 (PLS 484/17) and currently pending in the Chamber of Deputies, Bill 11,247/18, although controversial, may represent an important advance for the expansion of renewable energy sources in the Brazilian energy matrix.

The text provides the regulatory framework for wind and photovoltaic energy generation projects located in inland waters, in the territorial sea, and in the exclusive economic zone. The objective is to encourage the rational economic use of the sea's energy resources and the generation of electricity from renewable sources. To this end, Bill 11,247/18 provides for the granting of a concession or authorization, in the public use modality (UBP), for the installation of a wind or photovoltaic prism in maritime or inland waters, as part of the implementation and operation of offshore wind or photovoltaic projects.

By means of concession auctions, in coordination with transmission auctions for generated electric energy and/or auctions to contract energy destined to the regulated market, incentives and mechanisms would be established for the implementation of offshore renewable projects.

The absence of physical barriers such as vegetation, mountains, or buildings makes the high seas and the winds stronger and more constant, which is an advantage for offshore power generation. Due to the complexity in putting it into operation, however, the exploration of offshore energy faces challenges such as incipient specialized technical support, difficulties in the transportation of wind turbine components, high project cost, and possible interferences with oil and gas exploration and production or sea routes.

In addition, the bill requires the Ministry of Defense, the Maritime Authority, and the Ministry of Transport, Ports, and Civil Aviation to be consulted in defining the wind or photovoltaic prisms to be granted, which may make the bidding process more complex.

Regarding the allocation of funds arising from payment for the use of a public good, Bill 11,247/18 establishes that 45% will be allocated to the states, 45% to municipalities, 3% to the Ministry of the Environment, 3% to the Ministry of Mines and Energy, and 4% to the National Fund for Scientific and Technological Development (FNDCT).

The text has been criticized by players in the industry, arguing that the implementation of offshore wind projects is already feasible under the current regulations promulgated by the National Agency for Electric Energy (Aneel), which includes the procedure for granting new projects for power generation in its Normative Resolution No. 391/2009.

Although controversial, PL 11,247/18 emphasizes the importance of renewable energy sources for the future of Brazil's energy planning and exposes a great potential not yet explored for offshore generation projects. Certainly, with the right incentives and a constructive debate, offshore projects may be the next frontier for investment in renewable energy in Brazil.

Category: Labor and employment

To facilitate and modernize access to information related to all formal professional experiences of workers, the Ministry of Labor launched in late November of 2018 the Digital Employment Record Card, or Digital CTPS, as a free application available on the iOS and Android platforms.

The tool integrates several databases of the federal government so that workers may have in the palm of their hands all information on their working life. It is even possible to issue the document using the app, by inputting personal data and appearing at a job agency within 30 days to complete the process, and request a new physical copy of one’s CTPS.

This change will reduce the volume of visits at the Ministry of Labor and should expedite the response to requests, including in relation to the processes for requisition and issuance of the printed copies of employment record cards.

Employers’ question is whether they will be affected in any way by the new tool. At first, the Digital CTPS does not replace the physical copy of the document. Its submission remains mandatory for some benefits, and the information contained in the app will also not be accepted for civil identification purposes. In case of loss of the card, it is still necessary to request a new copy. The document cannot be replaced by the app.

The existence of the Digital CTPS also does not eliminate the risk of a penalty for retention of the employee's CTPS for more than 48 hours, which is provided for in article 29 of the Consolidated Labor Laws (CLT). Although the app is integrated with the Ministry of Labor database, employers must still proceed with annotation of the employee's professional ledger within 48 hours, counting from the date of delivery of the document to the company. The penalty for retaining the document is equal to one day's salary per day of delay in returning it.

The company will have no liability or obligation in the event that some information on the employee's employment contract is incorrect in the app. This type of error will occur when there is some divergence in relation to the user information contained in the National Social Information Register (CNIS). It will be incumbent on the employee to request that the INSS to correct the information in the CNIS via telephone or directly at a branch of the agency.

The Digital CTPS is part of the federal government's Digital Governance program, which aims to make services to citizens more efficient and economical through the implementation of information and communication technologies in the public sector. With this initiative, it is also possible to increase the participation of society in the decision-making process and simplify access to information.

Other Digital Governance initiatives, such as e-Social and the possibility of digital signatures on contracts, policies, settlements, and agreements, contribute to digitizing labor relations, making them less bureaucratic, expediting the issuance of documents, and increasing the control of government inspections. Companies should prepare for these and other modernizations, as the wave of digitization is only tending to grow.

Category: Tax

At the end of last year, Justice Dias Toffoli released for judgment Extraordinary Appeal No. 1.063.187, Topic of general repercussion No. 962, which litigates the levying of Corporate Income Tax (IRPJ) and the Social Contribution on Net Income (CSLL) on amounts received by the taxpayer due to the application of the Selic rate when tax withheld in error is refunded. In the judgment, the Federal Supreme Court (STF) will decide whether the amounts paid to taxpayers due to the application of the Selic rate are subject to income tax

The discussion is of extreme relevance because it has an impact on the majority of cases in which the taxpayer has the right to refund of tax overpayments adjusted for inflation by applying the Selic rate. Also, depending on the extent of the theory to be established by the STF, it may also include interest incurred when collecting judicial deposits (it was requested that RE No. 1.067.056, which relates specifically to the debate on judicial deposits also be selected as a paradigm for the judgment of Topic of general repercussion No. 962).

The topic is also quite current, considering that recently taxpayers have been successful in tax debates (for example, recognition of the non-inclusion of the ICMS in the PIS and Cofins calculation basis) which should generate large amounts of taxes to be reimbursed and, consequently, high figures for adjustment for inflation at the Selic rate.

It is not, however, a new topic before the Supreme Court.

In 2009, at the time of the judgment of Interlocutory Appeal No. 705.941, the STF was of the understanding that the controversy over the taxation of the Selic is infra-constitutional in nature and, consequently, would fall within the jurisdiction of the Superior Court of Appeals (STJ). The STF revised its understanding so to recognize the general repercussion of the matter when the Federal Court of Appeals of the 4th Circuit^[1] (TRF4), declaring the partial unconstitutionality of paragraph 1 of article 3 of Law No. 7,713/88, of article 17 of Decree-Law No. 1,598/77, and of article 43, item II and paragraph 1 of the National Tax Code (CTN), ruled out the levying of the IRPJ and CSLL on the amounts calculated at the Selic rate.

The taxpayers' theory is that the amounts received as interest on arrears and adjustment for inflation when the tax withheld in error is reimbursed does not constitute an increase in equity, thus not being included in the IRPJ and CSLL calculation basis, according to the terms of articles 153, III, and 195, I, "c", of the Federal Constitution of 1988. The amounts were said to serve the purpose of merely restoring equity, and not any increase.

The National Treasury argues before the STF that the text of the Constitution does not have a defined concept of profit/income and that its content must be extracted from infra-constitutional legislation, such that there is no offense to the provisions of articles 153, III and 195, I, ‘c’ of the Federal Constitution for the purposes of calling for the jurisdiction of the Supreme Court. It further asserts that in the refunding of the tax withheld in error, since the principal is taxable, it would be legitimate to tax the adjustment for inflation and interest on arrears, in view of the rule that the ancillary follows the principal.

The STJ, for its part, has already reviewed different aspects of the subject from the point of view of both individuals and the legal entities.

