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Unilateral Termination of an Agreement for Services for a Fixed Term

Termination of employment refers to the end of an employee’s work with a company. Termination may be voluntary, as when a worker leaves of their own accord. Involuntary termination occurs when a company downsizes, makes layoffs, or fires an employee.

Agreements involving the provision of services are entered into every day and there are countless models for this type of contract, which are used in day-to-day business.

It so happens that, precisely because they are so commonplace, the contracts are frequently adapted to the specific needs of each business, which leads to a number of distortions and technical improprieties, culminating in the generation of certain risks, which go unnoticed at the time of formalisation of such contracts.

One of these situations, frequently observed, is the provision for the possibility of unilateral and unjustified termination of contracts for a fixed term, free of any penalty. Thus, it is common to see clauses establishing that either party may put an end to the relationship, at any time, simply by communicating their decision to the other party, often the only obligation being to give a certain period of notice, without the need to respect the term initially established for such relationship.

This type of provision can lead the parties into real traps, since they are under the impression that the agreement may be terminated unilaterally without any consequences. However, many jurists take the view that premature termination without cause always entitles the innocent party to compensation, as provided in the Civil Code, in articles 602 and 603, as follows:

Art. 602. A service provider hired for a fixed period of time, or for a specific job, cannot take leave of absence or quit without cause, before the time has elapsed or the work has been concluded.

Sole paragraph. If he quits without cause, he shall be entitled to payment for the work done, but shall be liable for damages. The same shall occur if he is dismissed for cause.

Art. 603. If the service provider is dismissed without cause, the other party shall be obliged to pay him in full for the work done, and one half of the amount that would be due from then until the end of the contractual term.

The Brazilian courts have not yet reached a unanimous position on the matter, and the Superior Court of Justice is in fact currently discussing the need to determine (i) whether a clause in an agreement for services for a fixed term, authorising unilateral termination with a waiver of any type of indemnity, is legal, provided there is prior notice from the other party, and (ii) whether the party that enters into this type of legal transaction, agreeing to an express clause waiving any indemnity in the event of unjustified and premature termination, is guilty of contradictory behaviour (violation of objective good faith) if he seeks compensation in court.

Currently, there are many decisions that impose an obligation on the party that made the decision to leave the relationship prematurely to pay compensation, even if the contract expressly excludes any penalty or indemnity.

Accordingly, it is evident that something that appears to be simple may conceal an important contingent liability.

Thus, for as long as there remains no uniform opinion of the courts, it is recommended that the parties pay extra attention when entering into their contracts, and assess potential risks that may arise from a premature termination of relationships for a fixed term.

An alternative could be to enter into agreements for an indefinite term, with a provision for termination on giving a certain period of prior notice stipulated jointly by the parties, which may eliminate the risk of paying compensation on termination. However, the suitability of this alternative should be verified in each specific case with the advice of a legal professional, because even agreements for an indefinite term may give rise to additional obligations if, for example, the period of notice is not compatible with expectations created at the beginning of the term or investments made by the parties.

The discussion of termination of agreements for an indefinite term will be the subject of a future article.

Author Charles Wowk

Author Charles Wowk

Contact: Charles Wowk
Title: Partner in the Civil Area at Stüssi Neves Advogados – São Paulo
Email: [email protected]

Liability of The Guarantor Partner after Their Withdrawal

A guarantor is someone who agrees to pay your rent if you don’t pay it, for example a parent or close relative. If you don’t pay your landlord what you owe them, they can ask your guarantor to pay instead. If your guarantor doesn’t pay, your landlord can take them to court.

In commercial relations, it is common for creditors to demand that a partner of the company be the guarantor of the company’s obligations. A problem may arise when the guarantor partner withdraws from the company. Is he still liable for the company’s debt?

Recently, in the judgment of Civil Appeal No. 1131703-72.2016.8.26.0100, the 26th Chamber of Private Law of the Court of Appeals of the State of São Paulo determined the maintenance of the liability of the partner who guaranteed the company’s debt, even after his withdrawal, due to the lack of extinction of the guarantee or consent of the creditor to the substitution of the guarantor, subject to any right of recourse that the latter may have against the debtor and its current partners.

