Key Aspects of Sales Representation, Agency and Distribution Agreements in Brazil

Brazil in Business

Agency, distribution and sales representation agreements are commonly used means for a business to expand its geographical reach without setting up a permanent establishment in a foreign country. While there are many elements to creating a successful commercial relationship, from a legal standpoint, knowledge of the legal framework in each target jurisdiction is essential to lower the risks of producing unintended consequences, which may ultimately affect the success of the relationship and create additional liability to your company. This becomes even more important in Latin American countries, such as Brazil, due to protective laws affecting the relationship with distributors, agents and sales representatives.

In Brazil, agency and distribution relationships are governed by Chapter XII of the Brazilian Civil Code, whereas the Brazilian Sales Representation Law (Law No. 4,886/65, amended by Laws No. 8,420/92 and No. 12,246/10), governs a sales representation relationship.

When determining the nature of the relationship, Brazilian courts will look at the facts, and not at the title of the agreement. For that reason, understanding the legal definition and characteristics of each category is fundamental.

An agency relationship will exist when an agent assumes, in a non-occasional basis and without any dependency, the obligation to promote, on behalf of another person, in exchange for remuneration, the performance of certain transactions, within a given area. A distribution relationship will exist when the agent is in the possession and control of the item to be transacted.

In contrast, a sales representative is legal entity or individual, without an employment relationship, who acts as an intermediary, in a non-eventual basis, on behalf of one or more people, for the conduct of commercial transactions, soliciting and mediating proposals or orders, to transmit them to principals, whether carrying out acts related to the performance of the transactions.

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The ICC’s New Brazil Office and The Success of the ICC Miami Conference: A Sign of Things to Come for ICC Arbitration in Latin America?

Miami SkylineThere is no doubt that Latin America has generally seen a rise in the use of arbitration in the last decade. Continuing with that trend, in 2016 the International Chamber of Commerce (ICC) reported that Latin America saw a 15% rise in the number of parties participating in ICC Arbitration,[1] with Brazil and Mexico both making it to the top ten.

This year, the opening of the new ICC Court’s case management office in Brazil and the success of the 15th ICC Miami Conference on International Arbitration both suggest that the region’s use of ICC Arbitration will continue to grow.

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Trademark Registration in Mexico

Trademark StampSeveral factors must be considered prior to filing a trademark application in Mexico. These factors include: a) prior use of the trademark; b) prior trademark registrations or applications in other countries; c) searches of identical or similar trademark registrations or applications; and, the d) accurate determination of the goods and services to be protected by the registration; among others.

Some countries, such as the United States (US), require proof of prior use of the trademark in the country where registration is sought, but that is not the case in Mexico.

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ECUADORIAN TRADE MINISTER SEEKS TO REVIVE U.S.-ECUADOR TRADE AND INVESTMENT TIES

Ecuador BusinessmanLast week, a group of Ecuadorian government officials and business stakeholders traveled to Washington, DC, to encourage increased trade and investment ties between the United States and Ecuador.  The delegation, which was led by Foreign Trade Minister Pablo Campana Sáenz, is seeking to revive US trade with, tourism to, and investment in Ecuador.

During his visit, Minister Campana highlighted a number of key trade priorities for Ecuador.  He encouraged the revival of the U.S.-Ecuador Trade and Investment Council, a bilateral panel originally established in 1990 to encourage discussion on trade and investment matters.  Minister Campana also emphasized the importance of the Generalized System of Preferences (GSP), a trade preference program that allows beneficiary developing countries to import select products into the U.S. duty-free.  The Ecuadorian Government is seeking to expand duty-free treatment to broccoli, roses, artichokes, and tuna.

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Upcoming Event: Key Issues in International Agency and Distribution Agreements

September 19, 2017 – Paula Galhardo and Fernando Cano-Lasa, Of Counsels at Squire Patton Boggs, will participate on a panel discussion on “Key Issues in International Agency and Distribution Agreements: Focus on Brazil, Colombia, Mexico and U.S.” at the Houston Bar Association’s Corporate Counsel Section Luncheon. Panelists will review the areas that most directly affect distribution and agency agreements: anti-corruption, termination, penalties, applicable law, among other provisions.

