Amid Great Recession, Government Issues Executive Order To Stave Off Unemployment And Reduce Labor Costs

On July 6, 2015, the Brazilian government issued an Executive Order (MP 680/15 and Decree 8.479/15) called Program to Protect the Employment ("PPE") to slow down the rise of unemployment and the deepening of the recession. PPE, among other things, is intended to allow companies in economic distress to negotiate a reduction in working hours and correspondent salary to reduce labor costs.

Currently, Brazil's economy is experiencing a great recession and the forecast is dire. With the exception of exports and farming, which have experienced some growth, "Brazil has reported a long list of negative macro-economic data."1 Inflation—which for the past 12 months has been at the all-time high rate of 8.17%—is expected to increase to 8.26% in 2015, although the official target is 4.5%. Meanwhile, "investment has steadily shrunk over the past two years; production of motor vehicles has dropped by a stunning 20% since January. Although unemployment is still remarkably low, it is rising, with 100,000 jobs lost in April alone."2

Multinational companies with operations in Brazil are struggling to survive this challenging period and the cost of labor is one of their biggest hurdles. The fact that the labor laws are so inflexible in Brazil accentuates the problems in times of crisis and companies are scrambling to find viable alternatives to deal with the crisis.

Companies have few options to manage slowdowns and most are hard to swallow. With the market retraction, companies are not selling and so production has been reduced to a crawl in certain sectors. However, even though production and sales have been reduced, salaries continue to rise, as negotiated by the unions (all employees in Brazil are represented by a union, regardless of affiliation).

The options to manage the workflow and the costs during a crisis include implementing one of the following options or a combination thereof:

"collective vacation," where the company places all employees or employees of a specific department on paid leave which days off are offset from the employees' individual annual leave rights (i.e., 30 calendar days per year); temporary layoffs that can last up to five months; voluntary dismissal programs, with enhanced severance pay; reduction of working hours and salary; or termination of employment. Implementation of most of these options would depend on successful negotiations with the applicable unions to enter into new collective agreements.

While the Executive Order...