In 2012, at the time of the judgment of REsp No. 1.227.133, for example, the 1st Section of the STJ, under the system for dealing with repetitive appeals, established the understanding that only interest on arrears on the amounts due in the context of termination of employment contract would not be subject to Personal Income Tax (IRPF).

The same 1st Section again reviewed the issue in the judgment of REsp No. 1.089.720, at which time the theory was established that interest is not subject to IR taxation when the money to which it refers is exempt or outside of the field of application of the tax.

The following year, the 1st Section once more reviewed the issue, this time focusing on legal entities. In the judgment of REsp No. 1.138.695 it was understood that:
 

1. interest on the return of judicial deposits is of a remuneratory nature and does not escape taxation by the IRPJ and CSLL, since they make up the sphere of taxpayer's available equity; and 

2. the interest accrued on the refund of the tax withheld in error, notwithstanding the finding that they are interest on arrears, are included in the IRPJ and CSLL calculation basis, given their nature as lost profits, which make up the company's operating profit.

This last judgment was extremely important because, in addition to being submitted to the system for repetitive appeals, it addressed situations involving legal entities. Thus, according to the STJ, the amounts resulting from the application of the Selic rate received by legal entities, whether due to refund of tax withheld in error or due to the withdrawing of judicial deposits, are subject to IRPJ and CSLL taxation.

The decision by the STJ deserves to be re-examined.

Firstly, there is no way to confer the nature of lost profits to interest on arrears, since its inherent purpose is only to recover a loss suffered in the creditor's assets, which is far from the idea of remuneration of capital.

Interest on arrears aims to recover the direct damage to the creditor’s assets, under the terms of article 407 of the Civil Code (CC/02), which must be respected by the tax legislation, as directed by article 110 of the CTN.

In addition, the assertion that interest on arrears has the nature of compensation for “lost profits" is contrary to the definition already reiterated by other panels of the STJ.

The concept of “lost profits" established by the panels^[2] that make up the 2nd Section of the STJ, dedicated to private law, is based on the possibility of objectively predicting what the injured party failed to received, according to concrete, sure, and specific elements of the interrupted profitability. This premise does not allow for the inclusion of interest on arrears into the category of lost profits, since: (i) such interest does not correspond to what the taxpayer would effectively fail to earn; and (ii) interest on arrears is quantified in the same way for all taxpayers, without taking into account the factual situation of each case.

In addition, the STJ made an undue differentiation of the nature of the interest in cases of judicial deposits and refunds of tax withheld in error. The court held that interest on deposits is remunerative, while interest on refunds constitutes interest on arrears.

In so doing, it disregarded the fact that the relationship established by judicial deposits is essentially the same as that formed with the restitution of undue payments. In both cases, taxpayers were deprived of funds, which remain in the hands of the National Treasury, and the latter is responsible for adjusting the amounts for inflation at the time of restitution. Adopting this assumption, the 3rd Panel of the STJ,^[3] in a case under private law, found that interest on arrears is due upon the return of the judicial deposit.

In any event, regardless of the criticism, the STJ's unfavorable understanding is the current position and has been used by the National Treasury to justify taxation of the amounts.

With the recognition by the STF of this subject’s general repercussion, the topic has returned to the agenda for discussion, with the possibility of a different final decision in favor of the taxpayer.

Despite not having ordered a nation-wide stay in the cases that deal with this matter (as provided for in article 1,035, paragraph 5, of the Code of Civil Procedure of 2015), in some cases the STJ^[4] chose to order a stay in special appeals that reviewed the matter, signaling the possibility of reversing the current understanding.

As may be seen, although the discussion on the taxation of the amounts received as interest and adjustment for inflation due to the application of the Selic rate is not a new one for the courts of appeal, a future judgment on the matter by the Federal Supreme Court makes possible a change in the unfavorable understanding previously adopted.

It is incumbent on taxpayers to bring this discussion to the Judiciary to challenge the levying of the IRPJ and CSLL on amounts received in this regard when tax withheld in error is refunded or when judicial deposits are withdrawn.

^[1] (TRF4, ARGINC 5025380-97.2014.4.04.0000, Special Court, opinion drafted by Otávio Roberto Pamplona)

^[2] (REsp 1129538/PA, opinion drafted by Justice Honildo Amaral de Mello Castro, 4th Panel, decided on December 1, 2009, published in the Electronic Gazette of the Judiciary on December 14, 2009, and Resp 846.455/MS, opinion drafted by Justice Sidnei Benetti, 3rd Panel, decided on March 10, 2009, published in the Electronic Gazette of the Judiciary on April 22, 2009, among others).

^[3] (AgRg no Resp 1264669/PR, opinion drafted by Justice Massami Uyeda, 3rd Panel, decided on October 4, 2011, published in the Electronic Gazette of the Judiciary on October 14, 2011)

^[4] (Special Appeal 1431112/RS, opinion drafted by Justice Regina Helena Costa, 1st Panel, decided on August 23, 2018, published in the Electronic Gazette of the Judiciary on August 31, 2018)

Category: Real estate

Signed on March 23, 2016, Law No. 16,402/16 governs the subdivision, use, and occupation of land in the municipality of São Paulo (Zoning Law). In relation to the previous law, it has brought in a series of changes, such as the establishment of maximum size limits for lots, reduction in the requirement of car parking spaces, minimum number of bicycle parking spaces, widening of sidewalks, and expansion of special environmental protection areas.

But with no doubts one of the most debated points of the Zoning Law during the last few months was article 162, which stipulates, as a rule of transition for the law, that the processes for licensing construction, building, and activities and projects for subdividing lots, filed until March 22, 2016 (date of publication of the law) will be reviewed under the aegis of the previous urban planning law, in force at the time of the filing of the administrative application, and not the legislation in force at the time of its review, thus respecting the called "right of filing".

The matter is definitively not settled and was legally challenged by the Attorney-General's Office of the State of São Paulo, which filed on February 21, 2018, a direct action of unconstitutionality (ADIN) questioning the application of the right of filing (also provided in the Strategic Master Plan of the City of São Paulo), arguing that it violates relevant environmental issues and authorizes the execution of real estate projects that do not meet the urban planning requirements of the current legislation.

Initially, on February 26, 2018, the suspension of article 162 was granted in an injunction, which paralyzed a large number of administrative proceedings filed in the City of São Paulo. However, on May 16, 2018, the injunction was overturned by the Special Entity of the Court of Appeals of the State of São Paulo with 16 votes against 7.

The session of judgment of the ADIn, originally scheduled for March 20, 2019, was suspended after a decision was handed down by appellate judges Getúlio Evaristo dos Santos Neto, Pereira Calças and Xavier de Aquino of the Court of Appeals of the State of São Paulo (TJ-SP), to be resumed on March 27 of this year.

With 17 in favor and 8 against, the right of filing provided in the Zoning Law and in the Strategic Master Plan of the City of São Paulo was ruled constitutional. The decision of TJ-SP, which is not definitive, ensures, for the moment, that the projects will continue to be evaluated and approved in accordance with the legislation in force at the time of their filing.

The judgment guaranteed more certainty for real estate developers, whose projects were drafted and filed under the aegis of the previous law, but will actually be brought to an end while the Zoning Law is in force, a situation that, however, will continue to suffer strong opposition from the urban planning sector.

