In Brazil, labour relations are a matter of Federal law, so the States and Municipalities have no power to legislate over labour matters. Therefore, labour rights are nationally standardised, and the same labour costs and consequences will apply to all levels of employees, regardless of an employer's place of business or place of incorporation. The basic principles concerning labour relations in Brazil are contained in the Labour Code, the so-called "CLT" (Consolidao das Leis do Trabalho), enacted in 1943. Although it has been complemented, altered and amended over the years by scattered laws and also by the Federal Constitution of 1988, the Labour Code is outdated in several ways as it was enacted under a very different social and economic reality. From time to time, the idea of a major review of the Labour Code is raised at a political level, but a concrete step toward such review is still pending.
Given that, in essence, no significant changes have been made so far to the original Labour Code, its application has been strongly influenced by the interpretation developed over the years by Brazilian Labour Courts.
Issues arising on hiring individuals
Before a foreigner is transferred to Brazil and/or retained by a Brazilian company to render services in Brazil, a relevant work visa/permit must be requested. Any visa issued to a foreigner may be extended to their family.
The type of visa required depends on the activities that will be carried out in Brazil. After the applicable visa is selected, the Brazilian entity must comply with the applicable rules concerning the relationship to be maintained with the foreigner.
Employment structuring and documentation
Some basic principles implicitly or expressly provided by law will govern any employment relationship in Brazil.
The key principles are:
- Prevalence of facts when evaluating the employment relationship: The relevant facts surrounding an employment relationship prevail over formal documents governing it
- Prohibition of detrimental changes: Employers are prevented from making changes to employment terms and conditions that are detrimental to employees, whether or not the employee has previously consented with the change
- Joint liability group of companies: Companies belonging to a group of legal entities under the same control, direction or management are jointly liable for the obligations of any company belonging to that group with respect to employment relationships
In Brazil, workers may be hired in several ways, but the most common practice is to hire workers as employees. An employment relationship is characterised by the simultaneous presence of four elements: (1) services rendered on a personal basis; (2) on a permanent/habitual basis; (3) with subordination, i.e. the services are rendered under the employer's direction; and (4) on an onerous basis, i.e. the individual must receive remuneration in consideration for the services rendered.
Whenever one or more of the elements above is not present in a labour relationship, the parties are free to structure it in a different way other than as an employment relationship, such as: independent contractors/consultants; service providers/outsourced workers; temporary workers; interns; and non-employed officers, among others, provided that the specific rules and regulations regarding such other forms are complied with.
The Labour Code only applies to employees, while other work structures are governed by different legislation.
Issues arising during the employment relationship
These labour rights only apply to individuals hired as employees, and a collective bargaining agreement may also apply to them.
Wages, working time and annual leave
With the exception of commission, compensation must be paid at least monthly in Brazilian currency (Reais). Employees are entitled to receive a Christmas bonus corresponding to one month's salary, paid by the end of each year.
In Brazil, the employees' monthly salary is used to calculate all applicable labour and social security charges. However, such charges apply not only to salary, but also on the overall compensation which includes any other amount or benefit granted to the employee such as commission, bonuses and fringe benefits such as personal or family benefits and living expenses. The only exceptions are some benefits expressly excluded by law from labour and social security charges, such as payments connected with profit and/or results sharing plans, transportation vouchers, meal vouchers, health care and education, provided that some specific requirements applicable to each situation are complied with.
In addition to regular compensation, workers are guaranteed a share in the profits or results of the employer's activities. Although profit/results sharing rules are extremely flexible and do not establish any kind of limit, these payments must be governed by a plan which has been discussed previously with an elected committee of employees, with the involvement of the relevant union, or directly with union representatives. Certain requirements must be observed in the profit/results sharing plan, including that there must be clear and objective rules, targets or goals, and not more than two payments per year.
Provided that the applicable rules are complied with, profit/ results sharing payments are excluded from labour and social security charges and indeed are an important tool used by Brazilian companies to structure employees' global compensation so as to legally reduce the charges on payroll.
All companies with more than 10 employees must implement a control system of employees working time to ensure that employees receive overtime when they work more than 8 hours a day. Exceptions include employees who
hold managerial positions and employees who work outside the company's premises, who are not subject to controlled working hours and are not entitled to overtime payment.