For additional information concerning this event, please see the full agenda.

U.S., Mexican, and Canadian Officials Conclude First Round of NAFTA Modernization Talks

Renegotiate NAFTAOn August 20, trade officials from the United States, Mexico, and Canada concluded the first round of negotiations to modernize the North American Free Trade Agreement (NAFTA). In a joint statement released following five days of talks, trade officials reiterated their commitment to updating the deal, continuing domestic consultations, and working on draft text. They also pledged their commitment to a comprehensive and accelerated negotiation process to set 21st Century standards and to benefit the citizens of North America.

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BRAZIL LABOR REFORM: WHAT YOU NEED TO KNOW ABOUT LAW NO. 13,467/2017

Brazilian DocumentThe Brazilian Senate has recently approved Law No. 13,467/2017 (the “New Law”) to amend the Brazilian Labor Code (Consolidação das Leis do Trabalho – CLT) and related regulations. The purpose of the labor reform is to lead to the creation of new jobs and reduce unemployment rates, through the implementation of less restrictive rules, which are consistent with present-day employment relationships.

Despite the strong antagonism by labor unions in the country, once the New Law enters into effect in November, it will unquestionably bring a breath of fresh air to a much outdated labor regime. The Brazilian Labor Code was enacted in 1945 and, although amended through the course of time, it has remained an inflexible and overprotective set of rules, incompatible to the present-day employment relations.

The pivotal changes about the Brazilian labor reform that you need to know are:

Effective Service Time. Under the New Law, if an employee remains at the employer’s premises in order to avoid inclement weather or unsafe conditions, that time will not be overtime. In addition, the time spent by the employee to commute to the workplace, even if the employer provides the transportation, will not be considered working hours if the employee is not at the employer’s disposal.

Remote Work. An employee that primarily performs work from home, or otherwise out of the premises of the employer, will be expressly excluded from the working hour system, so long as the employment agreement specifically states that arrangement.

Intermittent Work. The employee will be able to alternate between periods of work and inactivity. Under this arrangement, which must also be expressly stated in the employment agreement, the employer will be required to pay, at the end of each period of work: (i) pending salary, (ii) proportional holidays and additional 1/3; (iii) proportional Christmas bonus; (iv) paid weekly rest; and (v) social security and Severance Indemnity Fund (“FGTS”).

Part-Time Work. Presently, employers can employ workers under a part-time regime if the employee works for up to 25 hours per week, without the option of overtime. The New Law provides that the maximum hour limit will be 30 hours per week, without the option of overtime, or 26 hours per week, with the possibility of up to 6 overtime hours per week.

Vacation. Vacation time will be allowed to be split into three periods, so long as the employee agrees. One such period must last for at least 14 consecutive days and the other two remaining periods must be of at least 5 consecutive days.

Equal Pay. The New Law provides for different rules under which an employee can claim equal pay. Not only must the activities between the compared employees be the same, but it must also have been performed within the same business site. In addition, the compared employees cannot have a difference of more than 2 years in the same position and the difference between lengths of service cannot exceed 4 years.

Allowances. Meal vouchers, cost allowances, travelling expenses, bonuses and medical insurance will no longer be considered part of the employee’s remuneration, even if they are paid in a regular basis.

Economic Group. The mere fact of having the same individual or legal entity as an equity holder in two different legal entities will no longer be sufficient to establish economic group status among such entities. Evidence of pooled operations and common interests will be required to attribute them joint and several liability for labor obligations.

Retiring Partner/Shareholder. A retiring equity holder will only be liable for claims concerning labor obligations that are filed within two years from the date such equity holder formally retired from the company.

Termination. Termination of employment agreements will no longer need ratification by labor unions or the Ministry of Labor. The New Law also establishes the possibility of termination by mutual consent. In such cases, the employee will receive reduced prior notice indemnification and FGTS.

