The Labour and Employment Disputes Review: Brazil

Introduction

Employments laws in Brazil are generally favourable to employees (protective bias). The employees' protection principle is the main rule when analysing conflict of employment laws, change in employment contracts and any type of issues concerning employment bond.

The Brazilian Federal Constitution (1988) and the Brazilian Labour Code (1943) (CLT) provide for basic employment rights, which are mandatory to be observed to all employees,2 regardless their employer's activity. No written contract is required; the law only requires the employer to enter the following information into the employees' Work and Social Security Card: the name of the employer; the date of hire; the position; and the salary. Brazilian companies' records shall reflect the same information.

Brazil has a rigid body of laws. As a rule, salaries cannot be reduced; terms and conditions cannot adversely affect employees; and the freedom to contract is limited, with few exceptions. The basic rights are:

  1. salaries paid on a monthly basis;
  2. 13th salary or Christmas bonus, equal to the value of one monthly salary, payable in two instalments: 50 per cent up to November and the remaining amount in December;
  3. 30-day paid vacation after working 12 months;
  4. vacation bonus set at one-third of the vacation pay;
  5. one day off per week, preferably on Sundays; (note that the compensation fixed on a monthly basis comprises the payment due for the weekly day off); and
  6. contributions corresponding to 8 per cent3 on top of all of employees' compensation to be made in a public trust fund called the Unemployment Guarantee Fund.

The law also requires the employer to pay contributions to the Brazilian social security system on top of its payroll. The rates depend on the company's core business. Employees must also pay their contributions to the Brazilian social security sytem and are responsible for paying income tax all top of their salaries, which are both withheld at source by the employer.

Employees may be terminated any time under the payment of specific severance (provided by the law). The law sets forth specific circumstances where the employer has the right to terminate the employee with cause, provided that there is a positive proof regarding the cause. In this case, the employee will only be entitled to receive his or her pending compensation and accrued unused holiday (if any).

i Working time

Companies with more than 10 employees must keep reliable records of their workdays and pay as overtime all worked hours in excess of eight daily hours and 44 weekly hours (general rule for working time). Overtime is paid with an additional compensation of at least 50 per cent on top of the regular hourly compensation if worked during the week and 100 per cent if worked during weekends and holidays.4 Employees who work outside the companies premises – such as salespeople, employees who hold positions of trust, such as managers and directors, and employees working from home (home office) – are not entitled to overtime pay.

ii Unions

Unions are created on both sides: employers and employees. Workers' union represents all employees of a company, even those that are not unionised. The union that represents the employees depends on the company's core business. The workers' union negotiates with the companies or with the company's union collective bargaining agreements that may provide certain additional guarantees or rights, to be applicable to all employees during a certain term (maximum two years). Collective bargaining agreements are mandatory. There is not opt out for both parties.

Since the 2017 Labour Reform Bill, employers can directly negotiate some employment rights with workers' unions, which can prevail over legislation. This provision gives employers the opportunity to address specific circumstances of their activities or situation. The law expressly indicates the rights that cannot be negotiate, under any circumstances, such as the basic employment rights and health and safety matters, among others.

iii Officers

Officers in Brazil may be hired by a company as a non-employee officer or as a regular employee. In both cases, he or she is elected according to the corporate bylaws and subject to the same conditions regarding corporate liability. The difference between the two is the terms in which the management is carried out. If the officer works under subordination, he or she should be considered an employee. If the officer works with autonomy, he or she should be considered a non-employee or only a statutory officer.

Even under an employee status, officers have more freedom to negotiate their employment agreement directly with employers. As a rule, contractual employment relationships are subject to labour protection provisions, applicable collective agreements and decisions of the competent authorities. However, the freedom to negotiate is greater in the case of an employee holding a higher education degree and who receives a monthly salary equal to or greater than twice the maximum limit of the benefits of the general social security system.5 In this case, officers can freely negotiate the terms and conditions of individual contracts, with the same legal effectiveness and preponderance over collective instruments (CLT, Article 444, sole paragraph). Exception is made to some specific matters such as the basic legal rights (e.g., vacation, 13th salary), health and safety matters, right to strike, among others (CLT, Article 611-B).

iv Labour economic group and labour succession

Articles 10 and 448 of Brazilian Labour Code provide that the change in a company's legal nature does not affect the vested rights of its employees, and the change in the company's ownership does not affect its contracts with employees. These statutory provisions result in two major consequences: an entity receiving assets and employees (in a sale or transfer) is deemed a successor of any and all employment-related obligations; and reorganisation of the employer does not trigger severance payments, notice requirements, consultation periods or preapproval requirements from any labour union or workers' council.

