In Brazil, basic employment rights are provided for in the Federal Constitution of 1988, which establishes rights and minimum contractual conditions that must be complied with in employment relations.
The rights provided for in the Federal Constitution are codified by federal laws and in their great majority are consolidated in the Brazilian Consolidated Labour Laws (CLT), enacted in 1943. The Federal Constitution also sets forth provisions for union association rights and the right to strike.
In addition to the CLT, specific regulations are set forth in federal laws for certain professionals (engineers, physicians, attorneys, etc.) and there are also regulations relating to occupational health and safety issued by the Ministry of Labour and Employment. The Ministry of Labour and Employment is the body of the Executive Branch responsible for controlling compliance with legislation and for regulating employment relations in Brazil on matters ascribed to it by federal law.
In addition to establishing material rights, the CLT also regulates the entire labour court procedural system, where there is no discovery phase or trial by jury, given that a labour claim must be filed with a labour court and evidence is produced in the proceeding and before the judge who will rule on the case.
Actions between employers and employees can be individual or class (multi-plaintiff), however, there are courts that do not accept class actions. Therefore, actions are usually individual. On the other hand, class actions may be brought against the employer by the union that represents the employees or by the Labour Prosecutor’s Office itself, so as to defend the interests of employees.
The employment courts are divided into three levels: the first includes the lower labour courts in which a judge rules on cases at the trial court level; the regional labour courts are the second level of labour courts and are generally located in the capitals of the states. In regional labour courts, a panel of judges typically rules on appeals against trial court decisions and class actions that involve strikes; and the third level is the Superior Labour Court, which is located in Brasilia, the federal capital. Likewise, a panel of judges rules on appeals against decisions of the regional labour courts that violate the provisions of federal law or the Federal Constitution, or that are contrary to the decisions of other regional labour courts or to summaries of the Superior Labour Court itself. Appeals that address any previously heard facts and evidence are not permitted. In addition to the labour courts, the Federal Supreme Court, which is the highest adjudicative body of the Brazilian legal system, also hears labour cases when lower court decisions violate constitutional provisions.
In the administrative sphere, in addition to audits conducted by the Ministry of Labour and Employment through its regional labour superintendents, the Labour Prosecutor’s Office monitors compliance with legislation through investigative proceedings. The Labour Prosecutor’s Office acts by means of an indictment, whether or not anonymous, and also when urged by the labour courts or by a professional union. If any irregularity is found, the Labour Prosecutor’s Office can propose a settlement, granting to the company a period to remedy the irregularity upon imposition of a fine, or file a public interest civil action against the company, so that the labour courts, by means of a court decision, may require the company to remedy the violation.
II YEAR IN REVIEW
i New rights and rules for maternity leave due to spread of Zika virus
On 27 June 2016, Law 13,301 introduced new rights and rules that have extended the duration of maternity leave for mothers of newborns infected with diseases transmitted by the yellow fever mosquito – that is, the Zika virus, chikungunya fever and the dengue virus.
The World Health Organisation has declared the Zika virus – one of the most dangerous diseases transmitted by the yellow fever mosquito – a global public health emergency, as it has led to thousands of babies being born with underdeveloped brains.
In Brazil, there have been approximately 91,300 cases of the Zika virus since 2015. By the end of May 2016, more than 100,000 people were infected with chikungunya fever and almost 1.3 million cases of dengue were reported nationwide. The number of people infected with diseases transmitted by the yellow fever mosquito in Brazil has grown in 2016 compared with 2015.
All women employed in the private sector and who contribute to social security have the right to maternity leave.
On 1 January 2010, Law 11,770/2008 extended maternity leave from 120 days to 180 days. However, this additional 60 days is optional for private employers that voluntarily adhere to the Company Citizen Programme.
If granted the additional 60 days, the employee will receive the full amount of her last monthly salary, and the company can deduct the additional salary paid to the employee from its corporate income taxes.
According to the new rules, employees who are eligible for maternity leave (considering the general rules) will have the right to 180 days of maternity leave if their child is infected by any of the diseases transmitted by the yellow fever mosquito, including the Zika virus and chikungunya fever.
The newborn must have a neurological sequelae associated with the mentioned diseases. In these cases, employers must grant the additional 60 days of maternity leave.
The employee will receive the full amount of her monthly salary during this 60-day period.
Law 13,301 aims to provide better health options to children born with neurological sequelae as a result of the diseases transmitted by the yellow fever mosquito, who will have to undergo continuous medical treatments and long physiotherapy sessions during the first few months of life.
Considering that newborns should be closely monitored by their mothers during this period, Law 13,301 helps to prevent an even worse medical condition in the future and also reduces the risk that mothers will resign in order to care for their children.
ii Superior Labour Court begins hosting public hearings
Under Brazilian law, the courts can schedule public hearings to invite legal experts and the general public to debate important matters to be decided by the courts.
The Superior Labour Court has organised a series of public hearings to discuss relevant labour matters. The latest public hearing was held on 28 June 2016 to debate whether asking job candidates to provide clearance certificates for criminal records constitutes grounds for moral damages.
The Superior Labour Court is considering at least two cases in this regard and thus requested a public hearing to gather information from professors in the field, unions, lawyers and other specialists before issuing its decisions.
According to recently enacted Brazilian procedural law, the appeal courts can rule on similar and repeat cases by issuing a judicial precedent. These precedents block appeals based on the same or similar arguments. Naturally, these precedents serve as guides for lower labour courts and parties and help to reduce the number of frivolous appeals.
