Basic concepts

Provisional Measure 936 (PM 936) has been published and aims to maintain employment and preserve employees' income, while ensuring businesses continuity and reducing the social impact of the COVID-19 pandemic. This article highlights the main aspects covered by PM 936 and the relevant issues affecting labour relations.

Main aspects of PM 936

To whom does PM 936 apply?

PM 936 applies to employees, including domestic employees, apprentices and part-time employees. It does not apply to independent contractors or any other workers whose working relationship is not governed by the Labour Code. PM 936 also has a specific rule for intermittent employees.

What are the alternatives created by PM 936?

PM 936 creates a federal government-sponsored financial support programme – namely, the Emergency Benefit for the Maintenance of Employment and Income Programme.

In addition, PM 936 provides employers with more flexibility to temporarily reduce work hours and salaries and temporarily suspend employment contracts.

PM 936 gives employers implementing work hours and salary reductions and certain employers implementing employment contract suspensions the possibility to pay to affected employees a monthly indemnification allowance, which is not subject to income taxes and the regular employment and social security charges.

Employers implementing employment contract suspensions whose gross revenue in 2019 exceeded R4.8 million must pay to the affected employees an indemnification allowance corresponding to at least 30% of their monthly salary.

What is the emergency benefit?

The emergency benefit is an amount that will be paid by the federal government directly to employees affected by work hours and salary reductions or employment contract suspension. The benefit amount will be calculated based on the unemployment insurance that the affected employee would be entitled to receive and will vary depending on the alternative adopted (work hours and salary reduction or employment contract suspension), as summarised in the table below.

Alternative adopted

Emergency benefit amount

Reduction of work hours and salary

Percentage of the unemployment insurance corresponding to the same percentage of the work hours and salary reduction (25%, 50% or 70%)

Suspension of employment contract (employers whose gross revenue in 2019 was equal to or lower than R4.8 million)

100% of the unemployment insurance

Suspension of employment contract (employers whose gross revenue in 2019 was greater than R4.8 million)

70% of the unemployment insurance (employers must also pay to the employee a monthly indemnification allowance equivalent to 30% of the employee's monthly salary)

What is the indemnification allowance?

The indemnification allowance is an amount payable by employers to employees as a result of work hours and salary reductions or employment contract suspensions.

Payment of the indemnification allowance is optional. Payment is mandatory only in the context of employment contract suspensions involving employers whose gross revenue in 2019 was greater than R4.8 million. In this case, the indemnification allowance payable to the affected employees must correspond to at least 30% of the employees' monthly salary.

The indemnification allowance is an interesting tool for employers to compensate employees affected by work hours and salary reductions or employment contract suspensions, because it will be exempted from the individual income tax and will not be considered salary for legal purposes; thus, it is excluded from the calculation basis of employment charges, social security contributions and severance pay fund deposits. Further, the indemnification allowance will be deductible for purposes of corporate income tax and the social security contribution on profits.

In addition, employees need not pay income tax on the indemnification allowance.

Does PM 936 prohibit terminations?

PM 936 does not prohibit terminations.

Employees that have their work hours and salaries reduced or their employment contracts suspended will have a provisory job tenure:

  • during the reduction or suspension period; and
  • once that reduction or suspension period ends, for an additional period equal to the reduction or suspension period.

Nonetheless, if an employee's contract is terminated during the provisory job tenure period, they can receive, in addition to the statutory severance payment, an indemnification calculated as follows.

Situation

Indemnification in case of termination

Reduction of work hours and salary of 25% or more, but below 50%

50% of the salary that would be payable to the employee during the job tenure period

Reduction of work hours and salary of 50% or more, but below 70%

70% of the salary that would be payable to the employee during the job tenure period

Reduction of work hours and salary of 70% or more, or suspension of employment contract

100% of the salary that would be payable to the employee during the job tenure period

There is no change in the severance payments applicable to:

  • employees unaffected by work hours and salary reduction or the employment contract suspension; or
  • employees affected by work hours and salary reduction or the employment contract suspension who resign or whose employment contracts are terminated for cause.

Temporary reduction of work hours or salary

What is the percentage of reduction authorised by PM 936?

For the reductions implemented by means of individual agreements with employees, employers can reduce work hours and salary by 25%, 50% or 70%. Different percentages may be applied if the reductions are implemented by means of collective agreements with the participation of the employees' union. The proposed reductions must preserve employees' hourly wage; thus, an employee's work hours and salary must always be reduced by the same percentage.

