Put Rafael Mello, Fabiana Aparecida da Silva and Israel Carneiro Cruz – 26/05/2020

In light of the current economic and health crisis resulting from COVID-19, it is clear that companies have been experiencing major cash flow difficulties and challenges in their businesses that are still difficult to measure.

Aiming to contribute with solutions to what may be a small part of the problem, we will now explain the means of enforcing judgments in labor lawsuits or their termination by self-composition.

• Types of Court Guarantee – Use of bank guarantee to release funds

 As is known, it is necessary that the entirety of the debt is guaranteed in the labor process to oppose the execution.

In addition to the judicial cash deposit to guarantee execution, there are other means that can serve the same purpose.

The appeal deposits eventually made during the information stage for filing an ordinary appeal, an appeal for review and appeals to request the continuation of these appeals serve as a guarantee for the judgment, in accordance with the evolution of the understandings and normative instructions of the Superior Labor Court over the last 25 years. In other words, the amounts deposited for the purpose of filing appeals can be used to guarantee and pay executions.

This point is important as it is not uncommon for the plaintiff and the judge responsible for the case to simply not consider such amounts for purposes of guarantee or reduction in the event of payment or forced execution, which demands extra attention from the company's lawyer.

But that's not all.

With the labor reform inaugurated by law 13.467/2017, the legislation finally made clear the possibility of guaranteeing the judgment through the presentation of a bank guarantee or judicial guarantee insurance, establishing such possibility in article 882 of the CLT and with reference to the order of preference provided for in article 835 of the CPC. Let us look at the two provisions:

CLT

Art. 882. The defendant who fails to pay the amount claimed may guarantee the execution by depositing the corresponding amount, updated and increased by the procedural expenses, presentation of judicial surety insurance or appointment of assets to be seized, observing the preferential order established in art. 835 of Law No. 13,105, of March 16, 2015 – Code of Civil Procedure.

CPC

Art. 835. The seizure shall preferably observe the following order:

I – money, in cash or in deposit or investment in a financial institution;

II – public debt securities of the Union, States and Federal District with market quotation;

III – securities and securities quoted on the market;

IV – land vehicles;

V – real estate;

VI – movable property in general;

VII – livestock;

VIII – ships and aircraft;

IX – shares and quotas of simple and business companies;

X – percentage of the debtor company's revenue;

XI – precious stones and metals;

XII – acquisition rights derived from a promise of purchase and sale and fiduciary alienation as collateral;

XIII – other rights.

• 1st The seizure of money takes priority, and in other cases the judge may change the order provided for in the caput according to the circumstances of the specific case.
• 2. For the purposes of replacing the seizure, a bank guarantee and a judicial surety bond are equivalent to money, provided that the value is not less than the debt stated in the initial claim, plus thirty percent.
• 3. In the execution of credit with real guarantee, the seizure will fall on the thing given as guarantee, and, if the thing belongs to a third party guarantor, this third party will also be notified of the seizure.

As can be seen, the law is quite clear regarding the admission, also in the labor sphere, of the replacement of the cash seizure by the bank guarantee or insurance guarantee, equating such means of guarantee to cash, making them occupy the first position in the order of preference.

The same rationale applies to the replacement of appeal deposits made throughout the process, including because, as stated above, they are a guarantee of the judgment.

Thus, in theory and under the terms of article 899, § 11 of the CLT, it would be possible to replace these appeal deposits with a bank guarantee or insurance guarantee, allowing the maintenance of the court guarantee and, at the same time, releasing money so that the company has such resources in its cash, a factor that gains unprecedented relevance in the current times of crisis due to covid19.

Art. 899 – omission

(…)

• 11. The appeal deposit may be replaced by a bank guarantee or judicial surety insurance.

However, within the scope of labor procedural law there are always movements that seek to limit legal provisions, especially under the false pretext of granting protection to the worker. In this case, the limiting movement came from the Superior Labor Court (TST) which in its “JOINT ACT No. 1/TST.CSJT.CGJT, of October 16, 2019” limited the scope of the law, as can be seen from the transcription of its articles 7 and 8:

Art. 7º The judicial guarantee insurance for labor execution will only be accepted if it is presented before the deposit or the enforcement of the monetary restriction, resulting from seizure, attachment or other judicial measure.

Sole paragraph. Except for the deposit and enforcement of the monetary restriction resulting from seizure, attachment or other judicial measure, the replacement, by judicial guarantee insurance, of seized property until its expropriation shall be permitted, provided that the requirements of this Joint Act are met and there is the creditor's consent (§ 2 of art. 835 of the CPC);

Art. 8 After the appeal deposit has been made, the use of a surety bond will not be permitted to replace it.

