Brazil: Labor Relations

1. Introduction

In Brazil, labor relations are a matter of Federal law, so the States and Municipalities have no power to legislate over labor matters. Therefore, labor rights are nationally standardized, and the same labor costs and consequences will apply regardless of an employer’s place of business or place of incorporation.

The basic principles concerning labor relations in Brazil are contained in the Labor Code, the so-called “CLT” (Consolidação das Leis do Trabalho), enacted on May 1, 1943. Although it has been complemented, altered and amended over the years by scattered statutes and also by the Federal Constitution of 1988, the Labor Code is outdated in several points as it was enacted under a very different social and economic reality. From time to time, the idea of a major review of the Labor 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 Labor Code, its application has been strongly influenced by the interpretation developed over the years by Brazilian Labor Courts.

2. Major Labor Principles

Some basic principles implicitly or expressly provided by Law will govern any employment relationship in Brazil. The most relevant of these principles are:

2.1. Prevalence of Facts

In the determination of labor consequences, the relevant facts surrounding an employment relationship will prevail over formal documents governing the same.

2.2. 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.

2.3. 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 such group with respect to employment relationships.

3. Hiring Structures

In Brazil, workers may be hired in several ways, but the most common practice is the hiring of workers as employees. An employment relation is characterized by the simultaneous presence of four requisites: (i) services rendered on a personal basis; (ii) on a permanent/habitual basis; (iii) with subordination, i.e., the services are rendered under the employer’s direction; and (iv) on an onerous basis, i.e., the individual must receive remuneration in consideration for the services rendered.

Whenever one or more of the requisites above are not present in a labor relationship, the parties are free to structure it in a different way other than an employment, 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 Labor Code is applicable solely for employees, while the other work structures are governed by different statutes.

4. Outsourcing

Although there are no specific legal provisions governing outsourcing in Brazil, such practice is commonly accepted by Brazilian Labor Courts, provided that some requirements are complied with.

For an outsourcing arrangement to be considered regular: the outsourced services cannot constitute the core business of the contracting company; the contracting party cannot directly supervise/control the outsourced workers; and the outsourced services cannot be rendered on a personal basis.

Also, the contracting company will be always subsidiary liable in case the outsourced company fails to comply with any applicable law or regulation.

5. Foreign Workers/Expatriates

Whenever 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 previously requested. Any visa issued to a foreigner may be extendable to his/her family.

The proper visa depends on the activities that will be executed in Brazil. After the applicable visa is selected, the Brazilian entity will have to comply with the applicable rules concerning the relationship to be maintained with the foreigners.

6. Quotas

6.1. Handicapped workers

Brazilian companies with 100 or more employees are required to hire handicapped workers. These workers, which may or may not have been trained in special programs conducted by the Brazilian Social Security Agency, must account for two percent (2%) to five percent (5%) of the total number of job positions in the company.

6.2. Apprentices

Apprentices are workers aged between 14 and 24 years, subject to technical and professional training.

With the exception of some small companies and non-profitable organizations, all entities in Brazil with 7 or more employees are required to employ apprentices in a number equivalent to five percent (5%) up to fifteen percent (15%) of the total number of job positions in the company, excluding other apprentices, temporary workers, positions which require technical or academic graduation and managerial positions.

7. Unions

All companies and employees are mandatorily represented by an Union, regardless of voluntary unionization/affiliation.

Union classification is made on a territorial basis, based on the preponderant 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 purposes of establishing general and normative rules which govern the relationship of a given category of employers and employees. Collective bargaining agreements are of mandatory observation for all their parties and/or the companies/employees of the respective category and based on the territory where the Unions have authority.

. Social Security Contributions

Employers and workers must make compulsory contributions to the Brazilian Social Security Agency, which is in charge of managing a system designed to protect the employee in case of illness and retirement.

Employers’ contributions average twenty-seven percent (27%) of the employee’s overall salary. Contributions may be higher than this average if the employees are subject to health hazardous working conditions.

Employees’ individual contributions are withheld by the employer. The individual contribution is proportional to the salary amount and is capped by the Federal Government, currently on an annual basis.

