Changes range from establishing objective inspection criteria to limiting the size of fines

Executive Order (MP) No. 905, published in the Official Federal Gazette on November 12, 2019, promotes a series of changes to the Consolidated Labor Laws (CLT), especially regarding labor inspection rules and the application of administrative fines.

Most of the amendments proposed in MP 905 were already contained in Executive Order No. 881/19 (as its text was approved by the Senate Constitution and Justice Committee - CCJ), which reaffirms President Jair Bolsonaro's government's proposal to reduce bureaucracy in labor relations, with the ultimate goal of promoting job openings and generating economic growth.

The provisions on labor inspections were not approved in the final text of MP 881/19 when it was converted into Law No. 13,874/19.

In this article, we review the main provisions of MP 905 relating to the changes in labor inspections and the application of administrative fines. They may be divided into changes (i) in the inspection procedure; (ii) the administrative procedure and valuation of fines; and (iii) the rules of settlements signed between the inspection entities and the companies.

(i) Changes in the inspection procedure

Double visit criteria

As provided for in MP 881, MP 905 proposes a change in the wording of article 627 of the CLT, which establishes the need for the labor inspection auditor to observe the double visit criteria. In the current wording of the CLT, this criteria would only apply in cases of: (i) promulgation or issuance of new laws, regulations, or ministerial instructions and (ii) first inspection of newly opened or begun establishments or businesses.

Decree No. 4,552/02 (the Labor Inspection Regulation), in its article 23, also points out two other situations for the application of the double visit criteria: (iii) when dealing with an establishment or business with up to ten workers, except when there is a violation due to lack of employee registration or annotation in the employee's work booklet (CTPS) or when recurrence, fraud, resistance, or blocking of the inspection occurs; and (iv) in cases of micro or small businesses.

MP 905 maintains the first two scenarios, but establishes that the double visit criteria will only be observed within 180 days from the effective date of the new normative provisions (item “i” above) or the effective date of the operation of the establishment/business (item “ii” above).

With regard to micro and small businesses, the MP promotes changes in current legislation by stipulating a limit for the application of the criteria to micro and small businesses with up to 20 workers, a provision that did not exist previously.

In addition, MP 905 reproduces the provision found in MP 881 that the double visit criteria would be applied in the case of infractions graded as light against legal or regulatory principles relating to occupational safety and health, according to a regulation issued by the Special Bureau of Social Security and Labor of the Ministry of Economy.

The last scenario in which the double visit criteria apply is the previously scheduled informational technical visits, which was also not provided for by laws and regulations.

Other innovations brought about by MP 905 are the need to analyze the double visit criteria for each item supervised by the labor auditor and the nullity of the infraction notice if the prior requirement is not met. Both innovations were not provided for in the wording of article 627 of the CLT.

Labor auditor's conduct

MP 905 also provides for the inclusion of article 627-B in the CLT, which establishes the need for labor inspection in order to include the planning of labor inspection actions, through the preparation of special sectoral inspection projects for the prevention of accidents, work-related diseases, and labor irregularities involving these issues.

If labor auditors find the existence of repeated irregularities and high levels of accidents or a large number of occupational diseases, they must indicate collective actions in order to prevent and remedy irregularities at the time of the inspection.

In addition, the MP provides for penalties applicable to labor auditors if bad faith in their performance is proven. In this case, they will be held liable for serious misconduct and may be suspended for up to 30 days, in addition to the opening of an administrative inquiry if the conduct of bad faith recurs.

Electronic labor domicile

MP 905 also innovates by reproducing a provision contained in MP 881 instituting the electronic labor domicile with the purpose of: (i) informing employers of administrative acts, oversight actions, subpoenas, and notices; and (ii) allowing the receipt of electronic documentation during the course of inspections or when presenting an administrative defense or filing an administrative appeal.

The reports transmitted in this system, the use of which will be mandatory for employers, do not require publication in the Official Federal Gazette and the sending thereof via mail. They will be considered personal for all legal purposes.

Employers must access this system within a period of ten days from the date of notice through a registered e-mail address. At the end of this period, the electronic report will be automatically considered performed.

The need to use this electronic system does not preclude the use of other legal means of reporting between the competent authority and the employer.

(ii)Changes in the administrative procedure and valuation of fines

Deadlines in administrative procedure

MP 905, as MP 881 provided, also amends the CLT as to the time limit for filing an administrative defense and for filing an administrative appeal. Prior to the date of entrance into force of the MP, the period was ten days from the receipt of the infraction notice or the decision by the trial level administrative court. With the proposed change, the time limit for filing an administrative defense and filing an administrative appeal will be 30 days.

Waiver of acknowledgment of signature

Another innovation that was also addressed in MP 881 and reproduced in MP 905 is the exemption from authentication of copies of documents sent in Brazil to be attached in administrative proceedings and waiver of acknowledgment of signatures. These formalities should be observed only when there is doubt about the authenticity of the documents.

Analysis of administrative defenses and appeals and parity appeal board

MP 905 provides for the deterritorialization requirement for the review of administrative defenses. This means that, if an objection is filed against a particular tax assessment notice, another state in the Federal Government other than the one that issued the assessment will be responsible for reviewing the administrative defense. The objective is to confer greater impartiality in the judgment of administrative proceedings.

In addition, the MP establishes the creation of a system of random distribution of cases for review, decision, and imposition of administrative fines, which favors the principle of adversarial proceedings by disengaging the administrative decision from the person directly responsible for the assessment.

Another innovation introduced by MP 905 which was also provided for in MP 881 is the creation of a tripartite joint committee, composed of representatives of workers, employers, and labor inspectors, to review appeals against infraction notices in the second and last level of administrative appeals.

Criteria for application of administrative fines

MP 905 also innovates by including article 634-A in the CLT, setting forth the criteria for the application of administrative fines in the event of issuance of infraction notices for non-compliance with labor standards.

Under this new provision, fines must be applied according to the nature of the offense (light, medium, severe, or very severe). The amounts of the infractions are subject to a variable fine (R$ 1,000.00 to R$ 100,000.00) or a fine per capita (R$ 1,000.00 to R$ 10,000.00).

The classification of fines, the nature of the infraction, and the classification by economic size, which is one of the criteria for setting the penalty, still require specific regulations, to be defined in an act by the Federal Executive.

MP 905 also provides for the possibility of paying an administrative fine with a 50% discount for individually owned companies, microenterprises, and small businesses with up to 20 employees, in the event of waiver of the right to file an administrative appeal. For other companies, the discount is 30% in this same scenario, when they give up their right to file a voluntary appeal.

The prior rule made no distinction as to the type/size of the company. Any employer assessed would be entitled to a 50% discount over the administrative fine if they paid within 10 days of receiving the notice, provided that they have not appealed.

(iii)Change in the rules regarding settlements between supervisory entities and companies

Consent Orders and Consent Decrees

MP 905 also provides that, in the event of the filing of a special procedure for an oversight action that will advise on the correct criteria for application of the law, Consent Orders and Consent Decrees signed shall have a maximum term of two years, and may be renewed for two more years when there is justification based on a technical report.

This provision benefits signatory companies inasmuch as they will no longer be compelled to comply with the obligations contained in these documents perpetually, given the existence of a maximum period for their validity.

MP 905 also innovates by providing that companies cannot be required to enter into two extrajudicial settlements (one with the Labor Attorney's Office - Consent Orders - and one with the Ministry of Economy - Consent Decrees) based on the same violation of labor laws or regulations.