Updated through 03/18/2020, at 3:37 p.m. (see further updates below)
The purpose of this informational notice is to assist decision-makers in companies in safeguarding the health of their employees and the viability of their businesses – with respect to the demand of the pandemic and the impact of the Coronavirus.
The information below may be subject to changes due to the constant changes in the scenario of the health, sanitary, regulatory, and legislative areas.
CONTRACTS
It is recommended to analyze the contractual clauses and, if there are clauses regarding fortuitous events and force majeure, it is recommended to assess as soon as possible whether COVID-19 will impact the performance of the contract. If so, it is recommended to formally notify the other party of the partial or total default.
In contracts of a private nature, it is understood that it is necessary to analyze the nature of the contract, since the excessive financial onerousness of the contract may not be considered a situation of fortuitous event or force majeure. In this case, it is advisable to analyze whether it will be possible to request the application of the theory of unforeseeability, on the grounds that the pandemic situation is an extraordinary and unforeseeable event.
Given that the Economic Freedom Law inserted into the Civil Code the principle that contractual revision shall only occur in an exceptional and limited manner, with the exceptionality being delimited in light of unforeseeability, good faith, contractual balance, and the effects for the contracting parties, it is recommended that the party invoking the fortuitous event and force majeure clause demonstrate not only the existence of the pandemic, but also that there are no alternatives for performing the contract, for example, if there is no other supplier, outside the quarantine zones, to supply an input.
In this scenario, it is recommended that the contracting parties immediately begin renegotiating the contract to readjust the contractual clauses and conditions, even if provisionally, for the purpose of seeking balance and good faith in the performance of the contracts.
CONTRACTS WITH THE PUBLIC ADMINISTRATION
In contracts entered into under the cloak of the Public Procurement Law, Article 65 permits the amendment of the contract, by agreement between the parties, aimed at maintaining the initial economic-financial balance of the contract, in the event that unforeseeable facts, or foreseeable facts but with incalculable consequences, arise that delay or prevent the performance of what was agreed, or, further, in the event of force majeure, fortuitous event, or act of the prince (fait du prince), constituting an extraordinary and extra-contractual economic risk.
Therefore, it is recommended that negotiations be initiated with the public entity if there is an administrative contract that carries a risk of partial or total default.
Law No. 13.973 of February 6, 2020, permits the waiver of bidding for the acquisition of health-related goods, services, and inputs intended to address the public health emergency of international concern arising from COVID-19.
BANKING CONTRACTS
Febraban announced that the banks Banco do Brasil, Bradesco, Caixa, Itaú Unibanco, and Santander are open and committed to meeting requests for extension, by 60 days, of the maturity dates of debts of individuals and of micro and small enterprises for contracts that are up to date and limited to the amounts already used.
For companies that need working capital, it is recommended that the current banking contracts be analyzed and that any need for renegotiation be initiated before a situation of default.
CONSUMER PROTECTION CODE
It is recommended that companies be clear with the information to consumers about the impacts of COVID-19 on the contract already entered into, offering alternatives to remedy the situation or to terminate the commercial transaction.
The Ministry of Justice and Public Security issued Technical Note No. 2/2020 with general guidelines on the impact of COVID-19 on consumer relations, especially in the air transport sector, recommending that the Judiciary be used only as a last resort and that the parties resolve matters amicably with calm, transparency, reasonableness, and harmony.
TAX
The National Tax Code provides for the extension of the payment of taxes in exceptional circumstances, such as public calamities and natural disasters, which may be granted by means of a law and which suspends the enforceability of the tax credit.
This measure would prevent the default of taxpayers and the collection of unpaid taxes, making it possible to maintain the companies’ cash flow. The granting of tax incentives, for companies that demonstrate significant drops in their revenues, is being studied by the Executive Branch (federal, state, and municipal), but so far there is nothing concrete.
LABOR
Due to the extreme gravity of the situation surrounding the spread of the coronavirus, below are options for how the company may act to preserve the health of employees without violating their rights:
Leave from activities:
Employees who have medical certificates stating fitness for work, but who are isolated in quarantine, may perform remote work (home office). Employees who present certificates with leave from activities (unfitness for work) must be placed on paid leave.
Home Office:
This modality is an alternative that contributes to isolation and reduces the company’s operating costs. In this scenario, it relieves the company of the costs of transportation vouchers, meal vouchers, electricity, water, among others, and it is advisable that the suppression of the employee’s benefits be analyzed under the collective bargaining agreement of the category.
If the employee does not have access, any costs of contracting internet and a computer must be borne by the company, as well as any additional expenses with the use of a telephone.
Hours bank:
By virtue of the visible reduction in companies’ production, an alternative is the implementation of an hours-bank regime, aimed at offsetting the hours not worked upon the increase in production, after the phase of economic recession has been overcome.
Reduction of working hours and salary:
In the event of a significant change in production, in order to avoid dismissals, companies may enter into an agreement with the Unions for salary reduction, provided that there is also a reduction in working hours.
Suspension of the employment contract:
By means of a Collective Bargaining Convention or Collective Agreement approved before the Regional Labor Delegation, the suspension of the employees’ employment contracts may be stipulated, with a reduction of up to 25% of the salary of all the company’s employees being possible. The suspension of the contract may be carried out for a term of 3 (three) months or extended if the pandemic or the company’s current economic situation persists.
