by Luiz Fernando Plens de Quevedo, Renata Olandim Reis and Diogo Pozza Parpineli

In view of the current pandemic and the serious economic crisis resulting from the necessary social distancing measures and suspension of business activities, a new Provisional Measure was issued on 04.03.2020, MP 944/2020, establishing the Emergency Employment Support Program. From a Labor Law perspective, MP 944/2020 provides for a specific credit line to finance payroll, on condition that employment contracts are maintained for a period equivalent to the months of payroll financed.

Under article 1 of the Provisional Measure, the program is intended for credit operations with “entrepreneurs, business companies and cooperative societies”, for the purpose of paying their employees’ payroll. Credit companies are expressly excluded, and participation in the program is limited to employers with “annual gross revenue exceeding BRL 360,000.00 (three hundred and sixty thousand reais) and equal to or less than BRL 10,000,000.00 (ten million reais) in fiscal year 2019”.

In short, through the Emergency Program, the Federal Government is offering a credit line to finance up to two months of payroll for companies falling within the limits indicated above, defined by gross revenue in 2019. The entire payroll may be financed, for all employees without distinction, limited to up to two monthly minimum wages per employee of the company joining the Program.

Participation in the Emergency Program, however, is limited to employers whose payroll is processed by a Financial Institution that has voluntarily chosen to participate in the Program. The credit line will be granted “in accordance with their own credit policies and may take into account any restrictions in credit protection systems on the date of contracting and records of default in the credit information system maintained by the Central Bank of Brazil in the six months prior to contracting, without prejudice to current legislation.”

The credit operations contracted will be funded with the participating financial institutions’ own resources up to a limit of only 15% of the financed amount. The remaining 85% of the amount financed will be funded by the Federal Government — which, for this purpose, transferred BRL 34,000,000,000.00 (thirty-four billion reais) to BNDES.

In return, the company joining the Program assumes the following obligations: “I – provide truthful information; II – not use the funds for purposes other than paying its employees;” and “III – not terminate, without cause, the employment contracts of its employees between the date the credit line is contracted and the sixtieth day after receipt of the last installment of the credit line”. The Financial Institution granting the credit will be responsible for monitoring the company’s compliance with its obligations.

Thus, in addition to the obligation to provide truthful information, common to all types of contracts, employers joining the Program will be required to use the credit solely and exclusively to pay payroll. It is prohibited, for example, to use the funds to support the company’s activities, even if such support is shown to be useful for maintaining jobs, the ultimate purpose of MP 944/2020.

In return, the company using the credit line must maintain its employees’ employment contracts from the date the credit line is contracted until the sixtieth day after receipt of the last installment of the credit line. In other words, since the Program is limited to covering up to two months of payroll, job security will last at most four months from the date the credit is obtained.

It can therefore be seen that, as a form of job protection, MP 944/2020 provides, in return for granting the credit, job security for all employees for a period equivalent to the period in which the employer benefited from the credit line. In addition to each employee’s individual job security, breaching the obligation to maintain jobs by terminating even a single employment contract without cause triggers the early maturity of the debt. In these terms, the obligation imposed on employers has an individual component, guaranteeing salaries for the period, and a collective component, providing for the early maturity of the amount financed.

Finally, art. 5 of MP 944/2020 sets out the conditions of the credit line offered by the Emergency Employment Support Program, setting an interest rate of 3.65% per year, with repayment over up to 36 months, payable after a 6-month grace period, with interest capitalized throughout the period.

This is yet another measure offered by the Federal Government to help deal with the impacts of the measures adopted to contain the pandemic, favoring the maintenance of employment contracts in response to social demands and pressure for assistance to workers and employers. It adds to the measures authorized by Provisional Measures 927 and 936 and Ordinance No. 139, also of 04.03.2020, issued by the Ministry of Economy, which postpones social security contributions and the payment of PIS/COFINS.