On 11 November 2019, President Bolsonaro enacted the Provisional Measure 905/19 (‘MP 905/19’) bringing relevant changes to the employment legal framework.
MP905/19 is a presidential decree with immediate effect but needs ratification by the Congress to become a new law, or it will automatically cease to have effect in 120 days. It consists of two parts. First, there is a new format of employment agreement intended to foster the first employment of young workers. Then there are amendments to the Labor Code, further to the 2017 Reform. Below is a summary of the items of main practical interest to multinational organisations.
The ‘Green & Yellow Employment Agreement’
An alternative transitional form of employment, described in the media as the ‘Green & Yellow’ employment agreement, is being made available for new positions between Jan 2020 and Dec 2022, for up to 20% of workforce. It is not available to former employees.
It is available for positions whose salary is 1.5 the national minimum wage, that is, BRL 2,245.50 (USD 535.92 in November 2019). Traditional employment rights apply, including working hours and compensation, but this alternative form of employment will have the following special terms and conditions:
Social contribution on top of the FGTS severance fund
The termination of an employment agreement for convenience by the company (without just cause), required it to pay a contribution to the social security system equal to 10% of the total deposits made into the employees FGTS account (FGTS being a severance fund consisting of monthly deposits of 8% of total compensation).
This contribution has now been revoked.
Only spontaneous premiums, meaning those not stipulated by contract, were considered to be exempt from social security tax and other payroll costs.
New rules make premiums exempt from payroll costs (employment benefits and social security). These include preset rules of eligibility; a payment plan with a maximum of four installments per calendar year and one per quarter and a reward for extraordinary performance as described in the premium eligibility rules.
Main changes to the Labour Code (the ‘CLT’)
A number of changes have been made to the Labour Code including the following key points:
Interest and inflation rates accrued on judicial debts
Interest has always been at 1% per month, more than the bank would pay if the company deposited the disputed amount with the court. Also, there has been recent controversy on the official inflation rate, causing uncertainty about organisations’ reserves.
The applicable interest rates will be those determined by the Central Bank for savings accounts (around 6% to 7% per year) and IPCA-E will be the official rate to recoup inflation. While the new inflation rate is higher than the traditional one, interest will decrease substantially.