At the end of 2017, reforms to Brazil’s labour laws took effect (Law No. 13,467/2017). Brazil’s new labour reforms were designed to incentivize employers to create new jobs and increase productivity by decreasing the burden of a restrictive labour regime. The labour reforms reflect the federal government’s policy of developing a more business-friendly environment in Brazil. It is now up to the courts to enforce the new legislation as envisaged by the National Congress of Brazil.

We provide below a bullet-point summary of the most relevant items of the reform.

Before the Reform: Protective System

  • Statutory employment as a matter of public policy: Labour Code applied to all employees. Waivers and choice of law were invalid.
  • The system was very protective of employees:
    • Changes affecting the employee were nullified and the employee’s consent to such changes was irrelevant;
    • Substance over form (well-crafted employment documentation was not enough to create a presumption in favor of the employer);
    • Private waiver and release of rights were invalid;
    • The most favorable provision for the employee concerned prevailed (granting a right to a certain employee may have a cascade effect for many others);
    • Some special categories of employee are protected against dismissal (e.g. union directors, pregnant women, and those who had a work accident/disease);
    • Employees’ access to court was free of any costs, and there were no sanctions for unsubstantiated and frivolous claims.

After the Reform: Most Relevant Aspects

Working Hours: Control, Set-off and Exemption

  • Customized control mechanisms (an alternative to pre-approved official ones) may be implemented through a collective bargaining agreement.
  • Individual agreements may be entered into to set off working hours against time off within one month. The maximum number of working hours in a day is 10.
  • Hours Account (or Hours Bank): This is also a set-off mechanism in which overtime and time-off fluctuate according to business/personal demands. Instead of paying overtime, the company makes the corresponding entry as a “credit” to the employee, which it will eventually deduct against time-off.
  • Employees working from home (telework or home office) are a new category of exempt employees.

Equal Pay for Equal Work

  • Only those individuals who (a) work for the same employer for at least four years, (b) have equivalent job description/responsibilities, (c) have equivalent work performance and professional skills, (d) work in the same business unit and (e) have equivalent seniority (less than two years in the same position) are entitled to equal salary and employment benefits.
  • The company may have a salary and career program as an exception to such rule.

Intermittent Work (New Legal Concept)

  • Employee is activated on demand and may decline the opportunity to work;
  • Activation by the hour, day or month;
  • Intermittent worker’s wages are proportional to his workload;
  • This is a nonexclusive employment agreement, and there will be automatic termination if the agreement is inactive for a period of one year.

Vacation Splitting

  • Paid 30-day holidays may be split by mutual agreement into three periods, one of which must be for a minimum period of 14 calendar days, and none of which can be shorter than five calendar days.
  • Holidays cannot begin within the two days prior to a public holiday or weekend.

Remuneration and Benefits: Payroll Costs

  • Allowances are generally not part of the employee’s remuneration for the purposes of calculating payroll costs and Social Security tax.
  • Neither are premiums for exceptional performance.
    • The law lacks clarity concerning the nature of these exemptions and prudence is advisable. In theory, contractual bonuses shall not be covered by this new provision.

Termination by Mutual Consent

  • In addition to accrued wages and holidays, severance includes:
    • 50 percent of monthly wages in lieu of notice;
    • An amount equal to 20 percent of the accrued FGTS[1]; and
    • Withdrawal of 80 percent of the FGTS account balance.

Union’s Fees

  • Affiliation to a union is voluntary, but the unions have statutory authority to represent all the workers within their respective trade and territory and to enter into binding collective bargaining agreements.
  • Union contribution now depends on the employee’s prior and express consent to it (it was compulsory until the reform). Unions are likely to litigate this provision in the future.

Mass Dismissals

  • There is no need to obtain the union’s previous authorization or to enter into a collective bargaining agreement to implement a mass termination program.
    • This conflicts with the courts’ traditional understanding that prior negotiation was necessary to mitigate the social impact of mass dismissals. Litigation on this matter is to be expected in the future.

Arbitration

  • Employees with a university degree and salaries equal to or higher than two times the cap of the Social Security benefit (currently, R$11.062,62) may agree to and be bound by an arbitration clause to settle any dispute related to their employment agreement.

Outsourcing and Temporary Workers

  • Traditionally, courts determined that outsourcing the company’s core business was illegal. Companies could only outsource ancillary activities, and they remained secondarily liable for employment duties. However, companies have been successfully outsourcing specialized industrialization services, such as those in the automobile, textile and electronic industries.
  • Now, the law permits the outsourcing of any activity. It is unclear as to whether the courts’ traditional position and the new law can coexist.
  • Former employees cannot engage in the same activity with the same company through an outsourcing agreement for a period of 18 months after their termination.
  • The company can now engage temporary workers for 180 days. An extension of 90 days may be permitted.

Prevalence of Negotiation over Legistlation

  • Collective bargaining agreements and individual agreements with certain employees may prevail over the provisions of law with respect to the following matters: working hours; hours account; meal break for work shifts above six hours per day (with a minimum of 30 minutes); PSE program set forth by Law 13,189/2015; internal policies; employees’ representative in the company; telework (home office), on-call hours and intermittent work; performance and productivity compensation, including gratuities; working hours control; change of holiday; premium for unhealthy work conditions; overtime for employees working in unhealthy conditions without the previous authorization of the Ministry of Labour; incentive plans; and profit-sharing plans.

Litigation

  • New rules on mandatory payment of court fees by employees and sanctions for frivolous litigation may discourage labour litigation in the future.