Brazilian Supreme Court of Justice Issues Favorable Ruling for Employers on COVID-19 Relief Measure

On April 17, 2020, a majority of the Brazilian Supreme Court of Justice (STF) upheld the constitutionality of Provisional Measure # 936 (MP # 936), bringing some relief for employers struggling to implement steps to reduce labor costs during the pandemic.

The President of Brazil issued MP # 9361 on April 1, 2020. MP # 936 allows employers to temporarily reduce employee salaries (with a proportional reduction in the number of working hours) or to furlough employees, and creates an unemployment insurance-type benefit for affected employees.  

The most controversial provisions of MP # 936 were those allowing employers to enter into individual agreements with employees to implement some of these measures, provided employers simply notified the unions about them.

The Brazilian Constitution provides that employees have a right not to have their salaries reduced, except though a collective bargaining agreement. Based on this Constitutional provision, one of Brazil’s political parties2 filed a claim with the STF to permanently enjoin MP # 936 and to declare it unconstitutional.3 One of STF’s Justices accepted the claim and issued a preliminary injunction, which did not suspend MP #936, but merely interpreted the union communication requirement4 as an invitation for the union to engage in a discussion/negotiation of the terms of the individual agreements.

This preliminary injunction created chaos, as many companies were relying on MP # 936 to quickly implement measures to reduce costs and maintain jobs, so the STF’s president decided to accelerate the judgment of the injunction to April 16.  

Various employer, employee, and judge associations filed briefs in favor of or against MP # 936. After two days of deliberations, the STF decided that MP #936’s measures are temporary and, due to the abnormal situation caused by the pandemic and the urgency of implementing measures to avoid unemployment, the individual agreements cannot be subject to subsequent union scrutiny, which would cause instability and risk to the fundamental principle of social protection of employment.5

On Thursday, when the voting started, more than two million agreements for reduction of salary or furloughs were already filed with the Ministry of Economy. With the new STF ruling, we expect many more employers will enter into individual agreements in the next few weeks to ease the burden and manage a lack of work.

Employers, however, should carefully follow the exact legal requirements for implementing valid individual agreements to avoid potential claims, and consider whether collective bargaining agreements would be viable or better alternatives, depending on the employer’s line of business, location, number of employees affected, and existing relationship with the union, among other considerations.

See Footnotes

1 MP # 936, like all MPs, are valid immediately upon their publication, but are temporary in nature. Congress has 120 days to vote on whether make it a permanent law, convert it into a new bill with amendments, or simply let it lapse.

2 Rede Sustentabilidade.

3 Ação Direta de Inconstitucionalidade (ADI) n. 6.363, of April 6, 2020.

4 Article 11, paragraph 4, of the MP # 936.

5 “Decision: The Court, by majority, denied referendum to the precautionary measure, rejecting it, in accordance with the vote of Minister Alexandre de Moraes, Editor for the ruling, vanquished Minister Ricardo Lewandowski (Rapporteur), who deferred in part to the precautionary measure, and Ministers Edson Fachin and Rosa Weber, who fully deferred to it. Minister Celso de Mello was justifiably absent. Presidency of Minister Dias Toffoli. Plenary, 17.04.2020 (Session held entirely by videoconference - Resolution 672/2020 / STF)”.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.