Introduction

Obligations

Breaches of obligations

Concerns

Comment

Introduction

On July 6 2015 the government enacted Provisional Measure 680, which launched the Employment Protection Plan (EPP).

The EPP is a crisis response measure under which companies can reduce their employees' working hours by up to 30% and proportionally reduce affected employees' salaries for up to 12 months.

The EPP was launched due to Brazil's declining rates of economic activity. It seeks to protect formal jobs and encourage negotiations between employers and employees.

The government aims to encourage companies in economic crisis not to dismiss their employees, but rather to negotiate reduced working hours and proportional salary reductions with labour unions. Companies that participate in the EPP will save money not only by reducing production costs, but also through the proportional reduction of employees' salaries. Likewise, employees will benefit as they will not lose their jobs.

Obligations

In order to participate in the EPP, companies must execute special collective bargaining agreements, stating the intended reduction in working hours and the duration of the reduction. Agreements must be approved by affected employees.

In addition, the following conditions must be met:

  • All of the company's employees or a whole division of the company must be part of the plan.
  • All participating employees' salaries must be higher than the legal minimum wage.
  • Participating employees may not be dismissed without cause while the EEP is in effect and for an additional one-third of the relevant period.
  • The company must comply with all applicable tax and social contribution requirements.

If a company agrees to comply with the related obligations, it must submit an online request to the appropriate government agency, attaching the agreement and proof of its economic crisis status. In accordance with the EPP, a company will be considered in crisis if it has dismissed more employees than it has hired in the last year. For example, if a company had 1,000 employees in July 2014 and by July 2015 had dismissed 120 employees and hired only 100, it would be eligible to participate in the EPP.

Notwithstanding that, to be part of the plan companies must also prove that they have already granted employees applicable holiday entitlements and used all of the hours in the bank of hours (ie, the written agreement under which employees are entitled to paid time off work instead of overtime pay), where applicable.

If the EPP Commission approves an employer's request, the company will be part of the EPP. Once approved, the company is authorised to reduce its employees' working hours by up to 30% and proportionally reduce affected employees' salaries. To minimise the impact on employees, the government will contribute up to 50% of their reduced salaries (limited to R$900). In practice, this means that if a company reduces an employee's working hours by 30%, he or she will have his or her salary reduced by only 15%, as the government will provide the other 15%.

Breaches of obligations

If the obligations set out in the EPP are not complied with, the government may suspend or cancel the offending company's participation in the EPP.

In addition, if a company commits fraud in relation to the EPP, it will have to return the government's monetary contributions and pay a fine of 100% of the applicable amount.

Concerns

Apart from the related obligations, companies have raised several doubts with regard to the plan.

One of the uncertainties that companies face stems from the fact that the EPP may be valid for only six months (renewable for up to another six months). After that, the job stability obligation for participating employees will still apply (in this case, for a further four months). However, there is no guarantee that the company will no longer be in crisis. As such, the company may still face economic issues, while being obliged to comply with the obligations set out in the EPP.

In this sense, companies must evaluate whether existing legal options for dealing with economic crisis are more appropriate.

One alternative available to companies is the layoff system, which allows companies to suspend employment agreements for two to five months through the execution of special collective bargaining agreements. In such cases, employees must participate in a professional qualification course. During the suspension term, the employee will receive two-thirds of his or her monthly salary through public unemployment insurance (ie, the government pays his or her salary). In this case, no job stability applies.

Comment

The success of the EPP is still uncertain and will depend on how optimistic companies are in relation to when their economic crisis should end and whether they will be able to adhere to all related obligations.

For further information of this topic please contact Vilma Toshie Kutomi or Nathiê Tielle Mattos Luz at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email (vilma.kutomi@mattosfilho.com.br or nluz@mattosfilho.com.br. The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at www.mattosfilho.com.br.

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