What is the process for reducing work hours and salary?

The reduction of work hours and salary may always be implemented by means of a collective agreement with the participation of employees. However, the reduction may also be implemented by means of an individual agreement with the employees depending on the level of reduction or the salary of the employee, as summarised in the table below.

Salary reduction percentage

Individual agreement

Collective agreement

25%

Any employee

Any employee

50% or 70%

  • Employees whose monthly salaries do not exceed R3,135
  • Employees whose monthly salaries are equal to or exceed R12,202.12 and hold a university degree

Any employee

In case of an individual agreement, the proposal for reduction must be sent in writing to the employee with a minimum of two days' notice.

Why are employees with salaries up to R3,135 and employees with salaries equal to or exceeding R12,202.12 with a university degree treated differently than other employees?

The differentiation for employees with salaries up to R3,135 appears to result from the fact that their effective salary reduction, when the emergency benefit paid to them is calculated, will be small (and may be further mitigated by the indemnification allowance). Moreover, it may be possible to argue that such reduction is authorised in the Labour Code.

As to employees with salaries equal to or exceeding R12,202.12 with a university degree, the differentiation is justified by the fact that they are more capable of engaging in direct negotiations with employers (as recognised by the labour reform).

Will employees be entitled to both salary and the emergency benefit during the work hours and salary reduction period?

Yes, employees will be entitled to the salary (as reduced) and the corresponding emergency benefit.

Employers need not pay the indemnification allowance to employees affected by the work hours and salary reduction, but may decide to do so to provide additional relief to employees. Employees will receive not only the salary (as reduced) and the corresponding emergency benefit, but also the indemnification allowance in the amount determined by the employer (at its sole discretion). The table below summarises the possible scenarios.

Salary reduction percentage

Salary payable

Emergency benefit payable

Indemnification allowance payable

25%

75% of the regular salary

25% of the unemployment insurance

Optional
50%

50% of the regular salary

50% of the unemployment insurance

Optional
70%

30% of the regular salary

70% of the unemployment insurance

Optional

May employers propose a work hours and salary reduction that is not 25%, 50% or 70%?

Yes, but employers must implement the reduction by means of a collective agreement with the participation of the employees' union. Employers and employees' unions may freely negotiate the applicable reduction percentages.

When different reduction percentages may apply, the amount of the emergency benefit will be calculated as follows.

Salary reduction percentage

Emergency benefit amount

Below 25%

None

Equal to or more than 25% and lower than 50%

25% of the unemployment insurance

Equal to or more than 50% and lower than 70%

50% of the unemployment insurance

Equal to or more than 70%

70% of the unemployment insurance

Must employers apply the same percentage reduction consistently across departments?

PM 936 does not require that the same percentage reduction be applied consistently to all departments. However, well-defined criteria are used when differentiating the reduction percentages and ensuring that employees in the same situation are not treated differently.

What is the maximum length of the reduction?

The reduction may be in force for no more than 90 days provided that the public calamity state associated with the COVID-19 pandemic remains in effect. However, individual agreements and collective agreements may provide for shorter reduction periods.

What if an employer changes its mind after implementing the work hours and salary reductions? May it go back to the original work hours and salary before the expiration of the agreed reduction term?

Yes, the original work hours and salaries may be reinstated at any time by employers by simply notifying the employees thereof.

Will employees continue to be entitled to benefits during the work hours and salary reduction period?

Yes, there should be no changes to benefits unless there is a specific negotiation thereof with the employees' union.

Do payroll charges continue to be due during the work hours and salary reduction period?

Yes, but these payroll charges will be calculated based on the reduced salaries.

Temporary suspension of employment agreements

What is the process for suspending employment agreements?

The suspension of an employment agreement must be implemented by means of a written individual agreement between the employer and the employee. The proposal for suspension must be sent in writing to the employee with a minimum of two days' notice.

For how long can an employment contract be suspended?

The suspension may be in force for no more than 60 days provided that the public calamity state associated with the COVID-19 pandemic remains in effect. However, individual agreements may provide for shorter suspension periods. The suspension period may be broken down into two 30-day periods.

What if the employer changes its mind after implementing the employment contract suspension? May it reinstate the agreement?