Vacation/Paid Leave:
The granting by the company of accrued or collective vacation is an alternative for this phase of reduced production. Collective vacation may be granted to all the company’s employees or to certain establishments or sectors. The granting of paid leave for more than 30 days removes the employee’s right to vacation in the accrual period and may be an alternative in the crisis recovery period.
Updated through 03/20/2020, at 8:15 a.m.
EXTENSION FOR PAYMENT OF FEDERAL TAXES UNDER SIMPLES NACIONAL
Due to the coronavirus pandemic, the Managing Committee of Simples Nacional (Brazil’s simplified tax regime) adopted the following measures, pursuant to Resolution No. 152, of 03/18/2020:
- Extension of the Assessment Period of March 2020, with original maturity on April 20, 2020, now with maturity on October 20, 2020;
- Extension of the Assessment Period of April 2020, with original maturity on May 20, 2020, now with maturity on November 20, 2020; and
- Extension of the Assessment Period of May 2020, with original maturity on June 22, 2020, now with maturity on December 21, 2020.
- The extension of the deadline does not entail the right to restitution of amounts that may have already been collected.
SUSPENSION OF COLLECTION AND RENEGOTIATION OF FEDERAL TAXES
Due to the coronavirus pandemic, the Office of the Attorney General of the National Treasury (PGFN) adopted the following measures, pursuant to Ordinances Nos. 7.820 and 7.821, published on 03/18/2020:
– Suspension for 90 days:
- of the deadlines for taxpayers to submit administrative challenges within the scope of collection procedures;
- of the institution of new collection procedures;
- of the forwarding of active debt certificates to protest registry offices;
- of the institution of procedures for exclusion from overdue installment plans.
– Extraordinary settlement of debts registered in active debt, including the reduction of the down payment to up to 1% of the value of the debt and the deferral of payment of the remaining installments for 90 days, observing the maximum term of up to 84 months or up to 100 months for natural persons, microenterprises, or small enterprises, as well as the other conditions and limits established in Provisional Measure No. 899/2019, through the “Regularize” portal on the PGFN website.
The deadline for adhering to the extraordinary settlement will remain open until March 25, 2020, the final date of validity of Provisional Measure No. 899/2019, which may be extended if this Provisional Measure is converted into law.
SETTLEMENT OF MUNICIPAL TAXES INSTITUTED IN SÃO PAULO
By means of Law No. 17.324, of the Municipality of São Paulo, published on this date, the settlement of municipal tax debts registered in active debt was instituted, limited to the amount of R$ 510 thousand.
The settlement may encompass installment plans and reductions and shall be effected by individual proposal or by adhesion, in the manner of the regulation and of the settlement notice.
The Law also provides for the possibility of a mediation clause in administrative contracts, conventions, partnerships, management contracts, and similar instruments of the municipal Public Administration and, further, the use of arbitration to resolve conflicts relating to available property rights (which do not arise from law).
Updated through 03/20/2020, at 4:15 p.m.
MEASURES TAKEN BY THE MINISTRY OF THE ECONOMY:
Deferral of the payment deadline of the FGTS for 3 months;
Deferral of the Federal Union’s portion of Simples Nacional for 3 months;
More than R$ 5 billion in credit from PROGER/FAT for Micro and Small Enterprises;
50% reduction in the contributions of the S System for 3 months;
Simplification of the requirements for contracting credit and waiver of documentation (Negative Debt Certificate) for the renegotiation of credit;
Facilitating the clearance of imported industrial inputs and raw materials before unloading;
EMPLOYMENT AND LABOR
In order to avoid an increase in unemployment and to maintain formal jobs, temporary labor measures were also announced. During the state of emergency, employee and employer will be able to enter into individual agreements with preponderance over the Law, respecting the limits set forth in the Federal Constitution.
With this, the government wants to create rules to simplify the adoption of telework; the advancement of individual vacations; collective vacations; the use of the hours bank; the proportional reduction of salaries and working hours; and the advancement of non-religious holidays. The objective is to make negotiations more flexible in order to preserve jobs.
Check the temporary changes:
Telework – allowing the company to determine the transfer to the remote system directly with the worker with a notice period of 48 hours. Matters relating to infrastructure must be in the individual employment contract.
Advancement of vacation – simplifying the procedure so that it is agreed with the worker also with 48 hours’ notice. It also opens the possibility of granting a proportional period of vacation to workers who do not yet have the 12-month accrual period.
Collective vacation – companies may bring forward the period of collective vacation by notifying the worker with a minimum of 48 hours, without the need to notify the unions and the Ministry of the Economy.
Hours bank – making the use of the hours bank more dynamic in order to allow the worker to stay at home at this time, counting the days not worked as an hours bank to be used in favor of the company in the future.
Reduction of working hours and salary – the possibility is opened for there to be a proportional reduction of salaries and working hours of up to 50% by means of an individual agreement, with the guarantee of a minimum remuneration of one minimum wage and the irreducibility of the hourly wage.
Advancement of holidays – non-religious holidays may be brought forward, without financial loss, so that the worker stays at home in this moment of health crisis.
In addition, the mandatory nature of occupational medical examinations, with the exception of admission examinations, will be suspended in order to avoid overloading the public and private health systems. The mandatory nature of periodic training is also suspended.
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