In this case, the guarantor was surety in a lease agreement to which the company was party and sold his corporate participation before there was any default under the contract. On the sale, the buyers assumed responsibility for all the company’s debts.

However, it is possible that the withdrawing partner may be released from his liability as guarantor. Ideally, the contract with the third party containing the guarantee should establish conditions for his replacement in the event of withdrawal of the guarantor partner.

In the absence of such a provision, the recommended course of action is for the guarantor, together with the company, to approach the creditor prior to any default, informing the latter of his withdrawal from the company and offering a substitution of the guarantee.

If the creditor refuses, it is possible to obtain an exoneration of liability by means of a lawsuit, demonstrating the guarantor’s good faith and that the reason for granting the guarantee no longer exists.

STÜSSI-NEVES ADVOGADOS main area of practice is the so-called corporate law, meaning that we are capable of rendering all services that a company needs in order to get established in Brazil, either by incorporating a subsidiary or by acquiring an existing Brazilian company or even through a joint-venture, as well as of assisting the incorporated companies in their daily businesses and routines, in tax, contractual, corporate, labour, litigation areas, compliance and data protection among others.

Veronica Relea Named in List of Top 100 Female Lawyers

In 2020, 37.4 percent of lawyers in the United States were female. As of May 2020, the state with the highest employment in that occupation was California – followed by New York and Florida.

Latinvex has named New York partner Veronica Relea to its Latin America’s Top Female Lawyers list for the fourth year in a row. The annual list recognises the top 100 female lawyers from international law firms who are doing business in the region.

Latinvex’s selection criteria includes recent track record on major deals and business, prominence of the firm in Latin America, and rankings.

Relea, a member of Latham’s market-leading Project Development & Finance and Latin America Practices, has developed a robust Latin America practice advising clients on a range of complex finance transactions.

She represents commercial and investment banks, sponsors, developers, and private equity firms in connection with the development, construction, operation, and financing of energy, oil and gas, and infrastructure projects.

Relea also has extensive experience in leveraged finance transactions, including acquisition financings and asset-based facilities.

A native of San Juan, Puerto Rico, Relea is also recognised for her work by The Legal 500 Latin America and The Legal 500 United States.

Latham & Watkins Overview

Latham & Watkins is an American multinational law firm. Founded in 1934 in Los Angeles, California, Latham is the second-largest law firm in the world by revenue.

As of 2021, Latham is also one of the most profitable law firms in the world, with profits per partner exceeding US$4.5 million.

It is Never Too Soon to Deal With Privacy by Design Under LGPD

The LGPD is a statutory law on data protection and privacy in the Federative Republic of Brazil. The law’s primary aim is to unify 40 different Brazilian laws that regulate the processing of personal data.

Data protection has definitively remarked the discussions during the last years. The European experience in its General Data Protection Regulation (GDPR) spread over many countries and has inspired legislation regarding such matter.

Brazilian General Data Protection Law (LGPD) passed in 2018 will enter into force soon, after a postponement caused by the current pandemic. It is expected that the law will bring more security for data subjects under the Brazilian legal framework.

Although LGPD will take effect only next year, both business and organisation need to prepare their data management and processes since now to avoid fines and, a little worst, loss of consumer trust.

Regarding measures to start the compliance program, the Privacy by Design (PbD) principles are likely a good way to ensure end-to-end privacy during data processing. The concept of PbD was developed in the 90’s by the former information and privacy commissioner of Ontario, Canada, Ann Cavoukian.

Several studies in such field aims to prove that Cavoukian’s 7 foundational principles are paramount to protect privacy, from IT systems and physical design to business practices. Both GDPR and LGPD have similarities, which may make it easier to develop PbD.

Cavoukian’s principles such as privacy as something proactive and preventive, transparent, and that is developed to guarantee end-to-end security (i.e. during the full data lifecycle) match some of the LGPD articles and provisions, although in an unexpressed manner.

