Brazil recently underwent an unprecedented political and financial crisis. In view of this scenario, recovery of the country's economic growth and political stability is paramount.

In order to reduce unemployment and modernise the labour regime, the government has proposed a labour reform, based on Bill 38/2017, which was already approved by the House of Representatives and is being discussed by the Senate. The bill sets out a meaningful change in the Labour Code by amending, excluding and including several articles.

On April 27 2017 the House of Representatives passed the bill, which is now expected to be voted on by the Senate. However, the bill's passage in the House of Representatives does not mean that the Senate will also pass it. Further, even if the Senate passes the bill, the president will have to validate it, passing it either in full or vetoing in full or in part.


Since it significantly modifies the labour laws, the labour reform has faced strong opposition from employee representatives in certain sectors. However, despite the concerns surrounding the labour reform, when actually analysing its wording and intent, it is clear that it is a required modernisation of Brazil's labour regime. This is because when the Labour Code was created in 1943, Brazil had been in need of a strong labour regulation due to the fact that it had just started to improve labour rights, having lacked them until that point. As a result, the Labour Code was understandably created with a view to giving strong protections to employees.

However, in the past 75 years, the society has gone from one end of the pendulum to the other, varying between rules reducing labour rights and excessively protective laws.

The reform seeks an equilibrium.

By maintaining employees' fundamental rights as set out in the Constitution with no reductions, the labour reform seeks to adapt employment law to the existing climate, which favours collective negotiation with labour unions.

Among the more than 100 articles that are being amended by the bill, Article 652(f) is a clear example of the balance that the labour reform seeks. Article 652(f) sets out that the "Labor Courts shall have authority to decide on the negotiation of the out-of-court agreement related to matters under the responsibility of the Labor Justice".

At present, there is significant resistance from the labour sector regarding out-of-court negotiations, based on the argument that employees do not have the independence and freedom to negotiate an agreement with their employers without assistance from a judge. The critics of this measure believe that employees' rights will unavoidably be jeopardised in an out-of-court agreement as they are the weaker party during negotiations.

However, by validating out-of-court agreements, even if they continue to depend on homologation by a judge, the bill allows labour controversies to be solved by the parties themselves, which will help to accelerate and reduce the number of litigations before the labour courts. Further, offering out-of-court settlements will make it easier to resolve issues in which there is no need to appeal to the judiciary, as the parties will have full capacity to compromise in the way that serves them the best.

Under the bill, out-of-court agreements will be permitted provided that they are approved by a labour judge, preventing employees from being jeopardised during negotiations. Once again, this change evidences the search for a balance in labour relations. In fact, the International Labour Organisation advises parties to seek a resolution for conflicts.

The fundamental rights of employees and employers are constitutional guarantees and will continue to be respected. Any change restricting said rights will not be approved by the labour courts.

Out-of-court negotiations represent the wills of the parties and will thus be considered law between those involved and cannot be ignored or invalidated without a careful analysis of the peculiarities of the case.

There have been cases in which the labour courts have approved out-of-court agreements. For instance, a Fourth Panel of the Superior Labour Court decision(1) confirming the Labour Appellate Court's decision held as followed:

"We cannot consider harmful a contractual amendment, freely agreed with the assistance of an attorney, in a transaction in which the Plaintiff receives a significant amount of money and may freely use this amount that he was not even sure he would receive in the future, considering the uncertainty of the concretization of the estimated life and existence and the economical strength of the Defendant throughout the years. We cannot talk, in the specific case of the records, in an occurrence of loss to the Plaintiff."

Therefore, Article 652(f) represents one of the ways in which the government is seeking to modernise Brazil's employment laws without jeopardising employees' rights. Introducing alternatives such as out-of-court negotiations will help to reduce the number of claims before the labour courts and ensure that employee and employer rights are balanced.

For further information of this topic please contact Dario Abrahão Rabay, Aline Marques Fidelis or Vivian Simões Falcão Alvim de Oliveira Almeida at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email ([email protected], [email protected] or [email protected]). The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at


(1) Interlocutory Appeal 608-10.2010.5.04.0002.