Provisional Measure #905 – A New Mini Labor Reform In Brazil

Provisional Measure # 905 ("PM"), published on November 12, 2019, establishes a new type of labor relationship in Brazil. The PM aims to reduce the alarmingly high unemployment rate affecting younger workers in the country, and—in keeping with President Bolsonaro's government plan—to promote hiring by giving employers an alternative means to do so at lower costs.

According to IBGE, the Brazilian statistics agency, over 27% of people ages 18 to 24 are unemployed and another 14% are working less than they could be. This is caused, in large part, to the lower rate of job turnover; employees in Brazil are working longer over their lifetimes. The Brazilian president enacted the PM to mitigate the effects of lower job turnover, as well as to boost the economy, encourage employers to increase hiring, and promote economic investment. Specifically, the PM creates the Green and Yellow ("GY") Employment Contract, a new employment contract model, which:

Targets workers ages 18 to 29 who are seeking their first employment opportunity; Is limited to a two-year period; Has simpler and more flexible rules; and Provides for less-encumbering employment taxation. In order to better understand this new model of employment contract, it is important to analyze some of the PM's key aspects.

The PM aims to safeguard labor rights, while reducing the employer's burden, by expressly stating that Green and Yellow workers ("GY employees") are guaranteed all constitutional rights, as well as the ones established by the Consolidation of Labor Laws ("CLT") and negotiated in collective bargaining agreements, as long as these rights do not conflict with the PM's rules.

This new form of employment contract is aimed at employing younger workers who have never had a formal job before and need initial assistance to start their career. Therefore, the job offer, with the advantageous conditions set forth by the new model, is restricted to workers ages 18-29 with no previous formal experience. Previous experience in temporary jobs, such as apprenticeships, intermittent or sporadic work, are not counted as previous experience.

The maximum salary to be paid to the GY employees is equivalent to one and a half times the Brazilian federal minimum wage which, in 2020, is BRL1,039.00 (approximately USD$255.00) per month; one and half times that amount equals BRL 1,558.50 (USD$383.00). Thus, the new employment contract model is directed at less-experienced workers, who are most intensely affected by the unemployment rates.

In addition, GY Employment Contracts do not apply to professions (such as engineers, lawyers, secretaries, sales representatives, teachers, journalists, airplane pilots, etc.) that are regulated by specific laws.

Another important aspect of the GY Employment Contract is that the contracts signed under this model cannot have a term greater than 24 months. Under the PM, any contract that exceeds this term will be automatically converted into a regular employment contract, with an unlimited term, subject to all rules of the Labor Code. This provision addresses the concern about such contracts being extended indefinitely and, consequently, potentially becoming exploitive.

To further prevent the exploitation of the new model of employment, the PM establishes a limit to the proportion of workers of the total workforce that can be contracted through a GY Employment Contract. For employers with more than 10 employees, the PM establishes a 20% limit in the number of GY employees in relation to the total number of the company's employees; for...