Yes, employment contracts may be reinstated at any time by employers by simply notifying the employees thereof.

Will employees continue to be entitled to benefits during the employment contract suspension period?

Yes, there should be no changes to benefits unless there is a specific negotiation thereof with the employees' union.

Will employees be entitled to both salary and the emergency benefit during the employment contract suspension period?

No salary can be paid during the suspension of the employment contract since the employee will not perform any work. However, the employee will be entitled to the emergency benefit.

If the employer's gross revenue in 2019 exceeded R4.8 million, they must pay the employee a monthly indemnification allowance corresponding to 30% of the employee's monthly salary during the employment contract suspension period. Otherwise, the payment of an indemnification allowance will be optional and determined by the employer in its sole discretion.

Is there accrual of time of employment during the period of suspension for employment and social security purposes (eg, paid holiday)?

The period of suspension does not trigger accrual of time of employment for employment and social security purposes. However, employees may voluntarily pay social security contributions during such period.

What if the employer needs the employee to work while their contract is suspended?

Employees cannot work during the employment contract suspension period. Should any work be required, the employer must reinstate the employment contract before any work is done. If the contract is not reinstated and any work is done by the employee, the contract suspension will be disregarded and the employer will have to pay the salary and the social charges pertaining to the suspension period, in addition to legal penalties and other penalties potentially determined by the collective agreement.

Has there been any change in relation to the lay-off mechanism?

Yes, PM 936 states that the qualification courses provided for in the Labour Code (which allow employers to suspend an employee's employment contract so that they can attend a qualification course) may be taken remotely and must last between one and three months.

Practical aspects

Will PM 936 apply to the March 2020 payroll?

No, PM 936 is effective as of 1 April 2020 and cannot be retroactively applied to the March 2020 payroll.

How can PM 936 be applied to employees already on holiday?

Employees already on holiday can have their contracts modified only after they return to work (their contracts are suspended during holiday).

Does PM 936 affect the contracts that may have already been terminated?

No, PM 936 applies only to contracts that are currently in effect.

Can work hours and salary be reduced and the contract suspended afterwards?

Yes, one alternative does not exclude the other. However, the terms set out in PM 936 (up to 90 days for work hours and salary reduction and 60 days for contract suspension) must be complied with. Moreover, whenever the two alternatives are combined, they cannot affect the employment contract for more than 90 days in total.

This means, for instance, that after a 90-day reduction of work hours and salary, it will no longer be possible to suspend the contract, but a 60-day work hours and salary reduction may be followed by a 30-day contract suspension.

What is the rule for intermittent workers?

Intermittent workers hired until 1 April 2020 will be entitled to an emergency benefit of R600.

How can employers execute individual agreements to implement a work hours and salary reduction or an employment contract suspension if employees are already working remotely?

PM 936 does not address this question. However, the execution of individual agreements with employees can be made by electronic communication (eg, emails and instant messaging) that may work as evidence of knowledge of and consent by the employee as regards the contents of the agreement.

How will employers send the copy of the individual agreements to the union?

PM 936 requires work hours and salary reductions and employment contract suspensions to be communicated to the relevant unions within 10 days of the execution of the respective individual agreements. However, PM 936 does not require that a copy of such individual agreements be sent to the unions.

For companies that have already executed a collective agreement to address the matters covered by PM 936, but that would like to benefit from some opportunities created by PM 936, what can be done?

PM 936 makes clear that there can be a renegotiation of existing collective agreements within 10 days of the enactment of PM 936.

PM 936 provides employers with flexibility for direct negotiations with employees, without the participation of unions. Is this the best path to follow?

Negotiations with the participation of the employees' union give employers a higher level of legal certainty than negotiations directly with the employees. Therefore, work hours and salary reductions implemented by means of collective agreements with the participation of unions are always preferable.

How can employers engage in collective negotiations with unions when social distancing measures are in effect and group gatherings are not advised? How can employees meet to approve collective negotiations when many are working remotely?

PM 936 authorises the use of electronic means for the summoning, deliberation, formalisation and publicity of collective agreements with unions.

How can employers inform the federal government about the reduction of work hours and salary or the suspension of employment agreements in order for the affected employees to be able to receive the emergency benefit?

PM 936 allows the Ministry of Economy to enact regulations specifying the way in which employers and the federal government will communicate so that employees can receive the emergency benefit.