The Superior Labour Courts prepare judicial precedents on the following issues:
- a whether requesting clearance certificates for criminal records constitutes moral damages;
- b overtime for public and private bank employees;
- c attorneys’ fees;
- d the applicability in labour proceedings of the penalty set out in Article 475J of Law 5,869/73 (the corresponding article of the recently enacted Brazilian procedural law will be discussed);
- e health hazard allowance with regard to telemarketers’ use of headphones; and
- f subsidiary liability with regard to construction sites (Judicial Precedent 191 of the SBDI1, limited to individuals and micro and small businesses).
In light of these rulings and related public hearings, attorneys may have to alter their approach to litigation. As such, they must be prepared to attend public hearings and present effective arguments. It is expected that companies will join forces through industry associations to engage legal experts, experienced attorneys and labour law professors to defend their legal positions before and during public hearings.
Companies may also hire legal experts separately to increase their chance of presenting successful arguments.
Attorneys will be responsible for precisely demonstrating that their case falls within the scope of the relevant judicial precedent. Further, they must build a strong case in the discovery phase, including securing evidence to support any arguments that may be made on appeal.
These changes also raise issues about how discovery hearings should be handled – in particular, how to present evidence to the appeal courts demonstrating that a case is substantially similar or entirely different from the facts on which the relevant precedent is based.
iii Supreme Court initiates labour reform
Now that the impeachment process of former president Dilma Rousseff has finally been concluded (with former vice president Michel Temer serving the remainder of Rousseff’s term), a different political and economic landscape is anticipated for companies.
In his first speech as the new president, Temer vowed to introduce structural and legal reforms to improve the country’s economic situation. These reforms may include changes to labour and employment laws.
While this potential labour reform is being drafted by the new government, the Supreme Court has rendered several decisions on labour and employment matters that may be understood as the beginning of the labour reform. Two important decisions issued in September 2016 are discussed below.
Right to travel expenses
In the first case, the Supreme Court considered whether a special collective bargaining agreement executed between a sugar and ethanol factory and the relevant labour union could withdraw an employee’s right to be compensated for travel to and from the office. In Brazil, companies may be required by law to pay travelling expenses where no public transport is available between an employee’s residence and worksite.
In this case, the Supreme Court overturned the Superior Labour Court’s earlier decision, holding that collective negotiation prevails over the law and thus that some rights can be suppressed if previously negotiated with the labour union, provided that the collective bargaining agreement establishes other rights to compensate any loss therein.
This is not the first time that the Supreme Court has overruled a Superior Labour Court decision on the grounds that a collective bargaining agreement prevails over the law. For example, the Supreme Court recently held that a former employee who had agreed to a voluntary dismissal plan established by a collective bargaining agreement could not sue the company for additional labour rights, as the plan contained a waiver and full release clause.
Labour judges have historically ruled that employees cannot waive the fundamental rights set out in the Constitution.
However, the Supreme Court’s new rulings may significantly affect labour court decisions in comparable cases.
In the second case, the Supreme Court discussed whether the limit on working hours applies to firefighters. In its decision, the court maintained that firefighters are subject to the ‘12 x 36’ working regime (i.e., 12 hours of work, followed by 36 hours of rest). Brazilian law sets out that employees cannot be subject to more than eight hours of work per day and 44 hours of work per week. This regime was originally ruled unconstitutional by the Superior Labour Court on the grounds that it caused employees stress and could lead to work-related accidents. The Supreme Court’s decision will likely serve as legal precedent in similar cases from other economic sectors (e.g., healthcare and metallurgy).
It is hoped that greater labour reform will take place in Brazil, to ensure that the country remains competitive in the global market. These first steps by the Supreme Court are a positive sign of what is to come in the near future.
iv New perspectives for outsourcing
There is no specific law regarding outsourcing in Brazil. All legal provisions concerning this matter are set out in Precedent 331 of the Superior Appeal Labour Court. Precedent 331 forbids a company from outsourcing its core business to another company, which means that only non-essential activities can be outsourced (e.g., cleaning, security and back office services).
Under the existing outsourcing regime, the contracting company is considered to have subsidiary liability for all debts due to outsourced employees. There is no legal arrangement that may be agreed with the outsourcing company to avoid the contracting company’s subsidiary liability regarding the employment rights of outsourced employees. This is a mandatory condition that cannot be waived or negotiated by the parties.
Outsourcing a core business is considered unlawful by the Labour Court. If a contracting company outsources its essential activities to a third party, both companies are jointly liable for any labour debt due to an outsourced employee. Further, depending on the circumstances of the case, the Labour Court may grant employment recognition between the contracting company and the outsourced employee, meaning that the outsourced employee may be entitled to all labour and employment rights provided by that company, including:
- a any benefit provided for by the company’s internal policies (e.g., profit-sharing plans);
- b the collective rights set forth in relevant collective bargaining agreements; and
- c health and security entitlements.
However, there could soon be changes to the outsourcing rules.