For different labor structures other than employment, other mandatory social security schemes may apply.

9. Most Relevant Labor Rights

The most relevant labor rights are briefly described below. They are applicable solely for individuals hired as employees, and may be complemented by the applicable collective bargaining agreement.

9.1. Compensation

Compensation, with the exception of commissions, must be paid at least monthly and in Brazilian currency (Reais). Employees are entitled to receive a Christmas bonus corresponding to one monthly salary, paid by the end of each year.

In Brazil, the employees’ monthly salary is used as a base for the calculation of all applicable labor and social security charges. However, such charges apply not only over the salary, but also on the overall compensation which comprises any other amount or benefit granted to the employee such as commissions, bonuses, fringe benefits such as personal or family benefits and living expenses, among others. The only exceptions are some benefits expressly exempted by law from labor and social security charges, such as payments connected with Profit and/or Results Sharing Plans (see item 9.2 below), transportation vouchers, meal vouchers, health care, education, among others, provided that some specific requirements applicable to each situation are complied with.

Collective bargaining agreements often set forth mandatory rates for annual salary increases, which shall be applied for all employees – including managers, directors and executives hired as employees. Such rates are generally defined based on the accumulated inflation rates of the preceding 12-month period.

9.2. Profit and/or Results Sharing

In addition to regular compensation, workers are guaranteed a share in the profits or results of the employer’s activities.

Although profit/result sharing rules are extremely flexible and do not establish any kind of limit, such payments must be governed by a plan to be previously discussed with an elected committee of employees, with the participation of the relevant Union, or directly with Union representatives.

Certain requirements to be observed in the profit/result sharing plan are the indication of clear and objective rules/targets/goals, and the prohibition of more than two payments per year.

Provided that the applicable rules are complied with, profit/result sharing payments are exempted from labor and social security charges and indeed are an important tool used by Brazilian companies to compose the employees’ global compensation by legally reducing charges on payroll.

9.3. Working Hours

All companies with more than 10 employees shall control the work shifts of their employees. Certain exceptions include employees holding managerial positions and employees working outside of the company’s facilities, who are not subject to have their worked hours controlled and are not entitled to overtime payment.

Ordinary working hours shall not exceed 8 hours per day and/or 44 hours per week.

Any overtime worked shall be remunerated with an additional of fifty percent (50%) of the hourly rate, and hours worked on Sundays or holidays must be remunerated with an additional of one-hundred (100%) percent. Collective bargaining agreements may establish higher rates for overtime payments. Provided that there is Union authorization, overtime worked on a day may be offset by a reduction in those worked on another day, without the need of the additional overtime payment.

9.4. Vacation

After each 12-month working period, an employee is entitled to a 30-day vacation, which must be taken within the subsequent period of 12 months. The remuneration paid with respect to the vacation month must be added by one-third of the employees’ regular monthly compensation.

9.5. Severance Pay Fund (FGTS)

Employers must deposit, on a monthly basis, eight percent (8%) of each employee’s salary on an account opened on their behalf and administered by an official federal financial institution. Funds deposited in such accounts may be withdrawn in events of dismissal without cause, retirement, purchase of real estate and death, among others.

9.6. Termination of Employment

In Brazil, both the employer and the employee are allowed to terminate the employment at any time, without cause. Under some specific and exceptional circumstances, employees may be entitled to temporary job stability, which may prevent the employer from terminating the relationship for a given period.

As a general rule, the termination of an employment contract with an indefinite term requires a 30-day prior notice, which, however, may be converted into a payment in lieu of notice. In either case, mandatory severance apply.

The severance entitlement in case of termination without cause is directly connected with the terminated employee’s length of service.

In the event of employee misconduct, the employment may be terminated with cause, with no need for prior notice and with a significant reduction of the mandatory severance.

9.7. Health and Safety Matters

Health and Safety is a sensitive matter in Brazil. There are several regulations providing for strict rules concerning mandatory periodical medical examinations, medical examinations upon admission and termination, medical records, environmental risks prevention, creation and maintenance of an Internal Commission for Accident Prevention (CIPA), health-hazard and dangerous activities and the corresponding allowances, ergonomics, among others.

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