The discussion is not exhausted, however, with the decision on the ADIn and, certainly, the Attorney-General’s Office will appeal to the higher court in order to safeguard its rights and reverse the current understanding on the matter. Meanwhile, the Municipality of São Paulo will maintain the analysis and approval of real estate licensing, respecting the provisions of the Zoning Law on the right of filing and thus giving more predictability and certainty to the sector.

Category: Social security

Supplementary pension entities are created with the purpose of managing financial assets of third parties, seeking better income for their investments that ensure the granting of retirement benefits.

As such, supplementary pension entities are managers of third-party funds, with no income or profit, since any surplus ascertained must be fully transferred to the pension plans.

In this context, just as these entities do not make profit, since, by law, they have to revert their surpluses into the pension plans themselves, when there is a deficit, those responsible for settling it are also the beneficiaries.

Lately, the news articles that supplementary pension entities have shown deficits in their accounts have been frequent. Regardless of the reasons for these results, the fact is that both normal and extraordinary contributions are identical in nature, since both are designed to shore up the solidity and financial health of these entities so that their associates may, at the time, enjoy the benefits of supplementary retirement.

Therefore, the mandatory distinction made by the Federal Revenue Service of Brazil (RFB) in the tax treatment of these normal and extraordinary contributions is absolutely misplaced. In repeated responses to consultations, like Cosit No. 354/17, the RFB has taken the position that only normal contributions could be deducted from the calculation of individual income tax.

In order to find grounds to validate this forced and haphazard differentiation in the tax treatment granted to normal and extraordinary contributions, the RFB maintains that:

"Thus, per the principle of strict legality in tax matters (paragraph 6 of article 150 of the Federal Constitution of 1988), it is found that the contributions discounted from the amounts paid as supplementary retirement, by private supplementary pension funds, intended to defray deficits, cannot be deducted from the individual income tax calculation basis. These contributions do not have the same nature as that of normal contributions.”

In our understanding, it is impossible to integrate the legal norm with a purpose to merely collect taxes. In effect, Complementary Law No. 109/2001, when dealing with the modalities of contributions to supplementary pension entities, makes no distinction as to the nature of the contribution.

On the contrary, in passing the complementary law, the legislature stated that contributions intended to create reserves are classified as normal or extraordinary, both of which " will have the purpose of providing for payment of retirement benefits":

“Article 19. Contributions intended for the creation of reserves will have the purpose of providing for the payment of retirement benefits, observing the specificities set forth in this Complementary Law.

Sole paragraph. The contributions mentioned in the head paragraph are classified as:

I - normal, those intended for paying the benefits provided for in the respective plan; and

II - extraordinary, those intended for the payment of deficits, past service, and other purposes not included in the normal contribution.”

As set forth in the text, normal or extraordinary contributions are species of the same genus. Both are designed to keep the entity healthy and in order, because only then may their associates benefit from the pensions that they long for desire.

Also in the tax law that grants the deductibility of contributions to supplementary pension plans there is no distinction between normal and extraordinary contributions. When dealing with deductible payments in determining the calculation basis for the individual income tax, Law No. 9.250/95 thus establishes:

“Article 4. In determining the calculation basis subject to the monthly levy of income tax, the following may be deducted:

(...)

V - contributions to private pension entities domiciled in the country, whose burden has been that of the taxpayer, intended to pay for complementary benefits similar to those of Social Security;”

It is concluded, therefore, that these contributions, normal or extraordinary, are species of the same genus, since both are intended to "provide the payment of retirement benefits."

That being the case, there has been an intense race to the Judiciary to recognize the deductibility of extraordinary contributions to cover deficits incurred by private pension entities, observing the percentile allowed by the legislation (e.g., 12% of total income computed in the determination of the calculation basis of the tax due, according to article 11 of Law 9,532/97).

Some decisions handed down by several judicial sections of Brazil have already ruled out the non-deductability of these extraordinary contributions, such as that handed by Appellate Judge Ângela Catão, of TRF-1st Circuit {Federal Court of Appeals of the 1st Circuit}:

"Therefore, no income tax is levied on the amounts paid to the fund in the form of extraordinary contributions instituted as a result of the plan's deficit, since it does not create an increase in equity, such that taxpayers are entitled to deduct the respective amount from the income tax calculation basis.”

In the same sense, the National Harmonization Panel of the Special Federal Courts (TNU) established that " contributions by the beneficiary for the reorganization of the finances of the closed-end private pension entity may be deducted from the income tax calculation basis, but within the legally established limit (article 11 of Law No. 9,532/97).”

Based on the foregoing, we believe that there are solid and consistent legal grounds for overruling the limitations on the deductibility of extraordinary contributions paid to supplementary pension entities.

Category: Corporate

Presidential Decree No. 876, published on March 14 of this year, amended Law No. 8,934/1994, which deals with the public registration of business companies, among other matters. The main change was the inclusion of new paragraphs in articles 42 and 63 of the law, which, for the most part, aim to create mechanisms that accelerate the process of creation and registration, especially for limited liability companies and sole proprietor limited liability companies (Eireli). According to the explanatory memorandum of MP 876, the measure "is consistent with the need to reduce red tape and the number of days to form a company in Brazil."

According to the new wording of Law No. 8,934, articles of incorporation for individual entrepreneurs, limited liability companies, and Eirelis must be recorded with the competent board of trade automatically, provided that: (i) prior consultations on the feasibility of the business name and viability of location are approved; and (ii) the standard incorporation template established by the National Department of Business Registration and Integration is used. By means of automatic authorization to record the incorporation act, the registration numbers with the National Register of Corporate Taxpayers (CNPJ) and the state registration of the competent revenue service must also be issued, when this body is prompted by the board of trade, and according to the corporate purpose of the business entity subject to registration.

Within two business days, counting from the automatic authorization to record the incorporation act, the board of trade must review the legal formalities of the process and, if there is an insurmountable error, the registration must be canceled, together with the enrollments issued. If a curable defect is identified, the board of trade must specify the relevant requirements, which shall not affect the registration granted.

It should be clarified, however, that, depending on the corporate purpose designated for the business entity, the automatic authorization to record incorporation acts referred to in MP 876 presupposes fulfillment of prior procedures with environmental, state, municipal, and regulatory bodies, among others, which may take some time.

In addition to the automatic authorization mechanism, MP 876 brought in new wording for Law No. 8,934 so as to establish that authentication of documents presented to the board of trade will be waived when a lawyer or accountant of the interested party affirms, under personal liability, the authenticity of the copy of the respective document. The explanatory memorandum of MP 876 claims that this amendment "meets the ideals of simplification and de-bureaucratization, while reducing the possibility of fraud or at least facilitates holding those responsible criminally liable in the event that it occurs."

The intention to reduce red tape of business registration in Brazil and to reduce the time for forming companies is commendable and necessary, but the effectiveness of this measures will depend on the adaptation of the boards of trade. The presidential decree produces immediate effects, but depends on the approval of the National Congress in order to be converted definitively into law. Its term of duration is 60 days, extendable once for the same period.

Category: Intellectual property

With the approval of Law No. 13,709/2018, the Brazilian General Data Protection Law (LGPD), practically all sectors of the economy, both public and private, must take measures to adapt their activities to the new legal requirements regarding the processing of personal data.

One of the sectors that will be most directly affected by the new law will be advertising and marketing, especially in relation to the targeted advertising model based on behavioral analysis, that individualizes and segment thesegments ads according to target-audience profiles.

