On April 1, 2020, the Federal Government published Executive Order No. 936 ("MP 936") intended to implement new labor and employment measures for employers to confront the coronavirus (covid-19) and, with that, preserve economic activity and employment level, without significant impact on employees’ income.

It is expected that MP 936, also known as the “Emergency Employment and Income Maintenance Program”, will preserve around 8.5 million jobs and benefit a contingent of 24.5 million employees across the Brazilian territory during the state of public calamity.

In order to achieve these goals, MP 936 establishes two main labor and employment measures for employers to confront the crisis: (i) proportional reduction in work hours and salaries; and (ii) temporary suspension of employment contracts (layoffs).

Before detailing each alternative, it is worth mentioning that:

• the implementation of these measures does not require collective bargaining with the labor union, except for when implementing the proportional reduction in work hours and salaries greater than 25% and temporary suspension of employment contracts, which, only for employees receiving salaries between R$3,135.01 and R$ 12,202.11, must be implemented through collective bargaining with the labor union
• in consideration for the suspension or proportional salary reduction in salaries, employees will be entitled to a guarantee of employment while the measure remains in effect and for an equal period after the end of the suspension or recommencement of the contract[1]
• to preserve employees' income, the Federal Government will grant an Emergency Benefit to affected employees, corresponding to a percentage of the Unemployment Insurance

That said, please see below the details of each measure established by MP 936:

Proportional reduction in work hours and salaries

This consists of an individual agreement or collective bargaining for a proportional reduction in employees' salaries and work hours, for which the Federal Government will pay the “Emergency Employment and Income Preservation Benefit.”

The reduction may be implemented in the percentages set out below, all of which may be fixed through collective bargaining or, under certain conditions, individual agreements:

Thus, for employees receiving salaries between R$3,135.01 and R$ 12,202.11, reductions higher than 25% may only be implemented through collective bargaining.

In addition, employers must consider that employees’ hourly wages must be preserved and that the reduction cannot exceed the maximum period of 90 days.

MP 936 also established that employers may agree to reduction percentages different from those indicated above through collective bargaining, subject to the proportion of the Emergency Benefit payment provided for in MP 936.

Temporary suspension of employment contracts

This consists of an individual agreement or collective bargaining for the temporary suspension of employment contracts by employers, with the payment of up to 30% of the employee’s salary by the employer, and payment of the “Emergency Employment and Income Preservation Benefit” by the Federal Government.

With respect to this measure, it is worth mentioning that, last March 22, the Federal Government published Executive Order No. 927, establishing the possibility of implementing a temporary suspension of employment contracts without any salary or governmental aid, which was revoked, on the following day, by Executive Order No. 928.

With MP 396, the Federal Government apparently sought to correct the procedure previously established, which was target of harsh criticism by the press, Governors, and Congressmen due to a potential lack of protection for employees during the crisis.

However, unlike the provisions established by Executive Order No. 927, the suspension of employment contracts established by MP 936 must comply with some specific conditions according to the employer’s gross revenue in the 2019 calendar year:

Thus, for employees receiving salaries between R$3,135.01 and R$ 12,202.11, temporary suspension of the employment contract may only be implemented through collective bargaining.

In addition, employers must observe some conditions when implementing suspension of employment contracts:

• the maximum suspension period is 60 days and may be divided into up to two periods of 30 days
• during the suspension period, the employer must maintain the payment of benefits to employees
• during the suspension period, employees cannot continue working, even partially or remotely, under penalty of having the suspension disregarded

Finally, MP 936 also establishes, for both measures described above, that:

• they may be applied for apprenticeship and part-time contracts;
• for individual agreements, the reduction or suspension proposal must be delivered to employees with, at least, a two-day notice
• once the agreement is executed, employers must, within 10 days, inform the labor union and the Ministry of Economy about its execution (the form of communication to the Ministry of Economy is still pending definition)
• the Emergency Benefit to be paid by the Federal Government to the employee may be accumulated with any Allowance paid by the employer
• collective bargaining agreements executed prior to MP 936 may be renegotiated in order to adjust their terms to the conditions set forth by MP 936 within 10 calendar days (as MP 936 was silent with respect to individual agreements executed prior to its issuance, we believe that each situation should be analyzed on a case by case basis)
• a provisional guarantee of employment must be granted during the period of suspension or reduction of wor hours and salaries and for an equal period after the termination of this condition. In the event of termination of employment during the employment guarantee period, the remaining period will be due in percentages ranging from 50% to 100% of the salary to which the employee would be entitled
• regular work hours or the employment contract shall be reestablished, within 2 days, upon the (i) end of the state of public calamity, (ii) end of the period stated in the agreement, or (iii) acceleration, by the employer, of the end of the period agreed upon

Emergency Employment and Income Preservation Benefit

The Emergency Employment and Income Preservation Benefit will be calculated based on a percentage of the Unemployment Insurance, which is currently calculated as follows:

For example, for an employee who, in the last three months, had an average salary of BRL 2,000.00, the amount of each payment of his/her Unemployment Insurance would be BRL 1,479.87. If that employee agrees to a 50% reduction in work hours and salary with his/her employer, the employer would pay 50% of the employee's salary (BLR 1,000.00) and the Federal Government would pay 50% of the Unemployment Insurance Installment, which, in this case, corresponds to BRL 739.94. Therefore, during the period of work hours and salary reduction, this specific employee would receive a monthly amount of BRL 1,739.94, which is, approximately, 87% of his/her original salary.

Other Provisions of MP 936

MP 936 also establishes that:

• during the state of public calamity, the professional training course provided for in article 476-A of the Brazilian Consolidated Labor Laws (CLT) (that regulates the regular layoff procedure through collective bargaining) may be offered exclusively remotely, lasting no less than one month and not more than three months;
• during the state of public calamity, electronic means may be used to meet the requirements for collective bargaining, including for the purposes of calling, deliberating on, deciding, formalizing, and publishing the collective bargaining agreement;
• during the state of public calamity, collective bargaining negotiation deadlines are reduced by half;
• intermittent employees will be entitled to an Emergency Benefit of BRL 600.00 for a period of 3 months, regardless of the number of employers they have contracts with.

[1] For example, a company implementing a salary reduction for 3 months will not be able to terminate the employee during this period and for the following 3 months, totaling 6 months of guarantee of employment.

[2] Employees who receives more than R$12,202.12 and holds a higher education degree.

[3] Employees who receives more than R$12,202.12 and holds a higher education degree.

[4] Employees who receives more than R$12,202.12 and holds a higher education degree.

[5] According to MP 936, the allowance paid by the employer will not have a salary nature and, thus, will not be considered for purposes of income tax, social security contributions, other taxes on payroll and the Severance Guarantee Fund (FGTS). It may also be excluded from the company’s net income for purposes of Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL).

[6] Employees who receives more than R$12,202.12 and holds a higher education degree.