Awards are amounts paid by the employer to reward an employee, a group of employees or even third parties for job performances that are deemed to be above average by the employer.
The discussion regarding the legal nature of awards is not new to Brazilian labour courts, especially because amounts paid as awards could be considered salary, obliging the employer to:
- include the award in the employee's salary and pay him or her every month; or
- include this amount as a basis for determining the employee's labour rights (eg, Christmas bonus and holiday time).
With the enactment of Law 13,467/2017 and Provisional Measure 808/2017, which were implemented as part of the labour reform, the legislative branch has tried to clarify this matter, defining the legal nature of awards, as well as the concept and legal criteria for their application.
Before the labour reform was implemented, scholars and court decisions adopted certain criteria to determine the legal nature of awards, such as regularity of payments, any previous negotiations between the employer and employee and whether the negotiations were written or verbal.
Given judges' subjectivity when interpreting such criteria, employers felt legally unprotected – for example, in cases which discussed the meaning of 'regular payments' to qualify awards as salaries.
In order to make business transactions safer and stimulate economic growth in Brazil, lawmakers enacted Law 13,467/2017, defining (among other things):
- the concept of awards;
- the frequency of payments; and
- payment methods.
On November 14 2017, a few months after the enactment of Law 13,467/2017, Provisional Measure 808 was published, which amended the definition of 'awards'. Provision Measure 808 is pending approval by Congress.(1)
Following the labour reform, Articles 457(2), (4) and (22) of the Consolidation of Labour Laws expressly defined an 'award' as a voluntary payment made by an employer to an employee, group of employees or third parties in the form of goods, services or cash as a reward for a greater than expected job performance.
In order to categorise awards within the terms proposed by the labour reform, the following crucial elements must be considered:
- the employer's discretion to grant employees awards;
- whether awards have been limited to – at most – two payments per year; and
- the objective identification of job performances which exceed expectation.
Nonetheless, before Brazilian companies amend their policies regarding remuneration and awards, a legal discussion must be held to interpret the labour reform further, carefully analysing the particularities of each case.
The labour reform gives companies the opportunity to reward their employees and third parties without integrating such awards into their salaries.
Therefore, even if legal discussions are held as to the application of the law and its retroactive effects, the concepts and criteria set out in the labour reform encourage a more competitive scenario, increase production and ensure greater legal security for companies in Brazil.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information of this topic please contact Sólon Cunha, Amilton Ferreira or Vinicius Sabatine at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at www.mattosfilho.com.br.
(1) Even if Provisional Measure 808 becomes null, pursuant to the provisions set out in Articles 62(3) and (4)4 of the Constitution, its rules will remain in effect until it becomes null; until then, companies must comply with the provisional measure.