In 2015, Draft Law 4,330/2004, which deals with outsourcing, was approved by the House of Representatives. The draft was sent to the Federal Senate for discussion and possible amendments before being voted on. The main aspects of the draft that are of interest to companies include the following:
- a outsourcing may be provided within the core activities of the companies, but the original bill was amended and now provides that only a ‘portion of activity’ may be outsourced by the company. The bill does not explain the real meaning and boundaries of such expression. If later approved by the Congress as it is, the Labour Court may be called to decide about this haziness;
- b the contracting company may be jointly liable for any employment debt due to outsourced employees;
- c outsourced employees may be represented by the trade union of the contracting company, if it is found that they belong to the same economic category as the contracting company’s employees;
- d the disability quota (Law 8,213/1991) may be calculated based on the total number of employees (i.e., both regular and outsourced);
- e the contracting company may be responsible for withholding taxes applied to the outsourcing services;
- f after the termination of the service agreement entered into with the outsourcing company, the contracting company may not be allowed to hire the same company for at least 12 months, depending on the circumstances;
- g outsourced employees hired by joint venture companies (i.e., public-private sharing), may be entitled to the labour and employment rights set out in the Labour Code; and
- h security surveillance at ports may not be outsourced.
Companies and workers are eagerly awaiting the potential results once the draft law is enacted. Employees are hoping for improved labour and employment rights and a more effective application of the rule of law. Companies anticipate that outsourcing may become less bureaucratic and more unrestricted, helping them to be more competitive.
Thus far, the Draft Law has not been discussed by the Federal Senate.
III BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP
i Employment relationship
Brazilian law does not require the execution of a written employment contract and an employment relationship is permitted on the basis of a verbal employment contract. A verbal agreement is sufficient to comply with the legal requirement for registering the employee in the legally mandated employment booklet and employment registration form (employment documents).
In order to eliminate doubts concerning conditions of employment, however, companies tend to execute written employment contracts with their employees, establishing, inter alia, the duties to be performed, salary, working hours, corporate benefits, possibility of transfer, confidentiality and non-disclosure obligations, obligations to comply with internal policies, payment of damages caused by employees due to fault (this requires an express provision in the employment contract), other types of payroll deductions in addition to the legal deductions, agreement of the employee to work overtime, and the offset of hours worked on Saturdays against hours worked on other days of the week. Provisions regarding the probationary period and work for a fixed term necessarily require execution of a contract and relevant entries in the employment documents.
In general there are three types of employment contract: (1) for employees in general; (2) for employees who perform external activities and are not permitted to control or establish their daily working hours; and (3) for employees who hold positions of trust (i.e., employees who exercise management powers within a company).
Employment contracts in Brazil are usually executed for an indefinite term. However, contracts may be executed for a fixed term, which is limited to two years. To be valid, contracts for a fixed term must be executed only for services whose nature or temporary character justifies its definite term or for temporary business activities. In the case of early termination of a contract for a fixed term, the company must pay to the employee half of the salary due for the remaining period, which limits this type of hiring in Brazil.
Brazilian law renders amendments to contracts null and void if such amendments are to the detriment of the employee, even if the employee expressly agrees to them. Thus, once an employment contract has been executed, the company may not alter it unless the alteration benefits the employee (e.g., salary increase, reduction of daily working hours and promotions).
ii Probationary periods
Pursuant to Brazilian law, a Brazilian company can execute an employment contract containing a probationary period that lasts a maximum of 90 days and that may be extended once if it has been executed for a term that is less than the legal limit. For the probationary period to be considered valid, it is necessary that (1) the probationary period be provided for in the employment contract; and (2) the probationary contract must be included in the employment documents, under penalty of the probationary period being deemed non-existent.
From July 2014, Ordinance No. 789/2014, of the Ministry of Labour and Employment authorised that in the legal event of temporary substitution of regular and permanent staff, the agreement may extend for more than three months for a particular employee in the following situations:
- a when circumstances occur, already known at the time of its execution of the contract, justifying the hiring of temporary workers for more than three months; or
- b when there is reason to justify the extension of the temporary employment contract, which exceeds the total duration of three months.
Subject to the above conditions, the duration of the temporary employment contract, including extensions thereof, may not exceed a total of nine months.
In relation to legal cases of extraordinary growth of demand, extension of the temporary employment shall be permitted for up to three months in addition to the three months already provided for by law, if the reason justifying the hiring persists.
For such extensions to be made, the company engaging in temporary employment must request authorisation from the Ministry of Labour and Employment.
If the probationary period has expired and the employee continues working, even if only for one day, the legal consequence is that the employment contract automatically becomes a contract for an indefinite term. In the event of early termination of a probationary contract, the company must pay an indemnity equal to one-half of the salary due through the end of the probationary period, except if the employer expressly agreed to the same severance pay as would be due in the event of termination without cause of an employment contract for an indefinite period. Proportional severance pay must also be paid (i.e., ‘13th-month salary’ and vacation pay, plus one-third vacation bonus).
iii Establishing a presence
Brazilian law does not forbid the hiring of employees by a foreign company. However, if an employee is hired by a foreign company to work in Brazil, Brazilian labour laws and jurisdiction will prevail, irrespective of whether the employment contract provides for the application of the laws and jurisdiction of the foreign country. Instead of hiring an employee, a foreign company may engage consultants or independent service providers. If the services are to be performed in Brazil, the law also provides that Brazilian law will apply and that Brazil will have jurisdiction. Care should be taken to ensure that this type of service agreement is not confused with an employment contract.
The employee, consultant or service provider of a foreign company providing services in Brazil may not perform any acts that could be construed as ‘doing business in Brazil’. Regarding the concept of doing business in Brazil, Brazilian domestic legislation does not provide for the notion of ‘permanent establishment’ as that term has been construed by international tax doctrine, foreign laws and model conventions to avoid double taxation. Furthermore, Brazil and the United States have not entered into a double taxation treaty pursuant to which the notion of permanent establishment could be addressed.
