1. What are the primary sources of labor and employment rights in Brazil?
There are four major sources of labor and employment rights in Brazil: (i) the Federal Constitution; (ii) the Brazilian Labor Act (Consolidação das Leis do Trabalho, or “CLT”); (iii) collective bargaining agreements; and (iv) employment contracts (including companies’ common practices).
2. Under what law are labor contracts governed?
Under Brazilian law, any labor contract is governed by the law of the country in which the services are rendered (territoriality principle or lex loci executionis). Thus, if all workers are based in Brazil and perform their activities in Brazil, their employment is subject to Brazilian legislation.
3. Is Brazilian law applicable when services are rendered partly in Brazil and partly abroad?
If services are rendered partly in Brazil and partly abroad, Brazilian law may be applicable depending on factual findings. Whether Brazilian law is or is not the governing law will depend primarily on where the activities are performed. Facts are essential in order to establish whether an activity is performed in Brazil or abroad, especially in the case of employees working remotely.
4. What is the principal of acquired rights?
A fundamental principal of Brazilian labor law is that an employee acquires a right if he/she fulfills all the requirements established by law to be entitled to that right. Once a right is established, a subsequent law or contract may not interfere with or reduce the scope of this right.
As a practical matter, any change in employment terms that results in a direct or indirect decrease of the individual employee’s rights (such as the employee´s salary) are generally deemed to be null and void, regardless of whether the employee consented or not to such change.
Brazilian labor law also provides that advantages or benefits granted by employment contracts or acquired by employees due to a company’s customary practices or written policies may not be restricted by amendments or by the change of the employer (in case of mergers or acquisitions).
5. In what capacity can an individual in a managerial position render services to a company?
Under Brazilian law, an individual in a managerial position may render services to a company either (i) as a regular employee under the CLT; or (ii) as an officer appointed by the company´s shareholders.
An officer is acknowledged as a representative of the shareholders, chosen to run the business of the company as their attorney-in-fact. The compensation paid officers is identified as pro labore.
6. What are the implications of being acknowledged as an employee or as an officer?
The relationship between a company and an employee is regulated by a standard employment contract that grants minimum rights and protections to the employee as required by law. These rights include: (i) a thirteenth monthly salary payable in December, (ii) a guaranteed number of vacation days per year (generally 30 days following one year of employment), (iii) payments into an unemployment guarantee fund (Fundo de Garantia por Tempo de Serviço, or “FGTS”) in an amount equivalent to 8% of the employee’s monthly compensation and (iv) other rights established by collective bargaining agreements, such as health insurance, meal vouchers and transportation vouchers.
By comparison, the relationship between an officer and the company is governed by contract based on civil law, which grants more autonomy to the parties to establish their rights and obligations. In addition, taxation of an officer’s compensation is lower than that of an employee’s wages.
7. How can an individual be legally acknowledged as an employee or as an officer?
In principle, an individual is legally acknowledged as an employee or as an officer depending on the circumstances of his/her daily activities. According to Brazilian labor principles, factual findings are more important than formal documents in establishing whether the individual is an employee or an officer.
Brazilian labor law acknowledges an individual as an employee if he/she renders services to a company on a personal and habitual basis, with subordination and through payment of compensation.
Both officers and employees render services on a personal and habitual basis and receive payment of compensation. Consequently, the main difference is whether the individual works under subordination or not.
Although there are varying definitions of “subordination” in jurisprudence and among scholars, as a general matter subordination will arise when a worker is required to follow orders from another individual who is in a higher position in the company’s hierarchy.
8. What are the labor rights of officers?
An officer generally acts as a representative of the company’s shareholders, following the guidelines provided by them, and is not entitled to all the labor rights granted to employees. If an officer performs duties in observance of orders of any other individual in the company, however, he/she may be considered an employee and, as a result, may be entitled to labor rights as a regular employee.
Although companies are not legally required to provide employee benefits to officers, it is common practice for companies to grant officers some of the benefits granted to employees, such as a thirteenth pro labore and guaranteed vacation periods.
The company’s labor contract with an officer should set forth detailed provisions related to the officer’s services, including compensation (pro labore), periods of vacation, fringe benefits and other payments.
9. What is the term of an employment contract?
Employment contracts normally have an indefinite term. Fixed terms are allowed only in specific circumstances, such as during a probation period, in projects with a defined term and the temporary hiring of employees due to exceptional increase in demand.
As long as an employee is not protected by any legally recognized tenure (which may arise if the employee is pregnant, a union representative, a member of the committee for the prevention of accident or an occupational accident victim), termination may occur at any time at the company’s discretion, provided that the company pays the relevant severance payment, as described below.
10. How can a company terminate an employee at will?
Under Brazilian labor law any employee may be dismissed without cause at any time, provided that the employee receives prior notice of at least thirty days (plus three days per year of employment) and the company pays a severance payment to the employee.
The severance payment is generally comprised of:
- balance of the employee’s salary (for period worked);
- pro rata thirteenth salary;
- pro rata vacation payment plus one third of this amount as a bonus; and
- a penalty corresponding to forty percent of the total amount deposited into the FGTS account.