An employer reorganisation cannot affect existing benefits and current terms and conditions of employment. Compensation in general cannot be reduced and terms and conditions of employment cannot be changed to the detriment of employees (CLT, Article 468). This is relevant in this specific moment, with major negotiation of collective agreements, occurrence of multiple dismissals and restructuring of salary and benefits triggered by the covid-19 pandemic.

Also, according to the law, 'whenever one or more companies, each of them with its own legal identity, are under the direction, control or management of another, or even when they make up an economic group, despite each of them maintaining its autonomy, they must be jointly and severally liable for the obligations arising from an employment relationship'. (CLT, Article 2, Section 2).

Although the simple fact of having the same shareholder does not characterise per se an economic group, courts have employed a broader concept to include minority shareholders, investment funds and businesses carried out by two or more companies under contractual arrangements. Courts have held that, in cases like these, there is sufficient coordination towards the same business and effective community of interest to characterise economic group. In practical terms, the existence of common shareholders, exchange of employees among companies, use of the same facilities, interference by one company in the management or employment relationships of other companies and common businesses are good examples of situations in which labour courts tend to find there is an economic group.

The main effect of being part of an economic group is to become joint and several liable for employment matters. It means that any of the co-responsible parties may be required to pay in full an award granted in court in a labour claim, without any limitation, and regardless the size of the investment or the equity one has made or eventually will have directly or indirectly in the direct employer.

v General Data Protection Law

In late August 2020, the new Brazilian General Data Protection Law (LGPD) has been passed and applies to businesses or organisations that process the personal data of people in Brazil, regardless of where that business or organisation itself might be located. In a nutshell, the LGPD aims to protect the privacy rights related to the treatment of personal data. This includes the gathering, use, sharing and retention of people's data. The law:

  1. sets up data protection principles;
  2. determines the legal basis for personal data processing;
  3. sets up restrictions and limitations;
  4. encourages data security; and
  5. specifies accountability in case of security incidents.

There are various circumstances in which companies have to handle employees personal data. Recruitment, hiring, benefits' management, payroll, performance review and termination are all processes that involve the processing of personal data, some of which is sensitive data.

This means that the treatment of employees' personal data by the employers is subject to LGPD and companies must adjust their internal processes to meet the LGPD's requirements, which may include the creation of internal privacy policies, preparation of amendments to the employment agreements and carrying out trainings about the LGPD.

Procedure

The labour and employment disputes in Brazil are resolved by courts specialised in such matters. The Brazilian Federal Constitution establishes the matters to be ruled by labour courts, limiting their jurisdiction. In addition, there are specific procedural dispositions for labour and employment disputes foreseen in the CLT. The procedural civil code is used in case of lack of specific labour laws.

We have three instances of labour courts (lower labour courts, regional labour courts and superior labour courts). Also, cases involving direct violation of constitutional rights may be appealed up to the Supreme Court.

Regarding employment issues, there are three types of claims brought to the labour courts: individual claim, collective claim and public civil action. Individual claims are by far the most common way to discuss employment issues in the judicial sphere in Brazil. Public civil actions are usually initiated by the Labour Public Prosecutor (MPT), usually as a result of previous investigations carried out against the company in the administrative sphere.

The MPT is an independent law enforcement authority responsible for defending the collective interests of employees. MPT has the prerogative to start administrative investigations on reported non-compliance with labour and employment laws and regulations (including working environment matters, which include moral harassment practices). The companies can present motions, evidences and, in the majority of the cases, hearings are scheduled. The proceeding may result in three conclusions:

  1. no irregularity is found and the case is closed;
  2. the MPT proposes a negotiation of a commitment term, by which the company is required to comply with certain labour and employment obligations under penalty of fines; and
  3. the MPT files a public civil action. It is also common for the MPT to ask for a certain amount by way of a commitment and as compensation for the past non-compliance, known as collective moral indemnification. Such indemnification is normally directed to a public fund or certain institutions pre-qualified by the MPT to receive such amounts.

