Restrictive Covenants in Brazil

1. Definition of Restrictive Covenants

There is no specific regulation in Brazil about restrictive covenants and its enforceability after termination of employment agreements. However, the Brazilian Federal Constitution establishes freedom of work, which means that the employer cannot force or oblige an employee to remain employed and/or impose other obligations not to hire its own employees.

Also, Brazilian Industrial Property Law (Law 9.279/1996) prevents an employee from disclosing or using the employer’s confidential information, without its authorization, at any time (during the employment or after its termination, for an indefinite period), under the penalty of characterization of the crime of unfair competition.

2. Types of Restrictive Covenants

a. Non-Compete Clauses

Brazilian Labor Code establishes that an employee cannot compete with his/her employer during the term of the employment agreement. In case of breach of such obligation, the employer may terminate the employee with cause, in addition to the possibility of filing a claim to receive an indemnification linked to the damages caused by the employee regarding such conduct.

b. Non-solicitation of customers

There is no rule in Brazilian Labor Law about non-solicitation provisions. However, it is very common that Brazilian employers address this restriction in employment agreements of management employees.

This type of restriction is not usually executed before Labor Courts, which means there are few decisions about its enforceability. Scholars’ opinion, on the other hand, have already discussed this matter and currently it is understood that non-solicitation clauses are valid as long as the parties agree on: (a) limitation in time; (b) geographic limitation and (c) limitation of object.

If these principles are followed, it is possible to enforce such restriction before labor courts, as well as claim for payment of penalty from the employee who practiced the solicitation.

c. Non-solicitation of employees

The same comments of item “b” above are applicable.

3. Enforcement of Restrictive Covenants—process and remedies

The parties may negotiate the restrictive covenants to be enforced after termination (a) at the beginning of the relationship – in the employment agreement or in a separate document, (b) during the relationship, (c) at the end of the relationship.

In the event of violation of the restrictive covenants, it is possible to file a judicial claim.

4. Use and Limitations of Garden Leave

Garden leave in Brazil is not legally regulated and it is not a common practice. The enforceability of a garden leave provision may be easily challenged in courts.

For more information on these articles or any other issues involving labour and employment matters in Brazil, please contact TozziniFreire Advogados
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