On the other hand, GDPR has adopted the “data protection by design and by default” in its article 25, with reference to technical and organisational measures to implement data protection principles. It ensures privacy requirement from the very first moment of data collect until the erasure of the information.

Therefore, PbD deals with privacy and respect for the user from “cradle to grave”, in Ann Cavoukian’s words. However, that does not mean that business and organisation’s reputation and credibility need to follow the same way. Data protection legislation are not just a framework to comply with. Instead, if the business does not respect its user’s privacy, more than receiving fines, it will bury its image before the activity sector.

To sum up, the 90’s bring to us many technological and legal advances, such as the World Wide Web, Directive 95/46/EC of the European Parliament and of the Council and, of course, the PbD. But what it really teaches us is that it is never too soon to discuss and implement privacy as an organisational default.

The next 90’s lesson is still unclear, but for now we are more than experts to start seeing privacy as benefit, not as an issue.

Retention of Title in International Business

International business refers to the trade of goods, services, technology, capital or knowledge across national borders and at a global or transnational scale. It involves cross-border transactions of goods and services between two or more countries.

We commonly find, in contracts for the purchase and sale of movable property, and even in more generic documents, the existence of the so-called “retention of title” clause, the purpose of which is to ensure that the seller continues as owner of the goods sold until the price for the said goods has been paid in full by the purchaser.

Although the insertion of such a clause in credit sales is a common practice and is even to be recommended, it is important to emphasise that the contractual provision of a retention of title clause does not by itself guarantee the protection desired, and may not produce the practical effect expected.

Brazilian law contains certain rules that must be complied with in order for the title retention clause to be effective, but many international contracts do not in fact observe such rules, which can cause disagreeable surprises for the seller when it tries to exercise its rights in relation to the retention of title.

In most cases, this occurs because foreign sellers simply enter into contracts and/or establish general conditions of sale based on their own laws, and choose to submit any disputes to the jurisdiction of their own country.

It is understandable that the foreign seller may often prefer to choose the law and jurisdiction of its own country in order to govern its contracts, on the assumption that such choice offers it more facilities and security. However, in matters involving international business, this may prove to be a serious problem if the seller is not aware of the legal rules that exist in the country of the purchaser.

In this respect, it should be pointed out that, in certain cases, the simple choice of foreign law and jurisdiction may not be the best option, even though foreign companies may have the false impression that such option will always be the one that best meets their interests.

It must be remembered that, taking as an example a retention of title clause, any legal action to recover possession of the goods in the event of the purchaser’s default, will take place in the country of the purchaser, and for this reason it is essential to know whether such action is likely to cause conflict with the laws of that country.

In Brazil, the choice of law in itself is frequently the subject of controversy and must be considered on a case-by-case basis, since Brazilian law imposes certain restrictions on the parties’ freedom of choice on this topic. There are cases where there exists an imposition of the law of the country of the offeror, while in others there are special Brazilian laws regarded as being rules of public policy.

The choice of forum must also be considered very carefully, because even if it is possible to take advantage of a foreign jurisdiction, it must be remembered that any foreign decision needs to undergo a process of validation by the Brazilian Superior Court of Justice in order to be recognised and be enforceable in Brazil, which could lengthen the procedure.

With specific reference to the retention of title, Brazilian law establishes, among other requirements, that the contract containing such clause must be registered at a notary’s office of the purchaser’s domicile, within a period of 20 days as from its signature. Late registration does not invalidate the contract, but retention of title is only effective as from such registration.

If the contract is written in a foreign language, it is also necessary to have the document officially translated into Portuguese by a sworn public translator before applying for registration.

Absence of registration of the contract at a notary’s office does not guarantee protection to the seller, whether vis-à-vis the purchaser or third parties. Thus, the seller cannot claim the property if the purchaser has sold it to a third party, or pledged it to a third party as security, or if the seller becomes insolvent, as in cases of judicial restructuring, where the clause will not be effective against other creditors, and the seller may end up as an unsecured creditor.