To create these profiles, it is necessary to process a large volume and a wide variety of data, such as Web browsing history, use of App usage, shopping habits, geolocation data, IP address, network data, registration of date and time of therecords for actions performed actions, time spent on each page, links clicked, and searches performed.

NowadaysCurrently, these data are usually collected and processed freely, often without the consent or even the knowledge of the data subjects (i.e., the person to whom the data refer). In some cases, the argument for this practice is that such data are not, strictly speaking, personal data, since they are not able to identify a person, despite the definition provided in article 14 of Decree No. 8,771/2016, which provides for the regulationregulations of Law No. 12,965/2014 (the Brazilian Civil Rights Framework for the Internet). This model, however, will need to be revised to adjust to the LGPD, which will come into effect in August 2020.

Under the new law, the processing of personal data may only be performed in one of the ten hypothesisscenarios provided for in its article 7.^[1] In addition, it will be necessary to take into account the provisions of article 12, paragraph 2 of the LGPD, according to which the data used to form the behavioral profile of a particular individual, if identified, may be considered a personal data.

It should be noted that none of the legal basis that legitimize processing of personal data has a preponderance or greater importance in relation to the others, and a case-by-case analysis must be carried out in order to identify the one that best suits a particular situation.

The analysis of this article is limited to the hypothesisscenarios of items I and IX (the consent of the data subject and the legitimate interest of the controller), because they are the most commonly invoked to substantiate the processing of data for the purposes of behavior analysis and targeted advertising. Other hypothesisscenarios would very rarely apply for this purpose.

Regarding the legitimate interest of the controllers, the LGPD expressly states that they may only substantiate the processing of personal data for legitimate purposes, including, for example, support and promotion of the controller’s activities (i.e., the person responsible for the decisions concerning the processing of personal data), provided that such treatment does not entail a disproportionate violation of the fundamental rights and freedoms of the data subject.

Thus, it would be possible to question legitimate interest as a legal basis for the processing of personal data for the purposes of behavioral analysis and the provision of targeted advertising, since, by the very nature of the data, the respective collection and treatment could be considered too intrusive, disproportionately violating the privacy and intimacy of their data subjects.

A recent decision in this sense was handed down by the French National Data Protection Commission (CNIL), which ordered Google to pay a fine of 50 million euros on the grounds that the company processed data for the purposes of behavioral analysis and targeted advertising without adequate grounds based on one of the authorizing hypothesisscenarios for authorization provided for in the GDPR (the European General Data Protection Regulation, which inspired the LGPD).

According to CNIL, "if the large volume of data processed allows to ascertain the massive and intrusive nature of the performed processing performed, the very nature of some of the data described, such as geolocation or content consulted, reinforces this understanding. Taken in isolation, it is likely that collecting each of these pieces of data will accurately reveal many of the most intimate aspects of people's lives, including their lifestyle, their tastes, their contacts, their opinions, or even their travels. The result of combining these data reinforces considerably the massive and intrusive nature of the processing operations in question."^[2]

In the light of this understanding, it seems to us, in principle, that, although legitimate interest may be used as a legal basis for the collection and processing of more specific and less invasive data, when it comes to massive processing of large amounts of data of a more intrusive nature, such as is the case of Google, it is more advisable to obtain prior consent from the data subjects as a legal basis for the processing operation performed for behavioral analysis and targeted advertising. However, as already pointed out, the choice of the legal basis to substantiate the data processing must always be made on a case-by-case basis, analyzing, among other issues, the type and quantity of data collected, the feasibility of obtaining consent, and the risks arising from each choice.

The LGPD establishes that consent as a legal basis for the data processing must be free, informed, and unequivocal, in addition to being provided in writing or by other means that demonstrate the intention of the data subject, otherwise it will not be considered valid. Consent must also relate to specified purposes, such that generic authorizations for the processing of personal data are considered void.

In other words, for the consent to be considered valid and therefore capable of legitimizing the data processing, it is essential that the data subject have easy access to information on the processing, which should be made available in a clear, appropriate and ostensiveprominent manner, including information about the types of data processed, the specific purpose of the processing, the form and duration of the processing, the identification of the controller responsible for the processing decisions, the resulting consequences, the impacts on the data subjects, and the degree of intrusion in their private lives.

In the case of Google mentioned earlier, CNIL found that the consent obtained was not valid, since the information regarding the processing were spread out across various documents, which made access difficult for the data subjects. In addition, the information was too generic, and this prevented the data subjects from understanding with sufficient clarity the particular consequences of the processing and evaluating the extent of the processing and the degree of intrusion into their private lives.

CNIL also found that, in order for the consent to be considered valid, it would require a positive act by the data subject, not just pre-selected opt-ins. I.e., according to CNIL’s understanding, it is imperative that the data subjects themselves select the checkbox, expressly providing their consent.

Lastly, CNIL reiterated that the consent should be given in a specific and separate manner for each processing purpose (through specific and separate opt-ins for each purpose), which means that selecting one single “I agree” checkbox regarding the whole privacy policy is considered too generic and, therefore, void. In relation to this point, it should be emphasized that the LGPD, unlike the GDPR, only requires specific consent in exceptional situations (such as in the case of processing of sensitive data or international transfer of data). Thus, in theory, there is nothing in Brazilian law that prevents a single “I agree” with the whole privacy policy.

Although this CNIL decision was reached on the basis of the GDPR, it constitutes a very relevant precedent, which may be used as an interpretative benchmark for the application of the LGPD, bearing in mind the similarities and differences between the two legislations.

It is, therefore, of the utmost importance that targeted advertising and marketing companies carefully monitor the issues discussed in this article and adapt their activities to the new requirements of the LGPD, in order to ensure that the processing of personal data carried out by them is always based on one of the legal hypothesis,provisions, in order to avoid the application of sanctions, which include fines of up to 2% of the total revenues of the company, group, or conglomerate in Brazil, in its last fiscal year, limited to R$ 50 million per infraction.

^[1] Article 7. The processing of personal data may only be carried out in the following hypothesisscenarios:

I - upon the provision of consent by the data subject;

II - for the fulfillment by the controller of a legal or regulatory obligation;

III - by the public administration, for the processing and shared use of data that are necessary for the execution of public policies provided for in laws, regulations, or based on contracts, agreements or similar instruments, subject to the provisions of Chapter IV of this Law;

IV - to carry out studies by a research body, therein guaranteeing, wherever possible, the anonymization of personal data;

V - when necessary for the execution ofperformance under a contract or preliminary procedures relating to a contract to which the data subject is a party, at the request of the data subject;

VI - for the regular exercise of rights in judicial, administrative, or arbitration proceedings, in accordance with Law No. 9,307, of September 23, 1996 (the Arbitration Law);

VII - for the protection of life or physical safety of the data subject or a third party;

VIII - for the protection of health, in the context of a procedure performed by health care professionals or health authorities;

IX - when necessary to meet the legitimate interests of the controller or a third party, except in cases in which the data subject's fundamental rights and freedoms require the protection of personal data; or

X - for the protection of credit, including as set forth in the provisions of the relevant legislation.

