Practice Area Articles
By Rafael Bispo de Filippis and Daniel Rodrigues Costa Torquato Landim
Back to International Employment Law
KEY DEVELOPMENTS FOR 2021
Resumption of economic activities
Since March 2020, a state of public calamity declared by Congress due to the COVID-19 pandemic has been impacting several legal frameworks. This launched an intense legislative action in labour matters mostly aimed at giving more flexibility to companies whilst they navigate through the pandemic. A number of provisional acts were enacted in this period, but most of them expired as a result of the public calamity ending on 31 December 2020.
The expiration of those provisional acts followed by the resumption of economic activities in 2021 raised legal concerns relating to the post-pandemic labour environment in Brazil. This brings a leading and unique role for unions in the negotiation of collective bargaining agreements to address the lack of proper legal regulations on matters such as telework, for example. It is crucial that companies develop closer relationships to unions and increase their negotiation weaponry.
Reform on current union structure
A study group formed by labour judges, professors, and lawyers was created by the Government in August 2019 to further modernise the current labour regulations in Brazil. The Government aims to provide additional legal certainty in employment relations.
A possible proposal for a reform at the current union structure is expected. The changes will possibly allow greater flexibility for workers and companies to choose their own unions. This may include the existence of more than one union representing the same category of workers and employers in the same territory, which is not allowed by current legislation. The end of "union exclusivity" tends to stimulate competitiveness amongst unions to provide better representation and services to their members.
KEY DEVELOPMENTS FOR 2020
New law of economic freedom brings innovations
The recently enacted Law No. 13.874/2019 ("Law of Economic Freedom") establishes the declaration of economic freedom rights and guarantees of free initiative based on 17 principles of freedom, including 'freedom to work and produce', 'freedom to undertake', 'freedom to modernise', 'freedom to retain' and 'freedom of economic regulation'.
From a labor and employment point of view, the key points that companies should be aware of are as follows:
- companies with more than 20 employees must register employees' working hours;
- employers are now permitted to register any extraordinary hours worked by employees if there is a collective or individual agreement authorizing it;
- the eSocial system will be replaced by a simplified digital system for social security, labor and tax obligations;
- more specific rules for piercing the corporate veil of Brazilian entities have been created; and
- digital documents now have the same validity as paper documents.
The Law of Economic Freedom provides a safer environment to conduct business activities, reduces bureaucracy and generally simplifies procedures that are necessary to run a local business.
New legislation relating to remote work
The Government issued a special set of telework legislation in Provisional Measure 927/2020 ("PM927") to help companies during the COVID-19 pandemic outbreak. These rules are temporary and were designed to facilitate telework arrangements during the pandemic. If PM927 is confirmed by Congress, these rules will be in force until 31 December 2020, when the Public Calamity Status declared by Congress expires. After this date, the 2017 telework legislation will apply.
The legislation sets out the following rules for the telework regime: (i) the employee can work at the employer's premises to perform activities that require her/his attendance, provided that the majority of the work is still carried out remotely, (ii) telework must be agreed between the employee and employer in the employment agreement, which should state the working activities, who will be responsible for the equipment, infrastructure and expenses (including whether or not the employee will be reimbursed for such expenses), (iii) the employer can unilaterally cancel the telework arrangement and revert to the regular work regime by giving 15 days' notice, (iv) the equipment, infrastructure and payment of expenses by the employer are not considered compensation for payroll purposes, (v) the employer must instruct employees to avoid occupational illness and work-related accidents and the employees must sign a statement of responsibility, and (vi) employees are exempt from having their working hours controlled.
Changes to HSE regulations
In line with the process of simplifying labor standards in Brazil, the Brazilian Government has started the process of modernizing the Regulatory Norms ("NRs") on Health, Safety and Environment ("HSE"). The revision of the NRs helps to address the Government concerns regarding the productivity and competitiveness of businesses in Brazil and are aimed at stimulating economic growth but still protecting employees. Some of the changes that have been implemented can be summarised as follows:
- General provisions on occupational health and safety: New provisions have been included to regulate employers' duties to train, guide and capacitate its employees in relation to occupational risks, prevention, control measures and security procedures.
- Prior inspection and certification by labor auditors: The Government has revoked the previous NRs which required prior inspection and certification by labor auditors as a condition for opening and operating new business establishments in Brazil.
- Embargoes and interdictions: The new NRs include procedures that must be used when inspecting potential risk. Labor authorities can now set an embargo whenever work, activity, machine or equipment presents an imminent or substantial risk.
- Work safety in machinery and equipment: Amendments to the existing NRs allow entrepreneurs to seek alternative solutions to adapt their machines and equipment to ensure compliance with HSE rules, provided that these alternative solutions are supported by technical standards.