Apart from the need to register the contract at a notary’s office, it is also essential to put the debtor officially in default, by notification or protest of the “security”, as only then will the seller be able to claim recovery of the property. Here too there is another peculiarity of Brazilian law, since the exercise of the right to repossess goods sold subject to retention of title presupposes the existence of a debt represented by an enforceable instrument.

In addition, Brazilian law now allows contracts to establish the rules relating to procedural matters that may arise between the parties and, in this respect, it is recommended that contracts containing a title retention clause provide, for example, for the possibility of search and seizure of the goods in the event of non-payment, the manner of appraising the goods for the purpose of calculating a debit balance, who will be responsible for the cost of such appraisal, the possibility of sale or assignment of the goods to a third party to avoid the risk of deterioration, among others.

Apart from the measures referred to above, special care must be taken when General Conditions of Sale are concerned. This is because such documents have a generic characteristic and, unlike specific contracts of purchase and sale, do not contain a description of the merchandise, which is essential for the effectiveness of the retention of title, because the Brazilian Civil Code stipulates that “An object that cannot be described perfectly cannot be the subject-matter of a sale with retention of title”.

In principle, there exist means of complying with the legal requirements even in cases of retention of title in General Conditions of Sale, but this must be evaluated in each specific case.

These brief comments make it clear that protection of the seller’s rights as regards title to the goods requires more careful consideration than the mere inclusion of a retention of title clause.

Dentons launches combination with Rattagan Macchiavello Arocena

Dentons has launched its combination with Rattagan Macchiavello Arocena, a leader in the Argentine legal market, positioning Dentons as the largest global law firm in the country. In Argentina, the office will be branded as Dentons Rattagan Macchiavello Arocena. Dentons now has more offices in all of Latin America and the Caribbean than any other law firm, making it the first truly Pan-Latin American and the Caribbean law firm.

“Dentons’ launch in Argentina enables us to meet client needs in another priority market for our clients,” said Elliott Portnoy, Global CEO of Dentons. “We can now connect our clients to our leading talent at Dentons Rattagan Macchiavello Arocena as well to our 19,000+ people in 183 locations and 75 countries around the globe.”

“Dentons’ polycentric strategy has seen the Firm scale its presence to 24 countries across the Latin America and the Caribbean region,” said Joe Andrew, Global Chairman of Dentons. “Despite the current challenges created by Covid-19, Dentons continues to execute its strategy to scale the firm through virtual combinations with leading law firms like Rattagan Macchiavello Arocena and is now present in virtually all of Latin America and the Caribbean.”

“Since entering the region in 2016, Dentons has combined with elite firms across Latin America and the Caribbean,” said Jorge Alers, Latin America and the Caribbean Region CEO of Dentons. “Argentina has a number of exceptional legal service providers, but Rattagan Macchiavello Arocena stood out for its leadership and innovative and forward-looking thinking. This new launch means we can now connect clients to market-leading talent in Argentina and the whole of the Americas.”

Less than 15 years since its foundation, Rattagan Macchiavello Arocena became a highly recognised leader in practice areas such as Corporate and M&A, Energy, Environment and Natural Resources, Banking and Finance, Compliance and Anticorruption, Government Relations, Infrastructure, Labour Law, Litigation and Dispute Resolution, Pharmaceuticals and Tax.

“We are very proud and terribly excited with this distinction. As part of Dentons, our Buenos Aires office will now have at hand’s reach all of the knowledge, talent, best practices and state-of-the-art technology to better support our clients, allowing them to do business throughout Latin America and the Caribbean and, quite literally, in any other place of the world,” said Michael R. Rattagan, who in 2005 co-founded Rattagan Macchiavello Arocena.

So far in 2020, Dentons has launched Dentons Bingham Greenebaum and Dentons Cohen & Grigsby, the first step in forming a truly national law firm in the United States as part of Dentons’ “Project Golden Spike,” Dentons Kensington Swan in New Zealand, Dentons Lee in South Korea and Dentons Jiménez de Aréchaga in Uruguay, and opened an office in St. Lucia.