In addition, we also have the labour disputes involving issues related to the negotiation of collective bargaining agreements and submitted to the judicial sphere. This type of lawsuit can be initiated by unions or by the labour public prosecutor. Individuals do not file labour disputes.

According to the statistics from the Superior Labour Court, the lawsuits have taken three years to be closed, as an average. Usually, the length of a lawsuit depends on the complexity of the case and whether it is taken to the Superior Labour Court.

Facts involved in employment disputes are analysed and ruled by lower labour courts and revised by regional labour courts, in case of appeals from the parties. Discovery hearings are crucial to the cases, when the main issues are discussed and brought to the judges' attention. Parties and witnesses are heard at the lower labour courts solely. The procedural system is mainly oral and the testimonies can prevail over documents. In all cases, conciliation attempts are mandatory and shall be encouraged by the judges.

The main role of the Superior Labour Court is to standardise the understandings of the labour courts, stablishing some guidelines regarding all types of discussions. The Superior Labour Court does not review facts and solely discusses legal matters. Although Brazil is not under a common law system, the case law precedents from the Superior Labour Court give directions to the matters and apply to similar cases. Brazil has more than 400 legal precedents from the Superior Labour Court.

Arbitration for employment disputes in Brazil is still controversial. Although the 2017 Labour Reform Bill authorised arbitration as a means to solve employment conflicts, Brazilian courts are reluctant to accept the arbitration for employment disputes, which are mostly resolved in the judicial sphere.

On the contrary, mediation and arbitration are more likely to be accepted for labour disputes. In these cases, conciliation is strongly recommended and even when discussed in the judicial sphere, judges have an important role in getting the parties closer to settlement (similarly to a mediation). Labour disputes are directly ruled by regional labour courts (second level). Depending on the parties involved, the dispute can be directly taken to the Superior Labour Court.

Types of employment disputes

Dealing with employment lawsuits is quite common for those doing business in Brazil. All types of employment issues are taken to the courts. This is the manner employment issues are solved and the only way to give full protection to the employers against future claims from their former employees.

In general, Brazilian employment rights are considered a matter of public order. No waiver is accepted by Brazilian courts when dealing with employment rights, except if the waiver has been given during a judicial proceeding. In addition, even if the employee grants a full and irrevocable release of all claims, it will not prevent him or her to file a labour claim via court channels if he or she proves that his or her employment rights have not been observed.

The most commonly litigated issues are:

  1. contractors versus employees (reclassification);
  2. overtime and breaks;
  3. wrongful termination with cause;
  4. fringe benefits;
  5. severance;
  6. moral damages;
  7. intentional infliction of moral distress;
  8. hostile work environment harassment;
  9. invasion of privacy; and
  10. defamation

In 2020, according to the Superior Labour Court,6 payment of severance was the most disputed matter in the majority of employment lawsuits. Regarding labour disputes, usually the cases result from collective bargaining agreement negotiation.

Year in review

The covid-19 pandemic meant that 2020 was atypical. New legislation on employment matters was enacted during the pandemic to deal with its effects in the workplace. Companies had to grapple with the new arrangements made during the pandemic, especially those relating to collective vacations, early individual vacations, working hours arrangements, furlough, pay cuts, extensive job tenure, to name a few. All of these aspects had an impact on employees' jobs and income, which may potentially require changes in employment contracts, profit sharing plans, long-term incentive plans and collective labour agreements.

The future implications of these measures must be carefully considered by the companies not only concerning future labour and employment disputes, but also in a mergers and acquisitions (M&A) scenario, especially considering the effects of economic group and labour succession resulted from M&A transactions.

According to the Superior Labour Court,7 in 2020, there were about 2.9 million lawsuits received by the labour courts. The common litigated issues were related to severance package, clearly as an effect of closing of companies and economic difficulties because of the pandemic. For the same reason, there was a decrease in the number of settlements related to employment disputes8 and an increase in labour disputes9 when compared with the historical average.