^[2] Free translation. Original text: “Par ailleurs, si le très grand nombre de données traitées permet de caractériser à lui seul le caractère massif et intrusif des traitements opérés, la nature même de certaines des données décrites, telles que les données de géolocalisation ou les contenus consultés, renforce ce constat. Considérée isolément, la collecte de chacune de ces données est susceptible de révéler avec un degré de précision important de nombreux aspects parmi les plus intimes de la vie des personnes, dont leurs habitudes de vie, leurs goûts, leurs contacts, leurs opinions ou encore leurs déplacements. Le résultat de la combinaison entre elles de ces données renforce considérablement le caractère massif et intrusif des traitements dont il est question” (COMMISSION NATIONALE DE L'INFORMATIQUE ET DES LIBERTÉS (CNIL) - DELIBERATION No. SAN-2019-001 OF JANUARY 21, 2019).

Category: Labor and employment

When one speaks of startups, one of the first things that comes to mind is the informality of the work environment compared to that of traditional businesses. Flexible work schedules and stripped-down offices, coupled with the possibility of rapid career advancement, are often startups’ greatest attraction in recruiting talent in the job market. However, not all informality is positive for business.

In the field of labor law, there is a hazardous informality on the part of startups related to the lack of structure in the hiring of labor, which may often expose the company to risks of recognition of an employment relationship.[1] 

Although the differences between startups and the common business model are clear, there are no relevant distinctions from a purely labor standpoint, since startups need to follow labor laws from the very beginning of their creation even before they become operational, just like any company.

Early on, entrepreneurs needs to understand the best form of hiring for their business model, considering all the positions, from the top management to the operational team.

By top management, one means executives, that is, potential partners, directors, officers, and managers. These people are essential for the success of the business and indispensable in the idealization of the project, organization/structuring of ideas, and, thereafter, in the management of the startup. Thinking about reducing labor costs, many startups eventually include all these professionals as partners. However, not all of them qualify as such, and their inclusion in the corporate framework may attract unnecessary labor liabilities and hinder the attraction of investments or a potential sale. Only those professionals who incur the risks of the startup’s business should be included as partners.

Hiring official officers to be appointed in the corporate documents may be an alternative for management professionals. The absence of labor laws in this relationship guarantees parties greater freedom in negotiating the terms of the agreement between them.

Startups may also opt for other types of hiring for both managers and operational professionals, such as self-employed persons, legal entities (PJ), and third-party contractors, always remembering that the Labor Reform allowed the outsourcing of core business activity (a company’s main activity). However, if the requirements for an employment relationship have been met, especially direct subordination, are present, the outsourced party shall be entitled to receive all labor rights applicable to an employee.

The key here is also to analyze direct subordination regardless of the form of hiring, either for positions of formal officers to be appointed in the corporate documents or outsourcing (PJs, self-employed persons, and third-party contractors).

The hiring of official officers to be appointed in the corporate documents should be limited to de facto officers, who have autonomy within their area to make decisions, thus guaranteeing some degree of independence between them and the company.

Likewise, the use of self-employed persons and PJs should be limited to one-off/partial activities, without direct management/subordination, in order to ensure that workers without an employment relationship maintain their autonomy.

The Labor Reform also brought in another hiring alternative by allowing companies to start hiring on-demand professionals, so-called intermittent employees. As intermittent employees are paid only for the work performed, in proportion to the days and hours worked, this modality has proved to be a good option to meet specific demands or peak workload.

Therefore, in order to balance informality in the workplace with legal certainty, startups should analyze how best to hire labor, therein mitigating potential risks of direct subordination to those hired outside the system established by the Consolidated Labor Laws.

Click here to see the other articles in this series

^[1] There is a risk of an employment relationship when the requirements of subordination, onerousness, habituality, and personality are present in the relationship held between the parties.

Category: Labor and employment

Startups create innovative business models. One example is the shared economy, which emerged from the broadening of the concept of the gig economy^[1] (also known as the "freelancer economy"). In it, online platforms serve as a broker between freelancers or service providers and people or companies that need their work and guarantee these professionals autonomy to work when and how they want.

According to a study by McKinsey,^[2] which accompanies the growth trend in this segment, 27% of the economically active population in the United States and Europe has developed some kind of self-employment, and 40% of users of these applications are only seeking income that is supplementary to their main source of income.

Another study by EY^[3] reveals that 80% of online platform users appreciate the flexibility provided by this business model. The absolute majority of respondents say they have made a conscious choice to work in this manner, and it is not a choice out of necessity.

In the difficult economic moment that Brazil has experienced for some years, this new business model has gained prominence, offering valid options to guarantee a second source of income or for unemployed workers in search of professional replacement.

However, for this business model to be economically viable and attractive for users, it needs to be structured so as to avoid the risk of recognition of an employment relationship,^[4] which causes for startups and users all duties and taxes applicable to employees, such as control of working hours, overtime, breaks, 13th salary, holidays with an additional 1/3 premium, FGTS payments, and INSS and IRRF taxes, among others.

The key to defining recognition of an employment link is direct subordination. However, it should not confused with business guidelines. While direct subordination entails subjection to the commands and hierarchical domain of direct orders, business guidelines are merely an indication of business rules that may or may not be accepted by users.

Recent decisions by the labor courts^[5] show that startups may:

• Require personal and non-transferable registration;
• Define the price of the service;
• Provide guidance on how to provide the service;
• Stipulate a fixed rate for brokerage fees;
• Receive directly the amount paid for the service and pass on the user's part;
• Carry out incentive campaigns; and
• Disconnect users due to misuse of the platform.

This occurs because online platforms allow users to connect and disconnect whenever they want, thus having autonomy to use it. On the other hand, judicial decisions[6] also show that startups should avoid:

• Providing self-employed users with the means to render the service (e.g., a car for a driver or a motorcycle for a motorcyclist);
• Sending direct orders to users;
• Applying penalties if users do not respond to the command;
• Requiring a minimum frequency to provide services;
• Taking direct control over how services are being provided;
• Excluding drivers/motorcyclists from the platform based solely on assessments by users; and
• Carrying out promotions that end up requiring self-employed users to continue using the platform for certain periods (e.g., a promotion based on the number of minimum trips or travel time for deliveries).

In these cases, the Courts have found that these are requirements that create an employment relationship, especially direct subordination and/or structural subordination (when the worker is inserted into the business dynamics), and there is a risk of recognition of an employment link.

Therefore, it is crucial to analyze your business model in order to determine how best to structure it to eliminate the risk of direct or structural subordination, thereby avoiding unwanted risks that could hinder the development of your startup.

Next Wednesday, we will speak about the possibility of balancing informality in the workplace with certainty in hiring workers.

Click here to see the other articles in this series

[1] "Gig" is an English slang word similar to the slang “bico" in Portuguese and refers to temporary jobs.

[2] McKinsey & Co. “Independent work: Choice, necessity, and the gig economy”, 2016. https://www.mckinsey.com/featured-insights/employment-and-growth/independent-work-choice-necessity-and-the-gig-economy

[3] EY. “Is the gig economy a fleeting fad, or an enduring legacy?”, 2016. https://gigeconomy.ey.com/Documents/Gig%20Economy%20Report.pdf

[4] There is a risk of an employment relationship whenever the requirements of subordination, onerousness, habituality, and personality are present in the relationship between the parties.

