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The LGPD and labour relations in Brazil

Non-observance of the LGPD (General Data Protection Law) will give rise to administrative sanctions imposed by the National Data Protection Authority as from August 2021, as determined by article 20 of Law 14.010, which modified the text of article 65 of Law 13.079.

In spite of this, many authorities are already imposing or seeking to impose penalties for failure to comply with the LGPD and are taking court action in this respect. Moreover, there is nothing to prevent data subjects from claiming compensation in court, as well as coercive measures to enforce compliance with the LGPD.

In the context of labour relations, the LGPD is firmly present in the three stages (pre-contractual, contractual and post-contractual), although there are no specific regulations in this respect. Apart from the direct relationship between the company, the candidates for job vacancies offered and its own employees, the LGPD is also present in relations with the employees of outsourced companies.

For the reasons set out in the preceding paragraph, companies must adapt as soon as possible, creating procedures and policies, adjusting their work contracts and agreements for services with independent contractors, training and instructing their work force regarding the law and the care necessary in the treatment of data, thereby avoiding the formation of administrative and judicial liability and the exposure of their name, brand and reputation.

At the pre-contract stage, companies will have to adjust their recruitment and selection processes, deciding whether resumes not used are to be discarded or kept in their database for future vacancies, obtaining, in the latter case, the express consent of the candidate to do so. The companies must also consider that the recruitment and selection processes may be subject to investigation by the competent authorities and/or judicial discussion by these same persons or by the candidate himself, and, in this respect, the treatment of candidates’ data may constitute evidence for their defence, the regular exercise of rights.

In the course of the employment relationship, the applicability of the LGPD is vast, since the employer is obliged to provide personal as well as sensitive data of its employees in order to comply with legal obligations, such as for the E-social, for the DCTFWeb, for the CAT, for the obligatory Occupational Health and Safety Programmes, for the labour inspectors of the Special Secretariat of Social Security and Labour and of the Federal Revenue, unions and class entities, among others.

The employer uses the data of its employees, also, in order to comply with contractual obligations, such as for the provision of benefits, health and life insurance, agreements in general with other companies etc., constituting, therefore, the regular exercise of rights, which strictly exempts it from obtaining the express consent of the employee, provided of course that such benefits are in the latter’s interests or result from a regulatory provision.

The employer may also be obliged to use such data in administrative or judicial proceedings, as determined by the supervisory body or judge, in which case authorisation to supply such information from the employee is not required, since this undoubtedly constitutes a regular exercise of a right.

In the event of an occupational accident or health problems that justify the adoption of measures by the employer for the protection of the life and physical safety of the data subject, in this case, the employee, the company will also have to use his data.

It is essential to mention, if only briefly, the matter of the employee’s consent, since a trend of opinion has already been formed on this point, not only in Brazil, but also abroad, to the effect that it is inapplicable, as a rule, to employment relationships, given the worker’s situation of “hypo-sufficiency” (the weaker party). On this subject, we will express our views in further detail in a future article.

On termination of the employment, the employer should, strictly speaking, eliminate the personal data of its employee, since their purpose has been achieved or they are no longer necessary. However, considering that many of these data may be subject to analysis by the Brazilian authorities and/or constitute evidence in legal proceedings that may be brought against the company, including by the employee himself, they may be stored, for compliance with legal obligations or the regular exercise of rights, for the period in which they may be required; these are situations that, we repeat, do not require consent of the data subject.

The retention period could, in principle, be standardised according to the two-year and five-year limitation periods that apply to the employment relationship. However, there are situations that may exceed these periods, such as cases of accidents at work (including professional and occupational diseases) and death of a worker leaving minor heirs, matters which should be considered when the employer sets the parameters for the storage and destruction of data.

These are the initial observations of our labour team regarding the impact of the LGPD on labour relations. We will continue to produce material on the subject, as there will be many challenges to be faced in the near future.

Maria Lúcia Menezes Gadotti
Partner in Labour Law Area – São Paulo
[email protected]

Alternatives for restructuring of intercompany debts

The continued devaluation of the Real has increased the total indebtedness of Brazilian subsidiaries of foreign groups that incurred debts in foreign currency, particularly in relation to the U.S. dollar and the Euro, and these subsidiaries are now seeking ways of restructuring the debts to their parent companies. Such devaluation may cause very serious impacts, affecting financial results and possibly making the debts unpayable.

