Prepared by PINHEIRO, MOURÃO, RASO E ARAÚJO FILHO ADVOGADOS
* Patrícia Vilhena (firstname.lastname@example.org)
This is a guide to some aspects of Brazilian labor law that are likely to be of interest or concern to an overseas investor. In case of any specific project you may be interested in, or any specific demand, we will be glad to provide detailed advice to you.
Employment relationships in Brazil are essentially governed by constitutional and infra-constitutional level legislation, which set forth guidelines, principles and specific rights to employees when providing services within the Brazilian territory, and by specific collective agreements executed by labor unions. Certain labor rights, especially those stipulated in the Brazilian Federal Constitution, cannot be waived by the employee. As an example we can mention the labor insurance paid due to dismissal without cause, the right to earn at least the minimum wage, or the right to one-day rest during the week, among others.
The main legal diplomas applicable to labor relationships are:
- The Brazilian Federal Constitution, especially article 7th that sets forth the rights of urban and rural employees;
- The Consolidation of Labor Laws (“CLT”) – Decree 5.452, of May First, 1943, as amended – that covers the basic employment laws and principles;
- Law number 13.467, of July 13, 2017, named Labor Reform, which softened traditional labor rights giving more effect to the collective and individual agreements negotiated between the employer and the employee; and
- Some scattered federal legislation providing for salary increases, social security and pension funds, strikes, health and safety standards.
There are two types of collective agreements foreseen by the Brazilian Federal Constitution: the agreements negotiated between unions representing the employees and the employers, and those negotiated between employee’s union and the employer company. Pursuant to the new Brazilian Labor Reform (Law 13.467/17, Article 8) the principle is that in the review and interpretation of collective agreements the will of the parties shall be observed and there shall be minimum judicial intervention in the negotiated clauses.
The Labor Secretary of the Ministry of Economy (“Secretaria do Trabalho do Ministério da Economia”) is currently the government authority responsible for establishing the public policy related to labor relationships.
Hiring Foreign Nationals
Brazilian Labor Law contemplates the same treatment for foreign and national employees. Therefore, a foreign employee bearing a valid working VISA will have the same rights as a local employee, including annual vacation, 13th salary, monthly payment of salary, among others. With regard to the social security contribution the regulations may vary depending on the existence of an international treaty regulating this issue. For instance, Brazil and Japan have entered into a bilateral treaty to avoid the double payment of social contributions.
The CLT provides that a company engaged in industrial or commercial activities with more than three employees shall maintain a minimum of two Brazilian workers for every foreign one hired. This 2/3 proportion must be maintained also in the respective payroll.
Certain technicians performing specific functions may be exempted from the 2/3 proportion in some specific situations.
Terms of Employment
The terms of employment are usually inserted in the labor card (CTPS). For high level employees a labor agreement may be executed setting forth provisions related to the working hours, salary, bonus, confidentiality, among others.
Wages can be freely negotiated between the Parties. Brazil adopts a minimum wage for all employees, which is adjusted annually. The Brazilian Federal Government is responsible for adjusting the minimum wage that will be observed throughout each calendar year. For some specific categories the collective agreement applicable to the employer and the employee may establish a minimum wage.
Brazilian legislation states that companies and establishments with more than 10(ten) employees are required to have a formal mechanism for controlling the working hours performed. The normal working time is 8 hours per day and 44 hours per week. The work during holidays is permitted and, depending on the negotiations with labor unions, it shall be compensated in another day or paid in double.
Employees performing external activities or those who occupy positions of trust are exempted from the working-hours control, provided that some criteria are met.
Pension and Benefits
Employee’s pension will be paid by the Social Security Authority by virtue of retirement or during maternity living and labor accident living. The employees and employers pay a monthly contribution to the Social Security Authority for this purpose. The Employers are also required to pay a monthly contribution to the Guarantee Fund for Length of Service (FGTS) and have also paid until 1988 a contribution to the Social Integration Program (PIS). Employees have the right to receive such benefit from the Federal Government provided that certain conditions are fulfilled (age equal or superior to 60 years, or in the event of some types of illness such as cancer, AIDS), death, and disablement. Employees also have the right to receive a Governmental monthly compensation (insurance against unemployment) for a certain period of time after a dismissal without cause. Other benefits can be freely negotiated by the respective labor unions or by labor union and the employer company.
Protection against dismissal
All employees will have the right to receive the FGTS plus a fine of 40% in the case of termination of the labor contract without cause. If an employer unilaterally terminates an employee for cause, or if an employee unilaterally terminates an employment relationship without cause, the employer will not be liable for any severance indemnity payment to the employee.
If termination is a consequence of the employer’s and the employee’s mutual fault or force majeure, and provided a labor court recognizes either of these two causes for termination, the employer must pay to the employee severance indemnity in an amount equal to 20% (rather than 40%) of the total amount deposited in the employee’s FGTS account.
A notice of termination must be sent to the employee. The termination without just cause of an employment agreement must be preceded by a 30-day written prior notice if the termination occurs before the agreement completes its first anniversary. As of the second year anniversary the employee will be entitled to 3 (three) additional days per each completed year worked, up to a 90-day maximum prior notice.
The proportional prior notice is not applied should the termination is initiated upon the employee’s request (resignation). On said situations the employer may dismiss the employee from the obligation to work during the prior notice period. The employee may either comply with the 30-day prior notice or, if he refuses to work on that period, the missing days from the notice period shall be counted as unjustified absences and will be deducted from the employee’s severance payment.
Pregnant women, members elected for the labor commission to prevent labor accidents – CIPA, and employees who have suffered labor accidents or have acquired labor illness, are protect from dismissal during a certain period of time.
Resolution of Employment Disputes
The resolution of employment disputes is usually conducted by the Labor Courts. The Labor Reform established in its Article 507-A that in labor agreements where the wage is more than two times the maximum amount established by the Social Contribution Authority for payment of benefits, the parties can agree to submit disputes to arbitration. The arbitration proceedings will be initiated only upon the employee´s initiative or in the case the employee expressly agrees to such proceeding. On the other hand, Article 507-B of the Labor Reform provides that employees and employers can execute annually, before the employee´s labor union, an acquaintance relative to the obligations of the previous year.
Buying or Selling Business and Restructuring
The new employer will be jointly responsible with the former one for the payment of labor rights and contingencies. The conduction of a due diligence prior to the acquisition of a business, or to a restructuring process, is highly advisable.
After the enactment of the Labor Reform, outsourcing is permitted for all companies’ activities. The Contractor will be subsidiarily responsible for and shall inspect the compliance with labor and social security obligations by the service provider.
(*) Patrícia Maria Costa de Vilhena is a lawyer at Pinheiro, Mourão, Raso e Araújo Filho Advogados from Belo Horizonte, Brazil (www.pmraf.com.br). She focuses her practice on corporate law, M&A transactions, due diligence, civil, commercial and financing contracts, international commerce, internet law and labor law and may be contacted at 55+31+31161500 or email@example.com.