The most similar thing to regulations on a permanent establishment is Article 147 of the Brazilian Income Tax Regulations, which sets forth very specific situations in which Brazilian tax legislation subjects non-residents to the same tax regime applicable to Brazilian tax residents. In this sense, Article 147 lists hypotheses in which non-residents would be deemed to be doing business in Brazil by means of an organisation of persons or assets. As a result of application of Article 147, income derived by the non-resident through the organisation of persons or assets would no longer be subject to territorial taxation (which is the standard regime applicable to non-residents) and would be subject to the general tax regime applicable to Brazilian resident legal entities to the extent that such income can be attributed to activities carried out in Brazil.
From the wording of Article 147, one can infer that a non-resident could be deemed to be doing business in Brazil in the following circumstances:
- a whenever it maintains a branch, agency or representative office duly authorised to operate in the country, through which the non-resident carries out its activities in Brazil;
- b whenever a commissioned agent in the country receives goods from the non-resident to sell them in Brazil on behalf of the non-resident; and
- c whenever a resident agent, commissioner, representative, or proxy holder engages in business in Brazil on behalf of the non-resident, holding powers to contractually bind the non-resident to third parties.
In addition, one could argue that the Brazilian tax authorities could attempt to claim that a de facto permanent establishment in Brazil exists on the basis of Article 126 of the Brazilian Tax Code, which provides that tax liability arises regardless of the formal or legal incorporation of an entity in Brazil, recognition of an economic or professional unit being sufficient.
In this context, it should be noted that while Brazilian law acknowledges the legal personality of foreign legal entities, it does not embrace the freedom of establishment of such entities as the laws of several foreign countries do. In other words, Brazilian law (Article 1,134 of the Brazilian Civil Code) requires foreign legal entities to obtain authorisation to carry out their activities in Brazil.
If a foreign company establishes a subsidiary in Brazil, it will not be able to hire employees until it has filed its organisational documents (articles of association or by-laws) with the commercial registry of the state where the subsidiary is located.
Once such subsidiary has been registered with the Ministry of Finance and the Social Security Agency, and has obtained operational licences (including regulatory authorisations, if applicable) it may commence activities and hire employees, since it may now generate its payroll and pay the respective taxes and social charges.
In Brazil, there is no legally provided time frame for the incorporation of a company, but in general, the level of bureaucracy means that the time usually ranges from two to six months and sometimes more, particularly when registration of a regulated activity is involved.
Hiring consultants or service providers through an intermediary company is possible as long as such consultants or service providers are not involved in the hiring company’s core business. This is so because the Superior Labour Court, through Abstract 331, recognised that outsourcing of a company’s core business is considered to be illegal. Accordingly, consultants and service providers cannot be involved in activities identified as the business purpose of the hiring company, subject to penalty of such hiring being declared null and void, in addition to the hiring company being liable for employment relationship liabilities such as salaries, taxes and employment rights.
In relation to employment rights, the following payments are mandatory to employees:
- a monthly salary;
- b transportation vouchers;
- c family allowance;
- d profit-sharing upon achievement of goals;
- e five days’ paid paternity leave;
- f vacation pay, plus one-third vacation bonus;
- g ‘13th month’ salary, equivalent to one-twelfth of the monthly salary for each month worked, calculated based on the salary for the month of December and paid in two instalments, the first between the months of February and November and the second on 20 December;
- h monthly contribution to the employee Severance Indemnity Fund (FGTS), equivalent to 8 per cent of monthly remuneration, deposited monthly with a government bank;
- i 120 days’ maternity leave: this amount is not an employment right, but rather a social security right, as it is the Social Security Agency that pays the benefit;
- j rights provided for in a collective bargaining agreement; and
- k severance pay.
The remuneration paid to employees triggers social security contribution obligations, the percentages of which vary according to the salary earned by the employee, as per the table below:
Rate for purposes of payment to the
Social Security Agency (%)
Up to 1,556.94
From 1,556.95 to 2,594.92
From 2,594.93 to 5,189.82
In addition to the payments based on employees’ salaries, the companies must pay certain additional contributions.
The basic social tax rate applicable to the company on salary paid, payable or credited to an employee that provides services for it is 20 per cent.
The calculation base is total compensation paid, payable or credited for work on any account during the month to the socially insured employees providing services.
To this 20 per cent contribution rate sums are added to cover the cost of occupational accident insurance as well as contributions intended for social security services that are specific to each activity carried out by the company. The average rate that results from this addition is 28.8 per cent2 and may vary according to the economic activity of the company.
Regarding non-employees, the social security contribution rate payable by the company that contracts them is 20 per cent on total remuneration paid or credited to any account. Contributions are not levied to cover the cost of occupational accident insurance, of social security services that are specific to the economic activity of the company.
iV RESTRICTIVE COVENANTS
During the term of the employment contract, the employee has a duty of loyalty to the employer and thus cannot carry out competing activities, on pain of termination for cause, unless the employer has given an authorisation in this regard.
On account of the constitutional principle of the freedom of every person to work, the employee may carry out competing activities after contractual termination of employment, unless he or she has executed a non-competition agreement with the employer.