Voluntary Resignation Program. Voluntary resignation programs will be valid under the New Law. If the employee adheres to a Voluntary Resignation Program, the employee gives full and irrevocable discharge of their rights under the employment agreement, unless agreed otherwise between the parties.

Arbitration. The current Brazilian Labor Code, as a general rule, does not allow for arbitration clauses in employment agreements. Under the New Law, the parties to an employment agreement will be allowed to agree to an arbitration clause when the employee’s remuneration exceeds BRL 11,062.62.

Workers Representative Committee. Workers of companies with more than 200 employees may constitute a committee that will be a focal point for deliberations with the employer. The New Law also establishes the election criteria and provides for job stability for at least one year after the end of the mandate for the elected representatives.

Union Contributions. No longer mandatory, union dues will be optional to employees.

Collective Bargaining Agreements. The agreements executed between employers and the unions representing their employees’ interests will prevail over labor laws when their object concerns to: (i) working hours; (ii) annual time banking; (iii) breaks; (iv) employees’ representative in the workplace; (v) holiday exchange among other topics in article 611-A of the New Law.

It is important to note that President Michel Temer may still edit the New Law before its implementation in November 2017, through Provisional Measures.

Squire Patton Boggs is ready to assist you with any questions you may have concerning the Labor Reform in Brazil. For more information, please contact our Brazil Desk.

Mercosur Seeks to Expand Trade with Other Regions

On July 21, the presidents and other high-level officials of Mercosur’s member nations – Argentina, Brazil, Uruguay and Paraguay – met in Mendoza, Argentina to discuss the trade bloc’s next steps for increasing free trade with other regions. Top priorities on the agenda were the finalization of the trade negotiations with the European Union, as well as the continuation of trade talks with the Pacific Alliance, comprised of Chile, Colombia, Mexico and Peru. Mercosur is also aiming to establish strong trade relationships with Japan, India, Australia, and New Zealand.

The Mercosur region has suffered a number of political and economic challenges in recent years; however, the change in leadership in both Argentina and Brazil has opened the doors for rapid advancement of international trade deals and access to foreign markets. An important factor in Mercosur’s motivation to strengthen its trade ties with other countries is the economic recession in Brazil and its significant impact on neighboring countries and Latin America in general. Today, Brazil still faces a long road to recovery as it works through the high magnitude of corruption scandals and government mismanagement.

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Despite Protests, IMF Views Peru’s Labor Market Reforms As Strengthening Economic Growth

Peru FlagPeruvian miners recently took to the streets in a strike meant to protest proposed labor reforms. The labor reforms, proposed by President Pedro Pablo Kuczynski’s administration, aim to loosen restrictions on the termination of workers and generally relax regulations.[1] They have been perceived as hostile to workers’ interests by Peru’s mining unions, who claim that the reforms “would loosen safety rules, make it easier to fire workers and shift the burden of paying into an unemployment fund to workers from employers.”[2] Although Union officials called off the strike after the government’s promise to establish a task force creating dialogue regarding the labor laws,[3] some skepticism will remain.

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Trump Administration Unveils NAFTA Negotiating Objectives Ahead of First Round of Talks

NAFTA MembersThis week, the Trump Administration took a major step forward in laying the groundwork for the upcoming renegotiation of the North American Free Trade Agreement (NAFTA).  On July 17, the Office of the US Trade Representative (USTR) released a summary of the Administration’s negotiating objectives for the upcoming NAFTA talks.

Under Section 105 of Trade Promotion Authority (TPA) legislation passed into law in 2015, the Administration is required to publish a detailed and comprehensive summary of the specific objectives with respect to the negotiations, and a description of how the agreement, if successfully concluded, will further these objectives and benefit the United States at least 30 calendar days before initiating formal trade negotiations.

Most notably, USTR’s summary is framed as an overall renegotiation of NAFTA, and does not simply focus on those areas where the Administration is seeking changes to the existing deal.  The negotiating objectives covered a wide range of topics, including trade in goods and services, labor and environment, trade facilitation, trade remedies, and dispute settlement.  According to the summary, the Administration also plans to use upcoming NAFTA talks to address the United States’ trade deficit in goods with Canada and Mexico.

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