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Covid-19

Labor & Employment Alternatives to confront the SARSCoV-2 coronavirus crisis in Brazil

By way of introduction, it is important to highlight that employment relationships in Brazil are regulated by federal laws – Federal Constitution and Consolidation of Labor Laws (CLT) –, which are applicable to all professionals who develop activities in the national territory.

The CLT was enacted in 1943 and has more than nine hundred articles and sub articles. In the last 77 years, only minor and cosmetic changes were promulgated in the law. The so-called Labor Reform was implemented in November 2017 and, this time, several improvements were made.

However, nothing changed in relation to situations of crisis like the one our country is facing now. In a nutshell, the legislation and the courts are very protective of employees and, even in the case of a deep financial crisis, the intervention of a Labor Union is mandatory.

Since March 2020, the Federal Government has been adopting several measures aimed at reducing the impacts caused by the SARSCoV-2 coronavirus (COVID-19) outbreak. Two Provisional Measures (No. 927 and 936) were issued to expedite, simplify or eliminate administrative procedures as well as to provide employers with flexibility to negotiate certain labor rights, as follows: 

1. Proportional reduction of hours and salaries (25%, 50% or 70%) for a period of up to ninety (90) days: in such measure, employers must respect the employee’s hourly-wage value. Moreover, it is necessary to enter into an individual agreement with the employee, who must receive its terms and conditions with at least two (2) days in advance. The employer must notify the Minister of Economy and the Labor Union in up to ten (10) days after entering into an agreement with the employee. It is important to point out that the employee will have job stability/tenure during the salary reduction period and for an equal period after its term. There is no need for a collective agreement for employees who earn (i) R$3.135,00 or less per month; or (ii) more than R$12.202,12 and have superior/university degree (the employer cannot impose/oblige them to accept the agreement – a negotiation, in fact, must take place). However, it is mandatory with respect to employees who earn between R$3.135,00 and R$12.202,12 per month, exception being made for the reduction of working time and salary of 25%, which might be established by means of an individual agreement. If the employer decides to establish different percentages for the reduction, a collective bargaining agreement (CBA) must be entered into.

2. Suspension of the Employment Agreement for up to sixty (60) days, which may be divided in two (2) periods of thirty (30) days each: the conditions mentioned above are also mandatory. It is important to mention that the employee's work is prohibited, even partially or remotely. Companies with annual gross revenue above than R$4.8 million may only suspend the employment agreements by paying a monthly compensatory aid to their employees in the amount of at least 30% of the respective salaries during the suspension period. 

3. Development of activities at a place other than the employer's headquarters (Teleworking): The employer shall notify the employee with 48 hours in advance; adjust the employment agreement; and make working tools available. In order to mitigate the existing risks, we recommend the payment of an allowance to cover part of the expenses. 

4. Collective vacation or anticipation/advance of individual vacation periods and federal, state, district and municipal non-religious holidays: this appears to be the simplest and most adopted measure, because it demands only that the employer notify the employees with at least 48 hours in advance and coordinate/align the procedure with the HR/payroll department.

5. Changing of shifts currently practiced in factories, to increase or decrease demand. (Possibility of overtime): it requires collective bargaining agreement with the employees’ Union.

6. Postponement of Severance Fund (FGTS) payment: it is allowed for active employees who will not be dismissed in March, April and May 2020.

7. Establishment of a bank of hours exclusively for the duration of the crisis. The negative balance might be compensated in up to 18 months after the crisis’ term/end: It will depend on individual or collective negotiation, by means of a contractual amendment; the company must obey the legal limits regarding working time and overtime.

8. Voluntary dismissal plan: it also requires collective bargaining agreement with the employees’ Union. In addition to the rights provided for in the legislation, companies normally grant other advantages to employees who join the plan.

On April 7, 2020, Justice Ricardo Lewandowski, from the Supreme Federal Court (STF), partly granted an injunction order in a Direct Unconstitutionality Action – ADI, establishing that individual agreements addressing working hours and salary reduction, as well as temporary suspension of employment contracts (both grounded on Provisional Measure No. 936) would only be valid if the respective workers' Labor Union is notified and expresses their validity by negotiating a Collective Bargaining Agreement with the company. If the union fails to do so, it will be considered that the entity agreed with the individual negotiation. 

However, on April 17, 2020, the majority of the Justices from the STF decided to reverse such injunction order (recognizing, as a consequence, the validity of Provisional Measure No. 936, in its full terms and conditions), using the argument that, in an exceptional moment of crisis, the PM is compatible with constitutional principles, such as work value and subsistence conditions, since the main objective of the Federal Government is to preserve jobs and income, based on the search for an agreement between workers and employers.

The merit of the Direct Unconstitutionality Action will be reviewed and judged shortly, but considering the content of the votes and statements made by the Justices during the injunction trial, it is likely that the understanding above will prevail, bringing more legal certainty to employees and employers who have decided to enter into individual agreements. 

At present, according to the information disclosed by the Ministry of Economy during the month of April, approximately two million workers had their employment contracts suspended for up to two months due to the crisis caused by the new coronavirus. Agreements between employers and employees aiming at suspending contracts and reducing wages and working hours have already affected 3.5 million workers. In total, approximately 570,000 companies have already informed the government about the execution of such agreements. 

Given that the quarantine period in Brazil most likely will be extended until the beginning of June 2020, we strongly believe that the numbers involved will increase substantially, particularly as, in addition to the reduction of related costs and expenses, employers are able to transfer to the government the responsibility for the payment of a compensatory aid to the affected professionals, maintaining active, as a consequence, the employment relationships until the end of the crisis.