It is a fact that there has been a significant positive variation of the U.S. dollar in relation to the Real in the last few years. By way of example, the average annual dollar/real rate in 2015 was approximately R$ 3,34 and the average partial annual rate for 2020 calculated up to July 31, 2020 was R$ 4,98 , the rate today being more than R$ 5,60. In view of this scenario, the need has arisen to discover what action permissible under Brazilian law may be taken to restructure intercompany foreign currency debts, in order to reduce risks and negative impacts related to the exchange variation for the Brazilian subsidiaries.

For an analysis of such action, we have separated the debts, by their nature, into three groups: loans, importations and other types of debt.

As far as the first group is concerned, namely foreign currency loans, the principal amount and interest may be converted into a direct investment, whereby the total amount due will be converted into quotas or shares in the Brazilian debtor company, by establishment or increase of the creditor’s equity interest in the said company. However, in relation to this group it must be borne in mind that loans converted into direct investment in a period of less than 180 days from the date of entry of the funds will be subject to IOF (tax on financial operations) at the rate of 6%, plus penalty and interest from the date of entry of the funds into the country, whereas loans made and converted over longer periods will benefit from a zero rate for the same operation, pursuant to article 15-B, items XI and XII of Decree 6.306/07.

It is important to note that for any symbolic foreign exchange operation, whether of the type now referred to or any other described in the legislation such as those below, the rate of IOF on the exchange is also reduced to zero rather than the usual 0.38%, in accordance with article 15-B, item XVIII of Decree 6.306/07.

It must also be pointed out that the total amount of interest, if converted into capital, will be subject to the withholding income tax at the rate of 15%, since the conversion is regarded as being a form of payment of the obligation.

Also in relation to loans, if the conversion into capital is not a feasible alternative, but it is intended even so to avoid the risk of the foreign exchange variation, there is the possibility of switching to Reais the foreign currency applicable to the loan.

Another operation that merits attention for the purpose of restructuring debts in foreign currency involves importations, which may be converted into a loan, preferably with a change of currency into Reais, since the intention is to eliminate the risk of foreign exchange variation, or into direct investment.

For conversion of debts incurred on importation into a loan in local currency, it is necessary for the creditor formally to express its intention of doing so by means of a declaration, stating that the amount of the loan will be in Reais, to be calculated at the moment of the simultaneous exchange operations. Special attention should be paid to the incidence of IOF, the ideal solution being that the loan in question stipulate a repayment term of at least 181 days from the conversion, in which case a zero rate will be applied.

Conversion of the importation into direct investment may take place at any time by means of a declaration by the creditor and acceptance by the debtor, resulting in simultaneous symbolic foreign exchange operations.

As regards other foreign debts of an unspecified nature, these may be converted into a loan or direct investment, in the same way as importations, since any obligation that involves payment abroad may be converted, the only requirement being a formal statement by the creditor to that effect. However, it should be noted that some operations involving certain debts may give rise to the incidence of taxes as a result of their nature and must be considered specifically for the purpose of conversion. In this connection it must always be borne in mind that the exchange on sale of foreign currency on the conversion, the first leg of the symbolic operation, gives rise to the same effect as in the case of actual repayment.

It should be mentioned that the figures resulting from the conversions will be calculated in accordance with the exchange rates on the date of the symbolic operations for the conversion rather than the historic value of the debts in any of the cases above.

In relation to debts that are not capable of registration under the foreign exchange legislation, and cannot therefore be the subject-matter of a symbolic exchange operation for conversion, in accordance with Law no. 11.371/06, there is still the possibility of conversion into direct investment with the registration of so-called “contaminated” capital, which, although feasible, must be considered with great care.

Finally, before carrying out any restructuring of foreign currency debts, it is necessary to confirm that the information lodged with the Central Bank of Brazil is up to date, and also to consider from the group structural viewpoint the best option to be adopted.

Deborah Henriques Grasmann de Carvalho and Adolpho Smith de Vasconcellos Crippa

Associate lawyer and Partner in Company Law Area – São Paulo

[email protected] and [email protected]

Brazil – Retention of title in international business

We commonly find, in contracts for the purchase and sale of movable property, and even in more generic documents (for example in General Conditions of Sale), the existence of the so-called “retention of title” (reserva de domínio) 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 (Deeds and Documents Registry) 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 (for example, a promissory note, bill of exchange or even a contract containing characteristics of an enforceable instrument under Brazilian law).

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 (for example, registration of the said general conditions together with the invoice containing a description of the merchandise sold, inclusion of an express reference to the general conditions in the invoice itself, among others), 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. A wider examination of the issue is always to be recommended, taking into consideration the peculiarities of the laws of the country of the purchaser, in order to ensure maximum legal protection for the seller.

Frederico Amaral Filho and Charles Wowk

Associate lawyer and Partner in the Civil Area – São Paulo

[email protected] and [email protected]