The effectiveness of a non-compete agreement after termination of employment is a concept that demonstrates competing concerns. On one hand is the view that non-compete provisions are always invalid, even if there is payment of consideration and the non-compete agreement is limited in time, territory and relevant business activities. Another view is that the constitutional principle of freedom to work is not absolute and can be limited, provided that there is reasonableness and that it is necessary to protect the employer’s business. In this regard, in order for a non-compete agreement to be valid after termination of the employment contract, it must be executed at the moment of hiring (it can be included in the employment contract or in a separate document) and must meet the following requirements: (1) it must be limited in geographical area; (2) the former employee is compensated during the non-competition period; (3) it must be for a limited period of time; and (4) it must be limited to the business area of the employer. Although there is no regulatory legislation, the labour courts have judged non-compete agreements to be valid only when the four requirements are present and provided that the compensation established for the period of non-competition is equal to the compensation received by the employee during the term of the employment contract. It must be noted that upon contractual termination, if the employer requires the employee to execute a non-compete agreement, the employee is not under an obligation to do so.
Regarding confidentiality and non-solicitation agreements after termination of the employment contract, these will be valid and payment of an indemnity will not be necessary. For these obligations to be valid after termination, an express agreement in this regard is required. The company may choose to execute a separate document, provided that it is executed simultaneously with the employment contract.
The employment contract must also contain provisions governing the protection of intellectual or industrial property to the extent applicable and particularly in accordance with the duties being performed by the employee. As for provisions concerning inventions created by the employees (works made for hire) that are the property of the employer, the contract must provide that compensation paid already includes compensation for intellectual property comprising inventions and enhancements.
i Working hours
The Federal Constitution establishes that the maximum number of hours to be worked by an employee is eight hours per day and 44 hours per week, totalling 220 hours per month. Working hours on Saturdays may be offset by means of a written agreement, so as to be distributed throughout the five business days of the week, whereby Saturdays will be considered a non-worked business day. Overtime worked on Saturdays may misrepresent the offset, and the time resulting from the distribution on weekdays of hours worked on a Saturday may be considered overtime.
Another aspect is that if the employee is hired to work 220 hours per month but actually works only 200 or 210 hours on account of the company’s policy, the company’s practice will prevail and the monthly base will not be the contractual covenant of 220 hours, but rather the one that results from practice.
Special working hours may include uninterrupted rotating shifts, which may only last a maximum of six hours per day, and may be extended to up to eight hours per day subject to a collective bargaining agreement.
The company must grant break for rest and meal whenever the working period is more than four hours, which break will be of 15 minutes for a working period of up to six hours and of one to two hours for a working period of more than six hours. The break for rest and a meal is not included in the daily working hours.
Working hours do not apply to employees whose working day is proven to include 100 per cent external work with no control of time or hours worked, as well as to employees who are shown to hold positions of trust, in other words, employees who perform management (or administration) activities as legal representatives of the company and who are not subject to time or hours worked, or monitoring or control. This deprives these employees of the right to payment of overtime in the circumstances mentioned. Such employees have the right to a weekly day of rest on Sundays.
Companies with more than 10 employees are required to maintain control of workdays of employees who are subject to compliance with working hours. Working hour records may be manual, mechanical or electronic, so that employees may record the time of entry, exit and breaks. The so-called ‘British punctuality’ working day is not valid (i.e., if the employee always records the same time, it may be understood that the employer is forcing him or her to do so for the purpose of not paying overtime). Employees may be excused from recording their time of entry, exit and breaks provided that there is a collective bargaining agreement in this regard, whereby the employee would then only record overtime hours. In relation to the form of recording hours worked, if the company opts for electronic control, it must follow the guidelines of the Ministry of Labour and Employment found in Ordinance No. 1510/2009, which establishes, inter alia, the issuance of reports by the time recording system and the use of time recording equipment validated by the Ministry of Labour and Employment.
If the employee works beyond his or her contractual workday, the company must remunerate the excess hours as overtime, with a minimum rate of 50 per cent over the wage for a regular hour, although there are collective bargaining agreements that establish higher percentages. The employee may only work two overtime hours per day, so that the working day is limited to a maximum of 10 hours.
Hours worked on Sundays or holidays, if not offset in the subsequent week, must be remunerated by 200 per cent of the ordinary wage, irrespective of whether they exceed the daily or weekly limit.
VI FOREIGN WORKERS
i Foreign workers
Foreign workers may work in Brazil only if they hold a work visa, which may be permanent, temporary or a visa for technical work. A technical visa for 90 days may be requested once every six months from a Brazilian consulate and not the Brazilian immigration authority.
Requirements for granting visas are set forth in the law and in the regulations of the Ministry of Labour and Employment.
A permanent visa is granted, based on various requirements, for a foreigner who is a management officer of a local company, as designated in the relevant corporate documents (articles of association or minutes of a shareholders’ meeting). In such a case, the foreigner, by virtue of being part of management, will not have to maintain an ‘employment’ relationship with the Brazilian company and will not be eligible for the employment rights provided for by local legislation. For the granting of a temporary work visa, among various types of work visas and requirements, the foreigner must receive a job offer from the Brazilian company (subsidiary or not) or by the individual or show evidence that he or she will be transferred to the local subsidiary, except for temporary visas without an employment relationship in Brazil, where other requirements would then apply.
