Executive Order Establishing the “Green and Yellow Employment Agreement” and implement relevant changes to Brazilian labor legislation
On November 12th, 2019, Executive Order No. 905 (MP 905) was enacted, establishing the Green and Yellow Employment Agreement, as well as several changes to the labor and social security legislation.
In general terms, MP 905 was enacted as an incentive to job creation, especially for young adults seeking their first employment relationship and to review specific the labor legislation provisions, in continuation to the 2017 Labor Reform.
Green and Yellow Employment Agreement
The Green and Yellow Employment Agreement is applicable to workers between 18 and 29 years of age, for the purposes of promoting their first employment. Previous work relationships under specific status will not obstacle the hiring under such conditions: (i) apprenticeship; (ii) probation agreements; (iii) intermittent work; (iv) independent worker.
Notwithstanding, in hiring professionals under this status, the following requirements must be observed:
- Hiring: only new job posts may be hired under such status. In this regard, the average number of employees registered in the company’s payroll between 01/01/2019 and 10/31/2019 will be considered to confirm such new job post. Employees hired through such cannot exceed 20% of the total employees of the company, considering the payroll of the current month of calculation of such percentage. Hiring employees under this modality will be allowed from 01/01/2020 to 12/31/2022. Companies with up to 10 employees, including the companies established after 01/01/2020, may hire up to 2 employees under this special employment agreement. The companies cannot hire under this special condition former employees for a period of up to 180 days after their dismissals.
- Compensation: employees hired under these agreements may receive a monthly salary up to one and a half national minimum wages, without prejudice of the salary increase after 12 months of service. The applicable monthly deposits to the Severance Fund (Fundo de Garantia do Tempo de Serviço – FGTS) for such employees is reduced to 2% of the monthly compensation.
- Employment term: the agreement will be entered for a fixed term (up to 24 months) and in case it remains in force for more than 24 months it will automatically be converted into a regular employment agreement without a fixed term. The term of the contract may be extended more than once, within the 24-month period.
- Tax incentives for hiring and training: companies hiring employees under this special agreement will be exempt from employer social security contributions on payroll (20%), education salary (“salário-educação”) and social contribution to the “Sistema S” regarding the compensation of such employees.
Other changes to labor legislation
The MP 905 also enacted changes to the legislation on several other provision:
- Work on Sundays and holidays: work on Sundays and public holidays is allowed for all activities, no longer requiring a specific authorization from the Labor Bureau. Work on Sundays shall be paid in double rate unless the employer determines another day off (which will correspond to the weekly paid rest – “Descanso semanal remunerado”).
- FGTS – Social contribution due in case of dismissal without cause: the social contribution of 10% over the deposits in the FGTS balance of terminated employees without cause was extinguished.
- Administrative fines and Labor inspection: The labor administrative fines amounts were increased. The fines vary now from BRL 1,000 (USD 245) to BRL 200,000 (USD 48,800) depending on infraction, offender’s economic stature and recidivism (the enforceability of such dispositions is pending regulation by the Labor Bureau).
The “Electronic Labor Domicile” register was created to (i) inform employers of any administrative acts, audits, subpoenas and notices regarding labor audit procedures; and (ii) receive, from the employer, electronic documentation related to labor assessment proceedings and to file defenses and appeals in the context of such administrative proceedings.
- Updating labor debts before the Labor Court: the monetary adjustment and interest rates applicable to debts arising from labor claims awards were changed. As from November 12, 2019, the interest shall follow the rules applicable to savings account deposits, even if not specified in the judgment or conciliation agreement and the monetary adjustment of labor claims awards due to inflation with apply the IPCA-E index variation in substitution of the former TR index.
- Profit Sharing Plans: may be negotiated directly with the employees with broad negotiation autonomy (subject to fulfilling the requirements of article 444, paragraph 1st, of the Labor Code (“Consolidação das Leis do Trabalho”) for their inclusion in this category). With respect to the program targets and rules, the MP 905 defines as “previously established goals” those defined in written as part of the program, provided that the rules are signed by the applicable parties prior to any advance payment related to the program, when such payment is set forth; and at least ninety days in advance of the date of payment of the full award or final installment.
- Non-salary awards: the conditions for granting an award as a “non-salary award” were defined.
MP 905 entered into force on 11/12/2019, with exception to the matters relating to administrative proceedings and administrative fines, which will only be effective 90 days after the issuing of the MP 905, and only on 01/01/2020 regarding the extinction of the FGTS social contribution due in case of dismissal without cause.
With respect to changes in profit sharing plans and awards those will only came into force after the Minister of Economy confirms their compatibility with the fiscal results targets set forth in the proper annex of the Law of Budgetary Guidelines and the compliance with Complementary Law No. 101 of May 4, 2000, and the provisions of the Budgetary Guidelines Law.
Upon its enactment, MP 905 was submitted to the National Congress for approval and confirmation. Such process should occur within a maximum of 120 days, otherwise MP 905 ceases to be enforceable.
We will continue to follow the legislative progress related to MP 905 reporting its developments.