Despite this, some issues have seen an increase in Brazil:

  1. Home working: the Brazilian Labour Code (Article 75-A) has some rules regarding home working, but there are many issues still not foreseen by the law. During the pandemic, employers and employees entered into negotiation to settle home working conditions. However, there are a lot of pending matters that may be taken to the courts. The payment of additional allowance for covering employee costs at home and also the necessity of controlling working hours are examples of questions still to be addressed by courts. Until now, these questions have been ruled on a case-by-case basis.
  2. Collective dismissal: rules concerning collective dismissal in Brazil are controversial. The 2017 Labour Reform Bill expressly stated that the rules concerning individual dismissals shall apply to collective dismissal, meaning that individual, multiple or collective lay-offs are subject to the same rules, with no need for prior authorisation from a union or the conclusion of a collective bargaining agreement for their effectiveness. Despite that, labour courts have insisted that companies should negotiate the terms and conditions of a collective dismissal with the workers' union. Furthermore, labour courts have annulled collective dismissals owing to the lack of previous negotiations, or even forced the parties into negotiation.
  3. Labour disputes: owing to the pandemic, union negotiations have increased in order to regulate new situations, especially related to working journeys, benefits, suspension of employment contracts and collective dismissals. Also, many companies are ceasing their activities or entering into a judicial recovery, which may lead to new disputes in the labour courts.
  4. Digital workers: workers in digital platforms have increased in the last year, especially those involved with transportation and delivery. Brazilian legislation is silent on this specific type of work. As has occurred in other countries, the main issue here concerns the possible reclassification of such workers. It is still unclear under the law whether the worker should be treated as a regular employee or as self-employed (autonomous worker). Legal disputes tend to increase in this scenario. In addition, there are workers located in one country who render services through digital platforms for different countries, which poses a new question regarding applicable laws and jurisdiction.

Outlook and conclusions

Employment and labour disputes are common in Brazil and there is no indication that this cultural aspect will change. The effects of the pandemic are far from being controlled with adverse health and economic consequences, especially on the level of unemployment and the lack of minimum labour conditions. As a result, there may be an increase in labour and employment disputes in the next few years. Also, labour public prosecutors have initiated many proceedings to investigate companies and to protect employees, which may lead to new public civil actions or terms of commitments by the companies.

In addition, owing to the pandemic, companies will have to grapple with the effects of new arrangements made with employees, especially those relating to collective vacations, early individual vacations, overtime to compensate the time employees were absent, furlough, tenured reduction of working hours, to name a few.

Companies must carefully consider the implications of these measures to avoid employment and labour disputes. On top of that, companies may also have to think of a gradual return of workers and activities, which could in turn demand a resizing of activities. Others are considering the possibility of adopting 'work from home' as a permanent or almost permanent policy for many (or all) functions.

Also, there are some relevant labour matters to be decided by the Supreme Court this year. For instance, issues related to monetary correction of labour debts and the restriction of the 'negotiation over legislation' rule may significantly affect lawsuits and employment relations.

As a final note, during this pandemic period, there was an enormous increase in virtual proceedings by the labour courts, including electronic files, hearings and presentation of oral briefs under panels of judges at regional and superior labour courts. Surprisingly, these virtual procedures have worked quite well and there seems to be a trend for these in labour courts, which may adopt this new format from now on, at least for some activities (e.g., conciliatory hearings).

Footnotes

1 Luís Antônio Ferraz Mendes is a partner and Manuela Mendes Prata is a counsel at Pinheiro Neto Advogados.

2 Article 3 of the Consolidated Labour Law: 'an employee is considered any individual who provides a regularly occurring service to an employer, is dependent on such employer, and receives a salary', which means that the necessary requirements for establishing an employment relationship are personal nature of services, regularly occurring services, subordination and payment of a salary.

3 Under this system, every employer is required to deposit into individual blocked bank accounts opened in the name of each employee an amount corresponding to 8 per cent of the monthly compensation paid; this amount is subject to an annual interest (3 per cent) and monetary restatement.

4 Collective bargaining agreements may set out other percentages for payment of overtime.

5 The maximum limit of the benefits of the general social security system is about 6.5 million Brazilian reais.

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