[5] 0000155-67.2015.5.17.0005; 0011258-69.2017.5.03.0012; 0010795-02.2017.5.03.0183; 0011359-34.2016.5.03.0112; 1001574-25.2016.5.02.0026; 1000026-79.2018.5.02.0321; 1002392-25.2017.5.02.0613

[6] 1000123-89.2017.5.02.0038; 0001161-69.2018.5.11.0006; 0100294-09.2017.5.01.0003

Category: Social security

At the end of January, the Federal Revenue Service of Brazil (RFB) modified its understanding regarding the collection of social security contributions on employer food assistance. Communication of the change was done on the 25th through the publication of Cosit Consultation Resolution 35/19, which is applicable to all companies, whether or not they are enrolled in the Workers' Food Program (PAT)

According to the RFB, with the enactment of the Labor Reform (Law No. 13,467/17) as of November 11, 2017, companies that provide food assistance to their employees by means of a voucher or card are not obliged to include this amount in the calculation basis for social security contributions. Previously, the tax authorities argued that only food assistance provided in natura would be excluded from the calculation basis.

This interpretation favorable to taxpayers innovates in relation to the previous understanding because it considers the prohibition imposed in the wording of article 457, paragraph 2, of the Consolidated Labor Laws (after the reform) refers only to cash payments of the food assistance, such that other forms of payment are not subject to the levying of social security contributions and labor charges.

The issue also generated the Cosit Opinion Letter 04/19, published on January 29, 2019, whereby the RFB clarified that, when the food assistance is paid by both the company and the employee, the treatment of these amount for the purposes of levying social security contributions may be different.

The portion of the food assistance deductible from the employees in a co-participation system will be included in the calculation basis of the social security contributions as part of their remuneration, since the amount discounted constitutes salary of the employees. This interpretation is independent of the treatment given to the portion of the food assistance paid by the company, which may or may not be included in the calculation basis for social security contributions, depending on its remunerative nature defined in accordance with applicable legislation.

Although they were directed to specific taxpayers, the two opinion letters indicated are binding on the RFB and support the actions of other taxpayers, as per article 9 of Normative Instruction No. 1,396/13.[1] Failure to comply with these guidelines may result in assessments of taxpayers and rejection of any offsets.

There are sound legal bases for it to also be recognized that, in the period before the Labor Reform, the benefit of food assistance provided through vouchers or card in the context of the PAT is not subject to taxation through social security contributions, in accordance with applicable regulations. The legal basis would be different from that found in Cosit Opinion Letter 35/19, supported on the social security legislation itself and the regulations of the PAT.

With regard to employee co-participation, although the debate is still incipient and controversial, there are already judicial decisions favoring exclusion of these amounts from the calculation basis of social security contributions, which has legal support in an interpretation of the text of the law and the  compensatory and assistance nature of the benefit.

In view of this scenario, it is advisable for the companies to evaluate the treatment given to the payments in question and to check on the existence of excess collection or even exposure, which requires adjustment of procedures or the use of preventive measures.

Category: Labor and employment

Presidential Decree (MP) No. 873/2019, published on March 1, 2019, amended the CLT to prohibit the collection of union dues from any employees who have not given express authorization, individually and in writing to their union, following the case law of the Federal Supreme Court (STF), which had already ruled the collection of trade union dues to be optional.

The promulgation of the MP produced among trade unions a feeling of hunting for new models for paying for the system, besides removing from these entities privileges guaranteeing the receipt of payments due as union contributions and making them bear the cost of collection and the risk of default.

The publication of Law No. 13,467/17 (Labor Reform) evinced the legislature’s intent to extinguish compulsory union dues, which is stated in the following passage: "Employers are obliged to deduct from the payroll of their employees, provided that it is duly authorized by them, the contributions owed to the trade union...” (article 545 of the CLT). However, this provision did not bring in the proviso set forth in Decree-Law No. 925/1969, and employers were obliged to make efforts to procure transfers to trade unions with the prior authorization of their employees, regardless of the title or nomenclature of the collection.

To support and measure this provision, the subject of the optional nature of the dues was addressed by the STF in the Direct Action of Unconstitutionality (ADI) No. 5794 and in Declaratory Action of Constitutionality (ADC) No. 55, which sought recognition of the validity of the change. Ruling on them together, the STF decided not to allow union dues to be imposed on workers and employers when the Federal Constitution states that "no one is obliged to join or remain affiliated with a union entity," thus validating the end of the compulsory nature of union dues.

With the promulgation of MP 873/2019, there is no longer any pretext to support the absolute certainty of trade union entities as to the receipt of the contributions due, including monthly dues, whose burden of collection, as a general rule, falls on the creditor party. This is because article 545 of the CLT, after promulgation of the MP, addressed "voluntary contributions and monthly payments due to trade unions," which will now be collected independently of their designation, according to articles 578 and 579 of the CLT:

Article 578 of the CLT: "Contributions due to trade unions by participants in the economic or professional categories or professions represented by these entities shall be collected, paid, and applied in the manner established in this Chapter, under the name of union contribution, provided that it is upon the prior, voluntary, individual, and express authorization of the employee.”

The presidential decree also expressly vetoes rules or provisions regulating trade union categories that establish compulsoriness of or obligations for collection for employees or employers without observing what is set forth in the legal provision.

Article 579 of the CLT: “Requests for payment of union contributions are subject to the prior and voluntary authorization of employees participating in a particular economic or professional category or of a self-employed profession in favor of the representative trade union of the same category or profession or, in the absence of trade union, in accordance with the provisions of article 591.”

The peremptory amendment done by MP 873/2019 is provided for in article 58 of the CLT, which states: "The contribution of employees that expressly authorize in advance the payment of union dues shall be done exclusively by means of a bank slip or electronic equivalent, which shall be compulsorily sent to the employee's residence or, in the event of impossibility of receipt, to the headquarters of the company."

It has been seen that the immediate implication of the rule is to innovate regarding the competence to collect union due through specific means. Thus, employers shall not have the obligation to collect and pass on the main source of funding for trade union entities.

With this, members who voluntarily associate with some trade union organization will do so when they feel properly represented by the category. This forces the trade union organization to reinvent itself in order to attract members and keep them actively paying dues.

Following the STF’s case law, MP 873/2019 removed from trade unions the privilege of guaranteeing receipt of union dues, which were previously passed on by companies. Trade unions therefore have to bear the cost of collection and the risk of default by their members. The change also gives employers the relief that they are no longer required to collect union dues and encourages a greater relationship of representation between trade union organizations and their members.

Category: Labor and employment

Before the Labor Reform (Law No. 13,467/17), in force as of November 11, 2017, if companies did not grant a full one-hour break for meals and rest, the so-called intra-workday break, they had to pay an entire hour of overtime, even if employees had enjoyed most of this time. That is, employers who granted only 15 minutes were treated in the same manner as employers who granted 45 minutes of meal break.

Furthermore, in addition to having to make full payment, the amount of the break also hadsalary nature , thus affecting all other payments to employees.

With the Labor Reform, it was expressly established in the Consolidated Labor Laws (CLT) that only the period of the break not granted should be paid by the employer, as an indemnity, with an increase of 50% over the amount paid as compensation for normal working hours (article 71, paragraph 4).^[1]

Thus, as of November 11, 2017, for situations in which a break for rest is not granted in full, employers must pay only the remaining period.

Aside from this discussion regarding the disproportionate treatment of partial breaks, resolved by the new wording of paragraph 4 of article 71 of the Labor Code, there are other questions about the intra-workday break that deserve attention. For example, are oscillations in the recording of departure and return times for breaks permissible? If so, what is the tolerance limit?

It is inevitable that there will be oscillations both in the start and end times of breaks and in the departure and return times for breaks. Regardless of the organization or size of the company, variations will occur because the records result from a human act.

