Compare

Termination of Employment Contracts in Brazil

1. Grounds for Termination

In Brazil, employments are at will, meaning that any party may terminate the employment agreement without cause upon the mandatory prior notice and payment of the severance. It is not necessary to mention any reason for termination, except if it is termination with cause.

Termination with cause is the most severe sanction for an employee and results in the reduction of the employee’s severance entitlements. Also, the termination with cause is always an exemplary action before other employees.

The employer should only terminate an employment with cause when the misconduct is foreseen by law and serious enough to justify such a severe sanction.

In what regards the fixed-term employment relationship, it may terminate exactly on the last day of such term or may end before it. If it terminates on the last day of such term, the employee will be entitled to the severance payments set forth by law. However, if the termination occurs before the fixed-term, there are two alternatives regarding the severance that vary in accordance with the wording of the employment agreement: (a) the terminating party must pay the equivalent of 50% of the amount that would be due until the end of the agreement; or (b) if there is a specific clause in the employment agreement mentioning that upon early termination of the fixed-term employment agreement the termination will be treated as a termination of indefinite term employment agreement, the regular severance for termination of indefinite term employment agreements will be due.

2. Collective Dismissals

Brazilian Labor legislation is silent about the concept of mass termination (collective dismissal). It is possible to infer that the employer may legally terminate all employments without cause, provided it pays all mandatory severance.

It is not mandatory to either consult or inform any authorities or Unions. However, mass termination is still a very controversial matter in Brazilian Labor Courts. Labor Courts have ruled that mass termination can only occur following previous negotiation with the Union.

3. Individual Dismissal

Since employment agreements are at will, an employer can terminate an employment agreement at any time, provided that the notice period is verified.

Some employees cannot be terminated without cause due to temporary job stability. That is the case of Union representatives, members of the Internal Committee for Accidents Prevention (CIPA), pregnant employees, employees that have work-related accidents, among other situations that may be set forth in the applicable collective bargaining agreement. Termination with cause and resignation are allowed even if an employee has temporary job stability.

A termination with or without cause or resignation should be communicated to the other party in writing. No prior communication or requests of authorization to the employees’ union or Ministry of Labor are required to perform any type of termination.

a. Is severance pay required?

Yes. The mandatory severance payment is different in case of resignation, termination with and without cause of indefinite term agreement and fixed-term agreement.

If the termination without cause occurs 30 days before the annual salary increase date established in the collective bargaining agreement, the employee is also entitled to an indemnification equivalent to 1 monthly salary. Collective bargaining agreements, internal policies and individual contracts/offer letters must also be checked since they may establish additional rights.

In the event fixed-term agreements are terminated without cause, the terminating party must pay damages in the amount of 50% of the compensation established for the remaining term of the agreement.

4. Separation Agreements

a. Is a Separation Agreement required or considered best practice?

Brazilian Labor Law does not require a Separation Agreement. However, it may be considered good practice in the event of termination of a high-level employee/worker, which will be entitled to a special severance package beyond the severance payments determined by Brazilian Labor Law or by the contract executed between the parties.

However, the Separation Agreement is not binding, i.e. even though the employee/worker signs the agreement, he/she may claim additional rights before the Brazilian Labor Courts. Despite its unenforceability, any amounts paid in connection with the Separation Agreement, if properly identified may be off-set in against future amounts sentenced in a judicial claim, if necessary. Additionally, the Separation Agreement has a moral effect upon the employee/worker and is very useful to avoid claims. If the employee/worker feels satisfied with the negotiation he/she will likely not file a claim after signing the Separation Agreement.

b. What are the standard provisions of a Separation Agreement?

The standard provisions are: (a) provision by which the employee/worker grants general release from any and all possible rights and/or payments related to or which might have arisen from the relationship with the company; (b) provision stating that the employee/worker grants to the company the right of offsetting with the values paid in the Separation Agreement, any and all values that the Company may be compelled to pay to the employee/worker, for any reason, as a result of any judicial or administrative determination.

c. Does the age of the employee make a difference?

No.

d. Are there additional provisions to consider?

It is advisable to properly list, when possible, the nature of the amounts paid to the employee/worker in the Separation Agreement in order to be able to off-set such amounts in future against amounts sentenced in a judicial claim.

5. Remedies for employee seeking to challenge wrongful termination

There is no specific provision about wrongful termination in Brazil. However, since the Brazilian Federal Constitution prohibits any type of discrimination, if an employee evidences that his/her termination has resulted from a discriminatory act, he/she may file a lawsuit against the company claiming reinstatement and moral damage indemnification.

For more information on these articles or any other issues involving labour and employment matters in Brazil, please contact TozziniFreire Advogados
This entry was posted in Termination of Employment Contracts on and modified on .