Ordinary working hours must not exceed 8 hours per day and/or 44 hours per week. Any overtime worked must be remunerated with an additional 50% of their regular hourly rate, and hours worked on Sundays or holidays must be remunerated with an additional 100%. Collective bargaining agreements may establish higher rates of overtime pay. Provided that there is union authorisation, overtime worked on one day may be offset by a reduction in the hours worked on another day, without the need for an additional overtime payment.
After a year of continuous employment, employees are entitled to 30 days' annual leave, which must be taken within the subsequent 12 month period. Employers must pay employees an additional one-third of their monthly salary as vacation bonus.
Health and safety
Health and safety is a sensitive matter in Brazil. There are several regulations with strict rules concerning mandatory periodical medical examinations, medical examinations on recruitment and termination, medical records, environmental risks prevention, the creation and maintenance of an Internal Commission for Accident Prevention, health-hazards and dangerous activities and corresponding allowances, etc.
All companies and employees are mandatorily represented by a union, regardless of voluntary unionisation/affiliation.
Union classification is made on a territorial basis, based on the dominant activity/core business of the company and territorial scope of authority of the respective union.
Collective bargaining agreements are those executed between the unions representing employers and employees, or between the employees' union and a specific company, for the purposes of establishing general and normative rules which govern the relationship of a given category of employers and employees. Collective bargaining agreements must be observed by all their parties and/or the companies/employees of the respective category and based on the territory where the unions have authority.
Employers and workers must make compulsory contributions to the Brazilian Social Security Agency which manages a system designed to protect employees in the event of illness and retirement. Employers' contributions average 28% of the employee's overall salary. Contributions may be higher than this if the employees are subject to health hazardous working conditions. Companies that develop specific activities (as listed in Law 12.546/11) are subject to 1% or 2% social security contributions on top of their revenue, instead of the 20% contribution made by the employer on the employees' overall salary. Employees' individual contributions are withheld by the employer. The individual contribution is proportionate to the amount of salary and is capped by the Federal Government, currently on an annual basis.
Severance pay funds
Employers must deposit 8% of each employee's salary on a monthly basis in an account opened on their behalf and administered by an official federal financial institution.
Funds deposited in these accounts, the so-called "FGTS accounts" may be withdrawn in the event of, among others, dismissal without cause, retirement, purchase of real estate and death.
Issues arising on termination of the employment relationship
Although there are no specific legal provisions governing outsourcing in Brazil, this arrangement is commonly accepted by Brazilian Labour Courts provided that certain requirements are complied with.
For an outsourcing arrangement to be regular or lawful:
- the outsourced services cannot constitute the core business of the contracting company
- the contracting party cannot directly supervise or control the outsourced workers
- the outsourced services cannot be rendered on a personal basis
The contracting company will always have subsidiary liability if the outsourced company fails to comply with any applicable law or regulation.
In Brazil, change in the employer's corporate structure does not affect the employment agreements. Therefore in the event of a business transfer, when the buyer acquires the entire company, the employment agreements are automatically transferred to the new owner, and it will become the new employer under the original employment agreements that will remain in force. Consequently, any labour obligations and liabilities under these agreements, whether past or future, are attributed to the new employer.
The new employer cannot make any detrimental change to the terms and conditions of employment, including any changes to remuneration and benefits, even with the employees' consent.
There is no requirement to inform the unions or employees about the change in the company's corporate structure. However, it is good practice to communicate with employees about this.
In Brazil, both the employer and the employee can terminate the employment at any time, without cause. Under certain specific and exceptional circumstances, employees may be entitled to temporary job security, which may prevent their employer from terminating the relationship for a given period.
As a general rule, 30 to 90 days' notice, or payment in lieu of notice, must be given on the termination of an employment contract with an indefinite term. A mandatory severance payment must also be made. The amount payable depends on the employee's length of service and includes, among other rights, a penalty of an additional 50% on top of the balance of the amount deposited in the employee's FGTS account.
However, if an employee is guilty of misconduct, their employment may be terminated with cause, without notice and with a significant reduction in the mandatory severance payment. The Labour Code sets out the types of misconduct that permit termination with cause.
In the case of multiple dismissals, the courts require employers to have held negotiations with the union
Published in collaboration with L&E Global: an alliance of employers’ counsel worldwide
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