In other words, and following the TST's standardized understanding, a successful online seizure would be enough to prevent the use of the bank guarantee or insurance guarantee, and recourse deposits already made could not be replaced by the aforementioned guarantees, making the legal provisions clearly empty.

The National Council of Justice (CNJ) issued a decision in the proceedings of the “administrative control procedure (PCA No. 0009820-09.2019.2.00.0000)” in which it suspended the effectiveness of articles 7 and 8 of “JOINT ACT No. 1/TST.CSJT.CGJT”, which ended up being maintained in the 6th Extraordinary Virtual Session of the CNJ held on March 27, 2020.

In short, the CNJ clearly signaled that the TST's regulations violate the principle of legality (art. 37 of the CF/88) and the functional independence of the judiciary (art. 2 of the CF/88 and art. 40 of the organic law of the judiciary).

In practice, the CNJ decision reinvigorates the effects of the law itself and allows companies to guarantee the judgment through a bank guarantee or insurance guarantee, as well as to replace with such methods the amounts stated in the records (court deposit, appeal deposit or online seizure).

In addition to traditional court guarantees such as the judicial deposit in cash, the appeal deposit itself, which is also made in cash, and other secondary means of guarantee as per items II to XII of art. 835 of the CPC, companies can also use bank guarantees and surety insurance, including to withdraw amounts deposited in the proceedings, preserving their cash and simultaneously providing a firm guarantee that the claimant will have his credit honored after due legal process.

• Requests for installment payments – Application of art. 916 of the CPC

For processes in the provisional or definitive enforcement phase of a judgment, the defendant company may use the request for installment payment of the execution under the terms of article 916 of the Code of Civil Procedure (CPC), which provides for the initial payment of 30% of the execution and installment of the remaining balance in 6 installments updated monthly.

By choosing this payment method, the company waives the right to suspend execution.

This form of payment is advisable when the potential defense points in execution are weak, the possibility of an agreement is remote and the flow is interesting to the company.

It is worth noting that, in theory, the defendant party may oppose the aforementioned installment plan, however, in the current moment of crisis, the option for payment in accordance with article 916 of the CPC has been widely accepted by judges and claimants.

• Formalization of Agreements

The formulation of a settlement strategy can always result in good results, especially when a realistic identification of contingencies and savings is carried out based on parameters applicable to each portfolio of cases (historical value of settlements, historical value of convictions, value fixed in a sentence, probability of reversal or reduction of a conviction, etc.).

For companies that work with large portfolios of labor lawsuits, a customized strategy for reaching agreements can result in a significant reduction in accounting contingencies and release of the remaining balance to allow strategic investments, cash preservation, improvement of valuation of the company and distribution of dividends to partners.

The current moment is delicate for everyone, both companies and workers, which reinforces the need to carry out serious and ethical work in formulating a campaign for agreements, in order to settle disputes, provide payments to workers and at the same time protect companies from the risks and burdens of the indefinite continuation of certain labor demands or the uncontrolled growth of labor portfolios.

During this period of isolation and social distancing, it is a fact that physical activities in the courts are partially impaired. However, alternatives already exist to implement a plan to formalize agreements: (i) agreement by electronic petitioning and (ii) telepresence hearings that have been regulated by the Regional Labor Courts.

• Renegotiation of Agreements

Considering the current scenario imposed by the pandemic, it undoubtedly results in a situation of force majeure and an event endowed with unpredictability, as well as in view of the impossibility of many companies to carry out their economic activities, which results in a financial crisis and a scenario of absolute uncertainty, companies, workers and the Judiciary have been seeking alternative solutions to renegotiate agreements already approved in order to guarantee their compliance. With the renegotiation possible, it is possible to increase the number of installments of the agreement, provisional suspension, among other means.

Said renegotiation may be based on articles 393 and 478, both of the Civil Code and applicable to labor law by virtue of article 8, § 1 of the CLT.

The first possibility is to seek to renegotiate the agreement with the opposing party's lawyer.

If the attempt with the opposing party's lawyer fails, the company may petition the judge responsible for the action requesting the renegotiation of the agreement in a new form of payment.

It is worth noting that, in theory and depending on the specific case, on verification of the existence of good faith and just cause to invoke force majeure to review the legal transaction formalized via agreement, the judge may grant a review of the conditions for compliance with the agreement, even with the employee's disagreement.

Although there is no legal provision, there is also, in theory, possibility of suspending the payment of the installments due under the agreement, proving the financial insufficiency caused by the effects of COVID-19, on the same grounds as articles 393 and 478 of the Civil Code.

Even without legal provision in a specific and unprecedented case, Judge Renato Barros Fagundes, of the 23rd Labor Court of Porto Alegre, suspended the payment of part of a labor agreement while the state of public calamity continues, according to the magistrate's understanding that justice must take into account reasonableness in exceptional situations.