In relation to a temporary visa where the employee has an employment contract with the Brazilian company, upon fulfilment of job qualification and experience requirements, the maximum term is two years and once these two years elapse, the temporary visa will be converted into a permanent one. In relation to foreigners holding this visa, the number of such foreigners is limited to a proportion of one-third of the total number of Brazilians hired by the company, in addition to compliance with the rule of two-thirds of payroll salaries. Furthermore, if the foreigner performs work that is also performed by a Brazilian employee, other requirements such as salary parity may apply, as provided for by the Ministry of Labour. It must also be noted that the proportionality requirement is only applicable for purposes of immigration. The employee must receive remuneration in Brazil and, if he or she continues to receive remuneration from the company abroad, he or she must submit for purposes of taxation in Brazil the totality of his or her monthly earnings (in Brazil and abroad). Thus, the Brazilian company must consider for tax (and also for FGTS) purposes the amounts received by the foreigner abroad. It should be determined whether there is a tax treaty in place between Brazil and the country of origin for purposes of offsetting taxes. Dependants of a holder of a temporary visa may also work in Brazil provided that they request authorisation from the immigration authority.
When working in Brazil, a foreigner that has the status of an employee of a Brazilian company is protected by Brazilian labour legislation, irrespective of the provisions of a foreign employment contract. Thus, the company must provide to the foreigner the same rights guaranteed by law to Brazilian workers and it is advisable that he or she be included in the local benefits policy.
In 2013, a new kind of temporary work visa was issued for foreigners who are attending graduate or doctoral programmes and wish to come to Brazil during vacation periods.
The provision of services by a foreigner who does not hold a work visa or whose visa has expired or is irregular will result in administrative sanctions for the company and deportation of the foreigner.
Foreigners holding tourist or business visas, which represent certain types of temporary visas, are not authorised to work in Brazil.
VII GLOBAL POLICIES
Brazilian legislation does not prohibit the application of global policies to employees, provided that such policies do not violate Brazilian law (when applicable) and it is not necessary to obtain approval by the employees or by any government agency for the policies to be implemented. An example is demotion, which is not valid in Brazil, even if the employee agrees to such a move. Policies on discrimination, sexual harassment and corruption must comply with applicable Brazilian law. One must take care when implementing a global policy, because concepts, expressions, or even words may have a different legal effect if applied in Brazil, giving rise to consequences that would otherwise not occur in other countries. An example is anti-corruption legislation such as the US Foreign Corrupt Practices Act – practices may be in accordance with the legislation of the country of origin, but as far as the policy in other countries is concerned, including with regard to the form of a potential investigation, such practices may have legal implications. Thus, prior analysis of the possibility of application of the policy is recommended.
The policies become constituent parts of the employment contracts, including disciplinary measures, and may not be altered to the detriment of the employees. The policies must be implemented in the Portuguese language to avoid any allegation by the employee of lack of understanding thereof and so that they can be enforceable. As for the form, they may be written or distributed via the company’s intranet.
It is important for the company to have express evidence of the employees’ awareness of the policies, particularly if, based upon the terms of such policies, an employee could fail to receive any payment due to him or her or be subject to a disciplinary measure. In the event of subsequent implementation, depending upon the nature of the policy (for example, a code of conduct or ethics), it is recommended that the company offer training for the employees and have evidence of such training, on account of the potential civil liability of the company in the event of damage caused by the employee to another employee or to third parties. If the company so wishes, it may also maintain a copy available for employees on its intranet.
Documents in a foreign language coming from abroad will only be valid in relation to third parties and the Brazilian government if they are certified by an entity that is authorised in the country, or by the Brazilian consular office, if applicable. Pursuant to the Civil Code, such documents must be translated into Portuguese by a certified translator.
In turn, to avoid questioning about obligations in documents written in a foreign language and signed by Brazilian employees, it is recommended that such documents be drafted in Portuguese. This is because if they are written in a foreign language and are challenged, the company will have to prove that the obligations included in the documents were understood by whoever signed them, which may not always be possible. Accordingly, it is recommended that all documents such as job offers, employment contracts, internal policies, confidentiality agreements and bonus policies, be executed in Portuguese. There are cases in which, although the document is written in a foreign language, if the subject matter of the dispute favours the employee, the labour court will accept such document as valid if it is accompanied by a duly certified translation. Yet, if the dispute concerns a condition that is contained in a document in a foreign language that is harmful to the employee, if the employee alleges that he or she does not understand the foreign language, either spoken or written, but has nonetheless signed the document, the labour court may rule that the document is invalid. However, if the employee has demonstrated spoken and written proficiency in the foreign language, whether the document will be enforced will depend upon the interpretation of the court.
IX EMPLOYEE REPRESENTATION
Article 11 of the Federal Constitution provides that: ‘in companies with more than 200 employees, an employee must be elected with the exclusive purpose of representing fellow employees vis-à-vis the employers.’ However, the current interpretation of this constitutional norm is that it is not self-applicable and would require implementing legislation.
Irrespective of the constitutional norm mentioned above, employees are represented through the union of the profession to which they belong.
To be entitled to such representation, there is no need for employees to be unionised. They only need to work at a company of a given economic sector in which there is a union representing their profession to be automatically represented by such union, and as such, to receive the benefits of any agreements that the union executes with the employer or with the employers’ trade association. For this purpose, payment of annual union dues corresponding to one day of the employee’s salary is mandatory.
However, if the employee wishes to be a member of the union, he or she must pay monthly dues to the union and be entitled to the assistance provided by the union to its members. Companies may not hinder union membership of their employees, and in the event an employee should wish to become a union official, his or her employment contract may not be terminated by the company during the corresponding term of office and for up to one year thereafter. An employee who is a union official can only have his or her contract terminated due to serious misconduct and in accordance with the specific procedures for termination for due cause provided in the CLT. Otherwise, termination may be deemed invalid.