Regarding fluctuations related to the beginning and end of the workday, the CLT expressly provides that variations of up to five minutes will not be considered for the purpose of working hours, subject to the limit of ten minutes per day (article 58, paragraph 2, of the CLT).^[2] However, for variations in relation to meal breaks, the law is silent and there is no settled understanding in judicial decisions.

The understanding is that variation of up to ten minutes in breaks is tolerable, due to analogical application of article 58, paragraph 2, of the CLT. That is, variation of up to five minutes in departures for lunch breaks and up to five minutes for returns should not have an effect for the purposes of computing the one hour break.

On the other hand, there is also the understanding that it is not possible to apply said article by analogy to cases of meal breaks, since a variation of ten minutes in a break of one hour is not proportional to a variation of ten minutes in a workday of eight hours.

To try to resolve this debate, on March 25, 2019, the Superior Labor Court (TST) decided to establish the following legal theory:

"The occasional and minimal reduction of the intra-workday break, thus considered to be that of up to five (5) minutes in total, added to the beginning and end of the break, due to small variations time card controls, does not call for the application of article 71, paragraph 4, of the CLT. The overstepping of this limit entails the legal consequences provided for by law and case law ".

Thus, according to the TST, companies may be ordered to pay in full the time from the intra-workday break not granted if they do not observe the tolerance limit of up to five minutes at the beginning and end of the break.

By fixing this theory, some questions arise.

• Can the start and end tolerances of the workday be offset against intra-workday break tolerances? For example: will the five minutes less that the employee has not enjoyed as a break be understood by the time card registration system as five minutes worked? And if on that day an employee had five minutes less as break time, what if he/she had come in five minutes early? Could he/she then leave ten minutes before his/her regularly scheduled time?
• The Labor Reform allowed the 30 minute break to be negotiated. Is it possible to negotiate this tolerance as well? By making a rule of three and starting from the same reasoning applied by the TST when considering the five-minute tolerance for a one-hour break, would then a 2.5-minute tolerance for 30-minute breaks apply?

With regard to the first question, we consider it defensible that working hours and breaks for rest deserve two separate lines of analysis. Although tolerance is allowed in both cases because of the human impossibility of registering exactly the same hours on all working days, one tolerance cannot be offset with another, as otherwise it will denature its purpose.

In this context, in the example mentioned in the first question, employees would not be entitled to receive any amount for the intra-workday break and could leave (a) at the regular time for departure; (b) five minutes earlier (since they had started the workday five minutes earlier); or (c) up to five minutes later (subject to the limit of ten minutes per day, as permitted by law). If one were allowed to offset the intra-workday break, employees could purposely enjoy five minutes less of break time each day, in order to leave five minutes earlier, which does not correspond to the purpose of the legal theory set by the TST.

Concerning the second question, considering that there is no legal provision for tolerance limits with intra-workday breaks, our understanding is that, in collective bargaining agreements, companies and trade unions should negotiate a provision stipulating the limit for oscillation registration of breaks on time cards, with the purpose of minimizing the risks related to the topic.

However, considering that the minimum threshold of the intra-workday break allowed by law is 30 minutes, applicable for employees submitted to a workday exceeding six hours, our understanding is that employees should in effect receive 30 minutes. That is, any five-minute variation would be detrimental to employees. This is because, following the line of reasoning of the TST, a variation of less than five minutes in a 30-minute break is disproportionate.

Thus, it is up to companies to evaluate their specificities and decide on viable limits, based on the theory already established by the TST, in order to ensure that their employees enjoy the minimum 30 minutes. We also recommend that companies monitor variations in employees' time cards, under penalty of payment of more than five minutes in the form of an indemnity.

Finally, in view of the theory set by the TST, in the case of companies that use bank of hours or flexible hours, it is important to check whether these limits are also being observed by the time card system, that is to say, to check whether the system is adapted to calculate the hours to be offset, considering the limit of up to ten minutes daily per workday and five minutes for intra-workday breaks.

^[1] Article 71 - In any continuous work, the duration of which exceeds six (6) hours, it is mandatory to grant an interval for rest or meals, which shall be at least one (1) hour and, unless otherwise agreed upon in writing or in a collective bargaining agreement, it may not exceed two (2) hours.

Paragraph 4. Failure to grant or partial granting of the minimum intra-workday break for rest and meals, to urban and rural employees, results in a payment of the nature of an indemnity, only for the period not granted, with an addition of fifty percent (50%) over the amount of the remuneration for normal working hours. (As amended by Law No. 13,467, of 2017) (In Effect)

^[2] Article 58. The normal working hours for employees in any private activity shall not exceed eight (8) hours per day, provided that no other limit is expressly set. Paragraph 1. Time variations in records on time cards not exceeding five minutes, subject to the maximum limit of ten minutes per day, shall not be discounted or computed as overtime.

Category: Compliance, investigations and corporate governance

The professionals who work in the area of corporate integrity have raised great expectations regarding the beginning of the new federal government this year, especially regarding the performance of the new justice minister, former magistrate Sergio Moro, who became known for the judgments in the largest corporate corruption case in Brazil, Operation Carwash.

On the fourth day of the new government, Minister Moro presented to the public a bill to amend 14 laws, known as the "Anticrime Package," with the principal objective of strengthening the fight against organized crime and corruption, among other crimes.

One of the 19 changes originally proposed and already submitted for intense public debate has attracted special attention from compliance professionals: the amendment to Law No. 13,608/18 (dealing with hotlines for reports in police investigations) in order to include a legal provision for “well-intentioned complainants” or whistleblowers to receive a cash reward for their reports.

The term whistleblower, already widely used within the integrity programs of various companies, derives literally from “blowing the whistle," in the sense of drawing attention to something irregular that an individual has witnessed or learned of, even if without his direct participation.

Moro's proposal addresses the issue of the whistleblower in three different areas:

1. In the perspective of the organization of the state apparatus, the proposal provides that the Federal Government, states, and municipalities install an ombudsman to receive reports from informants;
2. Regarding the protection of whistleblowers, the proposal indicates the right to maintain their identity anonymous, and it will only be revealed with their consent and in the case of relevant public interest or concrete interest for an investigation of the facts. In the same sense, the proposal gives whistleblowers who are public agents various non-retaliation guarantees; and
3. From the point of view of encouraging reporting, the proposal provides that, when the information available results in recovery of proceeds from a crime against the Public Administration, a reward of up to 5% of the amount recovered may be granted to the informant.

With regard to the obligation for public agencies to create channels for receiving reports, the project formalizes something that is already recommended for Brazilian private entities and was already mandatory for public companies and for government-controlled companies, since the State Companies Law (Law No. 13,303/2016) also provided for the mandatory adoption of risk management and internal control structures, with mandatory inclusion of a whistleblowing channel for receiving reports on violations of the company's internal policies, as well as protection mechanisms so that whistleblowers are not subject to retaliation.

In the passages dealing with the protection of whistleblowers, the decree seeks to guarantee them the right to confidentiality in a relevant and healthy measure. In addition, for informants holding a public office, the proposal sought to do what many companies that have established internal complaints policies have done: to discipline the protection of whistleblowers in good faith against any kind of retaliation, including by pointing out that agents who perform or fail to perform an act to retaliate against an informant shall have committed abuse of office.

However, the point of the proposal that most attracted attention was the possibility for informants to have a share in the amount recovered by the State by virtue of their collaboration.

