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 (eg, 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 which 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:

  • any benefit provided for by the company's internal policies (eg, profit-sharing plans);
  • the collective rights set forth in relevant collective bargaining agreements; and
  • health and security entitlements.

However, there could soon be changes to the outsourcing rules. Two months ago, 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:

  • Any part of a company's business may be outsourced, meaning that companies will be able to outsource both core and non-core activities.
  • The contracting company may be jointly liable for any employment debt due to outsourced employees.
  • 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.
  • The disability quota (Law 8,213/1991) may be calculated based on the total number of employees (ie, both regular and outsourced).
  • The contracting company may be responsible for withholding taxes applied to the outsourcing services.
  • With 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.
  • Outsourced employees hired by joint venture companies (ie, public-private sharing), may be entitled to the labour and employment rights set out in the Labour Code.
  • 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.

For further information of this topic please contact Vilma Toshie Kutomi or José Daniel Gatti Vergna at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email (vilma.kutomi@mattosfilho.com.br or jvergna@mattosfilho.com.br). The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at www.mattosfilho.com.br.

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