In addition to monthly dues, unionised employees are also required to pay other types of contributions to the union. Employees are also represented in the Internal Committee for Prevention of Occupational Accidents that a company must set up, according to the level of risk of the company’s activity, as well as the number of employees. Employees elected for this committee will have employee rights during their term of office and for up to one year thereafter.
Finally, a provision in the Federal Constitution (Article 7(XI), final section) provides that employees may have active participation in the management of the company. However, there is an understanding that a specific law is required to regulate such active participation. Very few companies in Brazil have accepted, whether voluntarily or by means of a collective bargaining agreement, to have this representation in their management.
X DATA PROTECTION
i Requirements for registration
There is no specific law regulating data protection in relation to employees. However, a principle in the Federal Constitution protects employees’ intimacy and privacy.
Employee personal data that can be requested by the employer is that which is inherent to the hiring of an employee, as well as that which is required by labour legislation. Such personal data does not include sensitive data.
Employee personal medical data may not be disclosed to third parties, and it is certain that only the employee, his or her private physician, or the company’s physician may have access to such information. If it should be necessary to use the medical data, the employee must provide his or her express consent.
Employee data that may be required by the government includes that which relates to the federal government through the annual report on social information, the general report on employment and unemployment, and the severance fund payment receipt and social security information. It is also advisable to inform the Federal Savings Bank regarding the transfer, so that the employees’ severance fund accounts will not be split. This is done by means of a special form requesting the transfer of accounts, where employer is required to provide employee data.
On account of the constitutional principle of the right to privacy, information on employees cannot be made available to third parties, unless the employee provides his or her express consent.
Brazilian law provides that the business group is the sole employer, which is why the transfer of information about employees of a Brazilian subsidiary to its headquarters is possible, provided that access to such information is limited to the headquarters (i.e., not made available to third parties).
It is recommended that the use of data, and the transfer and maintenance of information in a database handled by third parties, be preceded by express authorisation of the employee. In addition, the company should include such terms in employment contracts or even maintain a policy related to the protection of personal data, in the sense of stating what data will be used, transferred and maintained in databases used by third parties, together with the express agreement of the employee. Likewise, it is also recommended that the policy state that the company’s systems are monitored and that any personal data entered by the employee on the company’s system may be at risk of disclosure.
There is a bill of law before Brazil’s Congress whose content is similar to European legislation on data protection and that provides for a penalty from between 2,000 and
6 million reais for non-compliance. Thus, it is important that companies adopt preventive measures to eliminate or mitigate the risks involved, in the event of the law in this regard being enacted.
ii Cross-border data transfers
From an employment point of view, there is no legal requirement in Brazil to register the transfer with the Data Protection Authority. Proposed legislation is pending before the Brazilian Congress to regulate the issue as it relates to personal data and there are some similarities with the US–EU Safe Harbor regime (which was recently declared invalid by the Court of Justice of the European Union).
Although there is no statutory requirement that employers must notify employees or obtain their consent, it is recommended that written consent be obtained because of the Brazilian Federal Constitution’s protection of employee privacy.
There is no directive on the employment side for a joint-user agreement or safe harbour registration. It is nonetheless recommended that the employee’s written consent be obtained for transfers of personal data to third parties related to the employer in Brazil or abroad.
There is no labour law provision about onward transfers, but it is recommended that the employee’s written consent be obtained.
iii Sensitive data
Although there is no law in this regard, courts have ruled that sensitive data is that which is related to race, religious conviction, philosophy, political opinions and union and party membership, as well as health, genetic and biometric data, and sexual orientation.
iv Background checks
The CLT has no specific provisions on what types of background checks an employer may conduct to investigate a job applicant or an employee during the employment relationship, and there are also no provisions setting out limits on employers undertaking such investigations. Thus, background checks are reviewed according to the principles of the Federal Constitution related to the protection of employees’ intimacy and privacy. Certain practices related to background checks can be adopted by employers, provided that they are reasonable and proportional to the work to be performed by the employee.
Background checks related to education, previous jobs (position, period of employment, salaries and benefits) and other information, such as registrations with professional class councils, can be conducted by the employer, as well as a background check requesting an employee’s criminal record. However, a criminal record check may only be conducted in connection with a position that merits such a check or a position in a financial area or that requires the handling of client funds. Checking the employee’s financial condition with credit institutions is also permitted. Whenever a background check is conducted, the company must obtain the prior express consent of the employee (otherwise, if the employee is not hired or has his or her contract terminated, he or she may claim discrimination or invasion of privacy, or both, and seek monetary damages).
XI DISCONTINUING EMPLOYMENT
There is no law forbidding termination of employment in Brazil, except in the cases of vested employee rights provided for by law, such as for a pregnant employee, a representative of the workplace’s internal committee for the prevention of occupational accidents, an employee who has suffered an occupational accident, a union official, or in a case of vested employee rights provided for in a collective bargaining agreement. In the event of termination without cause, the employee must receive an indemnity corresponding to termination and indemnity rights (severance pay) and at least 30 days’ prior notice of the termination, with an additional three days for each full year of employment.
There is no formal procedure for termination without cause, in which case it is common practice to deliver a written notice to the employee with information concerning compliance with the notice period or compensation in lieu of notice.
In the case of indemnity, severance pay deriving from contractual termination without cause must be paid within 10 days of the notice of termination. However, in the case of the employee working through the notice period, severance pay must be paid on the day following the end of that notice period. The decision as to whether the employee should work through their notice period is made by the employer. In the event of resignation, the employee must inform the employer of whether he or she will work through the notice period and it is common for the employee to request a waiver from the employer in this regard.