- Hygiene and comfort conditions: Amendments to the existing NRs have reduced the number of requirements in respect of hygiene and comfort conditions, which were expensive for employers and had little positive impact for employees. Examples of the changes introduced include the requirement that locker room areas must comply with minimum dimensions according to the total number of employees, and the obligation to maintain cafeterias under very specific conditions. In addition, according to the new wording of the NRs, establishments with commercial or administrative functions, with up to 10 employees, may have only one individual restroom.
- Fines for non-compliance: There were 6,800 possible fines under the former NRs, but these have been unified and reduced to 4,000.
KEY DEVELOPMENTS FOR 2019
Challenges to the Labour Reform
It has been one year since the Labour Reform came into force and brought some legal certainty to the employment context and improvements to the business environment in Brazil. However, the Labour Reform has been subject to challenges that are yet to be resolved before the Supreme Court.
In June 2018, the Supreme Court confirmed the end of the union mandatory taxes, one of the most controversial topics in the Labour Reform. In addition, other rules in the Labour Reform have been subject to challenge and will be heard by the Supreme Court in 2019. These are:
- limitations to the right to file lawsuits without paying for Court fees;
- work on demand;
- inflation accrual on bonds posted for appeals in lawsuits;
- cap on damages;
- permission for pregnant and lactating women to not engage in unhealthy work;
- permission to set 12x36 work shifts in individual employment agreements and terms; and
- obligation to disclose amounts claimed when filing labour lawsuits.
A decision from the Supreme Court will increase legal certainty.
Uncertainty surrounding the law on collective terminations
Another area of uncertainty is the new rule in the Labour Reform which gives employers the right to engage in collective terminations without previous negotiations with labour unions. This new rule should have been enough to put an end to the long standing case law that obliges employers to negotiate with unions before proceeding with collective terminations. However, some labour courts are ruling against the new legislation and there are decisions confirming that there is still an obligation to negotiate with unions.
The Labour Reform rule will only prevail when the right to carry out collective terminations without previous negotiations is upheld by a panel of justices at the TST or at the Supreme Court. More challenges to the new legislation are expected to take place in 2019.
New legislation on data protection
Following the EU General Data Protection Regulation, Brazil enacted its own General Data Protection Law (“LGPD”) which was enacted in August 2018, but it will not come into force until February 2020.
The LGPD applies to the gathering, use, treatment and storage of personal data from employees or job applicants. Employers’ practices such as recruitment, hiring and administering employees will need to be adapted to the LGPD requirements and HR procedures must also be reviewed.
It is advisable, for instance, to request express consent from applicants who apply for job vacancies. Such applicants must agree to share their personal information with the potential employer. If the consent does not include the storage of data, the applicant’s personal data must be deleted if the applicant is not hired.
The LGPD imposes heavy penalties in the case of non-compliance. Fines can be up to 2% of the company’s revenue. Besides the administrative penalties, the company and its officers may also be held liable in criminal and civil proceedings.
The examples above are far from exhaustive, as the LGPD also impacts other employment routines. Despite the long period until the LGPD comes into force, it is important that employers start to review and adapt their internal procedures to avoid facing penalties for non-compliance.
KEY DEVELOPMENTS FOR 2018
The Labour Reform – Liability for Labour Related Debts – Economic Groups, Partners and Successive Employers
Congress enacted Federal Law No. 13,467/2017 (effective as from November 11, 2017), establishing significant changes to several aspects of employment and labor relations in Brazil (the so-called Labor Reform). The changes include:
- even when it is verified that companies within the same economic group work autonomously, in certain prescribed circumstances the economic group will be recognized as jointly liable;
- partners who depart from companies are liable for labor-related debts related to the time they were partners of the entity and for two years after their departure;
- confirming earlier court decisions, the successor is liable for labor obligations related to the period he was in the company;
- in the event of fraud, the predecessor partner or company will be jointly and severally liable.
The Labour Reform - Outsourcing
- Certain obligations must be followed by the contracting company and the contractor (outsourcing company) and certain conditions must be stipulated in the outsourcing/services agreement.
- Employees who are terminated cannot for a period of 18 months thereafter take up employment with an outsourcing company providing services to the former employer.
The Labour Reform – Working Hours
- An offsetting system for over time may be agreed individually with an employee for a period of 6 months or collectively (through a CBA) for 1 year.
- If a worker does enjoy the entire meal/rest break, an indemnity will be payable in respect of the period of break which was not provided with 50% additional pay over the normal hourly rate.
- Certain situations that were considered by the courts as time in which the employee is available (waiting for work), and therefore subject to hours that may add to overtime, are no longer deemed part of the work hours.
- The 12x36 shift pattern is only permitted if provided for in a CBA, except for certain categories of workers who already have this special shift pattern established by specific statutory provisions.
The Labour Reform – Compensation Benefits
- Career plans are valid without the approval by the Ministry of Labor.
- No parity (equal pay for equal work) in the event a career/salary plan is established in the employer’s policy or CBA.