The idea of rewarding whistleblowers as a mechanism to encourage reporting is not new and is already included in the current text of Law No. 13,608/18. However, the new proposal innovates by actually linking the reward to a proportion of what is recovered by the public coffers, an idea that originates in the United States of America, where the subject is explored in greater depth and where there is already a provision for a reward if the tip provided by the whistleblower to the United States Securities and Exchange Commission (SEC) in fact gives rise to a sanction imposed on the offending company.

According to US law, tips to the SEC may address various issues pertaining to potential irregularities related to publicly traded companies that trade securities in the US, including possible violations of the Foreign Corrupt Practices Act (FCPA)^[1], an American rule similar to Law No. 12,846/2013, or the Brazilian Clean Company Act.

In the US, the system seems to be generating good results. Between 2011 and 2017, the SEC received more than 22,000 tips on potential irregularities^[2] and by 2017 the program generated more than $1 billion in financial rewards. Whistleblowers have already received more than US$ 300 million as rewards^[3].

However, while the new proposal of the Brazilian government seeks to drawn on the American experience to encourage further investigations and to increase recovery of assets by the Brazilian state, it is also true that it still seems too generic for immediate application if it is to be transformed into law.

While in the US the law provides a series of limitations, conditions, and procedures to be fulfilled in order for whistleblowers to receive a reward^[4], the Brazilian proposal only provides for the possibility of a reward, thus seeming to delegate the necessary regulations for practical application of the institute to a potential presidential decree. This creates a degree of concern for corporate integrity experts by creating a scenario of legal uncertainty in an area that already suffers from a lack of clear legal guidance.

In the same vein, while they view favorably the encouragement of good faith reporting, experts have been concerned that the absence of clear legal outlines and the over-prominence of public reporting channels in the proposal will dehydrate the complaints channels implemented by private companies themselves.

The furnishing of channels by companies to receive information and the provision of mechanisms to protect whistleblowers are provided for in Decree No. 8,420/2015, which provided the regulations for the Brazilian Clean Company Act. Such channels have been widely used by corporations to initiate internal investigations and to respond to or prevent cases of corruption before they even occur.

An example of the market's concern is that the new legislation, if not supported by thorough regulations, ultimately discourages  employees from pursuing such channels, since the materialization of a potentially harmful act preventable internally could take the case to the public administration and generate rewards for the whistleblower.

In this sense, despite presenting an interesting strategy, the proposal demands greater details for it to constitute an effective advance. As it moves forward, it is recommended that the National Congress includes private sector corporate integrity experts in the debate.

^[1] https://www.sec.gov/whistleblower/frequently-asked-questions

^[2] https://www.sec.gov/page/whistleblower-100million

^[3] https://www.sec.gov/page/whistleblower-100million

^[4] https://www.sec.gov/about/offices/owb/reg-21f.pdf

Category: Infrastructure and energy

The enactment of a new version of the Sanitation Executive Order took place in the transition between governments at the federal level later this year. The first version of the Executive Order lost its effectiveness due to the expiration of the time limit without timely approval of its conversion into law. Despite the difficulties in approval by the Legislature, the new Executive Order replicates the previous text with some relevant changes. The news reveals a reinforcement of the private participation in the sector and in the initiative of the Federal Government in providing financial and technical support to states and municipalities for basic sanitation projects.

The period for the mechanism to enter into force for competitiveness between private initiative and state companies has passed from three years to one year. Therefore, the period for the state companies to adapt to the reality has been reduced. Further, regulatory agencies must contribute to the submission of projects of delegation of public utilities to the manifestation of interest of the private initiative, which must precede any concession contracts to state companies without a tender offer, according to the new version of the Executive Order.

The Executive Order detailed the conditions for publicity of public calls to solicit interested parties from the private initiative and extended the deadline for submission of proposals. Municipalities of the same region may adhere to the call and act jointly. In this case, the Executive Order  stresses the possibility that these municipalities may benefit from resources from the support fund for the structuring and development of concessions and PPPS (Law No. 13,529/2017).

The possibility of charging a fee or tariff for the divisible services of solid waste management on invoices for water supply and sewage consumption, provided for in the previous MP, was extended to the invoices of other public services in the new version of the text. On the one hand, the extension of this aspect will make legal arrangements that burden less the Public Power more viable and its capacity for indebtedness with PPP projects; on the other hand, it may mitigate the risks of default by users, thus reducing the cost of providing services.

The measurement of rates and tariffs in the urban sanitation and solid waste management sector may adopt as criteria consumption of water and frequency of collection, as well as the requirements already provided for, namely: appropriate disposal of the waste collected, income level of the population served, characteristics of the division and area, and weight and average volume collected per inhabitant or domicile.

In order to improve regulatory provisions, the inclusion in the contractual instrument of progressive and gradual targets for expanding services, reducing losses in the distribution of treated water, quality, efficiency, and rational use of water, energy, and other natural resources became a condition for the validation of contracts for the delegation of sanitation services to state and private companies.

The search for greater centralization of the regulatory function also inspired a new rule in the Executive Order, with the Federal Government being expected to define minimum potable water parameters. In turn, it will remain the responsibility of the regulator established by the authority over the services to define the maximum loss limits in the distribution of treated water.

The authorities over the services will be required to allocate resources deriving from onerous grants to funds that may be set aside to fund expanded access, such that they may only be used for another purpose after the achievement of certain goals. In the previous version, the earmarking of funds arising from onerous grants to such funds was a mere option.

Among the most important changes, there are those that demonstrate that the Federal Government will offer incentives, financial support, and aid in the structuring of projects in the basic sanitation sector, revealed mainly in the changes introduced by the new Executive Order  to Law No. 13,299/17. On the first aspect, the Federal Government may grant budgetary, tax, or credit benefits or incentives as a counterpart for the achievement of previously established operational performance targets.

In addition, the fund provided for in Law No. 13,529/2017, which will have the participation of the Federal Government, previously had legal authorization only to support the structuring and development of concessions and PPPs. Now it will also have as an objective support for the execution of infrastructure works and the planning and management of urban development actions, with priority on basic sanitation actions.

The role played by the basic sanitation sector is evident in the section of the Executive Order  that states that funds allocated to technical assistance related to these services must be segregated from the others and cannot be used for other purposes of the fund. As detailed in the Executive Order , among actions aimed at basic sanitation, the assistance from the aforementioned fund will target the preparation of studies, sector plans and engineering projects, drafting and review of basic sanitation plans, and evaluation, accreditation, and project management and infrastructure works.

In addition, the participation of the Federal Government in the fund, previously restricted to a maximum of R$ 180 million, becomes unlimited. Further, assistance to entities by the fund will no longer have preferences: mandatory allocation of up to 40% of the fund's resources to projects in the North, Northeast, and Midwest regions has been removed.

In addition, the Executive Order  delegated the provision of rules for financial support to the fund’s bylaws and updated the resources that may make up the assets of the fund, therein adding (i) donations of any nature, including other federative entities, other countries, international and multilateral organizations; (ii) reimbursement of amounts spent by the managing agent and subsidies arising from the contracting of the services financed; (iii) funds derived from the sale of assets and rights, or from publications, technical material, data, and information; and (iv) other funds defined by law.

Thus, the new Executive Order improves the regulatory framework of basic sanitation, thus strengthening the search for solutions for the relentless need for technical and financial support to most service authorities, as well as the urgency of private participation in the sector to meet the goals of expanded access to services.