If the employment contract has been effective for more than one year, termination must be ratified by the union of the professional category of the employee in question or with the Ministry of Labour and Employment.
In Brazil, if the employer needs to terminate employee contracts because of new technology rendering their services unnecessary, the need to cut costs or if the activities of the company are to be terminated or transferred, the employer may simply terminate the employment contract without cause with notice (preferably in writing) and with the payment of severance, which is mandatory in such cases, to the employee.
In the event of redundancies that will involve a significant number of employees (‘mass dismissal’ or ‘collective dismissal’), a reason is not required, as the employees will be terminated without cause and severance must be paid. Pursuant to a Superior Labour Court decision, however, for mass dismissal or collective dismissal to be valid, it is recommended that, before dismissal, the company first attempt to take the following steps, in this order: grant collective vacation; grant leave; conduct the lay-off according to Brazilian law; and implement a voluntary dismissal programme that pays an indemnity in addition to mandatory severance pay. The company may be required to negotiate with the employees’ union if the union wishes negotiations to be conducted. The benefits usually negotiated are, inter alia, extension of the health plan beyond termination and granting of indemnities or bonuses per year of service with the company.
Where redundancy terminations are necessary, a review should be undertaken to determine whether the company employs any workers possessing vested employment rights, as such employees may not be terminated as a result of redundancy.
Certain collective bargaining agreements grant benefits or provide for indemnities upon terminations deriving from redundancy, and certain employers offer payments that are higher than those provided for by law when contractual termination occurs as a result of discontinuance of a job or function. In such circumstances, it is also sometimes the case that consultation with the union is required before effecting the terminations.
XII TRANSFER OF BUSINESS
Labour legislation provides that changes to corporate shareholdings do not affect employment contracts with employees. Thus, in the event of a change of control, a previously existing employment contract is maintained and employees may challenge any alteration made to the employment contract that is detrimental to them.
Employment succession will be considered whenever there is continuity of the business. Thus, even if only the assets of the Brazilian company are being acquired (totally or partially), labour succession of employers will still be considered and existing contractual employment conditions must be maintained.
Likewise, if the successor company continues to employ its employees, but in the future ceases to pay employment rights or its partners cease to exist, nothing can hinder employees, including those that came with the business, from holding the company that acquired the assets, totally or partially, liable for the obligations. Also, if the successor company and its partners should cease to exist and fail to pay employment rights of the employees that were transferred with the business or even the employees of the successor company, nothing may hinder the predecessor company from being held liable for such obligations.
i Legal compensation
The labour rights related to the mandatory severance pay vary according to the type of termination, as follows:
- a Termination without cause, on the employer’s initiative:
• prior notice of 30 days increased by three days for each year of service for the same company;
• salary balance in the termination month;
• unused earned vacations and one-third additional payment;
• prorated vacation and one-third additional payment;
• 13th salary (or prorated 13th salary, depending on the termination date);
• FGTS: deposit in employee’s dedicated FGTS account (equivalent to 8 per cent of the employee’s pay) in the termination month, as well as upon prior notice and 13th salary;
• 50 per cent FGTS fine based on the amount deposited in employee’s FGTS account;
• any other labour right related to the termination provided for in the current collective bargaining agreement; and
• any other compensation or benefit contractually agreed with the employee.
- b Termination with cause, on the employer’s initiative:
• salary balance in the termination month;
• earned vacation and one-third additional payment; and
• FGTS: deposit in employee’s blocked account (equivalent to 8 per cent of the employee’s pay) in the termination month.
- c Termination as a result of resignation by the employee:
• salary balance in the termination month;
• 13th salary (or prorated 13th salary, depending on the termination date);
• earned vacations and one-third additional payment;
• prorated vacation and one-third additional payment; and
• FGTS: deposit in employee’s blocked account (equivalent to 8 per cent of the employee’s pay) in the termination month, as well as upon 13th salary.
ii Term for severance payments
The term for payment of severance amounts will depend on whether the employee is given a working notice period or indemnified, as follows:
- a working notice period: the company will have one working day after the termination of the notice period to make the severance payment; and
- b indemnified prior notice: the company will have 10 days from the dismissal notification to perform the severance payment.
The current economic and financial situation in Brazil, together with the consequences of ‘Operation Car Wash’, has produced several changes in the organic relationships between government agencies and institutions, and in the dynamic of commercial deals in Brazil.
There have also been developments in the discussion of compliance issues, as well as of anticorruption practices in order to mitigate the risks concerning commercial deals.
Another aspect is that the economic slowdown is negatively affecting the relationship between trade and labour unions, due to increasing inflation, salary adjustment struggles and to the lack of coordination within the business community.
Finally, the tendency for the next year is that more claims may be brought to the courts, which enhances the need to discuss the forms of dispute resolution.
1 Vilma Toshie Kutomi and Domingos Antonio Fortunato Netto are partners at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados.
2 In relation to employee income tax, companies are required to withhold tax and pay the amounts directly to the Federal Revenue Office, providing the employee with annual information that is necessary for preparation of his or her annual tax return. Withholding percentages vary according to the salary paid, as per the tables below:
Monthly tax base (reais)
Amount of tax to be deducted (reais)
Up to 1,903.98
From 1,903.99 to 2,826.65
From 2,826.66 to 3,751.05
From 3,751.06 to 4,664.68
This rate may vary depending on certain factors such as the economic activity of the company and the rate of occupational accidents according to the company’s accident-related performance.