- If no career plan is in place, the following requirements would require equal pay: 4 years continuity of service and 2 years in the same: (i) position; (ii) place (facility), (iii) activities, (iv) productivity and (v) technical expertise demonstrated in the role.
- Bonus (“gratificação legal”): bonus due to promotions (“gratificação de função”) and commissions will be treated as part of the employee’s compensation.
The Labour Reform – Contractual Aspects
- Vacation may be divided into up to 3 periods (one period cannot be shorter than 14 days and the other two shorter than 5 days).
- Home office: a written agreement and/or company’s policy must address the use of equipment, expenses and the nature of the activities; the employee is not entitled to overtime if the working hours are not controlled.
- Part-time employment is permitted, but it is limited to 30 hours per week and overtime work is not permitted.
- More flexibility for certain highly compensated employees who hold university or college degrees, employers and employees may be able to agree, individually (without the need of a CBA) on certain labor matters such as hours of work and annual compensation.
- Contracting with an individual as an independent contractor: if there is evidence of subordination / control over the contractor then the contractor may be considered an employee.
- New possibility of termination by mutual agreement but out-of-court settlements must be ratified by labor court.
- No need to ratify employment terminations at trade unions.
The Labour Reform – Collective Aspects and Procedural Aspects
- Certain rights may now be negotiated with trade unions and CBAs (taking precedence over statutory rights), however there remains certain protected rights which cannot be collectively negotiated.
- End of mandatory payments to unions: payment conditions may remain the same depending on provisions on CBAs.
- Collective or mass termination: prior negotiation with trade unions or execution of CBAs is not required; dismissal plans (usually providing extra severance payments) shall entail a full and irrevocable release of the employment agreement when expressly agreed between the parties.
- Companies with more than 200 employees required to create a body to represent them.
- The Labor Reform also brought several changes to the procedural aspects of litigation.
KEY DEVELOPMENTS FOR 2017
New Outsourcing Bill
A 10-year old bill passing through the legislative process (Bill of Law 4,330/2004) aims to regulate outsourcing in Brazil (the “Bill”). At the beginning of 2016, the Bill began to move towards conclusion. One of the main features of the Bill is that it allows outsourcing of core business, but it provides that the customer should be held jointly liable for the labour and employment rights of the outsourced employees. There are also two other bills addressing outsourcing in the Senate that are less favourable for companies in Brazil: (i) one (PLC30/2015) forbids the outsourcing of core business; and (ii) (PL 4302/1998) allows it, but includes an additional 30% charge for doing so. The bills will either be issued or dropped in the first semester of 2017.
President Michel Temer has advocated for a potential Labour Reform during his term (which will end in December 2018), mainly focusing on “negotiation overlying the legislation”. At this point, there is no clear definition on the rights and benefits that might be altered. Due to the political environment, Temer has decided to prioritize other matters (such as the Welfare System reform), and push the labour revision to the second semester of 2017.
KEY DEVELOPMENTS FOR 2016
“Negotiation overlying the Legislation”: Supreme Court ruling on overtime payment
A key issue in Brazilian labour discussions in 2016 was whether collective bargaining agreements can overrule strict national legislation regarding employees’ rights and benefits. The Supreme Court has ruled in favour of the “negotiation overlying the legislation” on two important precedents: firstly, in 2015, regarding the full settlement amounts upon submission to a Voluntary Dismissal Programme; and more recently, with regard to offsetting overtime payment with other benefits. However, these particular Supreme Court decisions are not binding for all courts, and the Superior Labour Court is still deciding these matters.
“Prohibition to outsource the core business over freedom to enterprise”
There is no labour law addressing outsourcing in Brazil. In 2011, the Superior Labour Court issued Precedent No. 331 establishing that the outsourcing of core business is prohibited and that any company that outsources services should be held liable for all labour and employment obligations not paid by the outsourced company. There were several appeals questioning this Precedent, especially challenging the definition of “core business”, the freedom to do business, and the fact that the Brazilian Constitution guarantees the Principle of Legality (i.e. no one shall be obliged to do or not to do something except if there is a law regulating it). The Supreme Court recognized the general repercussions of the outsourcing matter, and a comprehensive and formal decision began in November 2016 and is expected to be handed down in 2017.
New Civil Procedural Code
The 2015 Civil Procedural Code entered into force in March 2016. The Superior Labour Court issued a normative ruling to determine which provisions of the 2015 Civil Procedural Code should be applied by the Labour Courts, and also promptly adapted a few precedents to the new procedural system (raising a discussion on whether these reviews are the Superior Labour Court’s ex officio legal attributions).
In any case, the most important procedural transformation refers to “repetitive appeals” decided by the Supreme Court and Superior Labour Court. A decision on one appeal selected to represent all “repetitive appeals” shall be binding. Thus, similar appeals shall not be accepted by the Appeal Courts. The purpose is to speed up judicial proceedings and ensure legal certainty.