Labor Law in Brazil

I. INTRODUCTION

The rights and duties of employers and employees in Brazil are set out in the so-called “Consolidation of Brazilian Labor Laws – CLT”, which is the main statute regulating labor rights in Brazil, issued in 1943. Labor rights are also regulated by collective bargainings and collective agreements. However, certain classes of employees, such as civil servants and employees of autarquias (autonomous government entities), are excluded from the scope of the Consolidated Labor Laws, as they are subject to special regulations.

We present below a brief and general memorandum containing the general guidelines of labor law in Brazil with informative purpose only. This memorandum should not be considered all-inclusive and do not constitute legal advice or opinion, which shall be sought to each specific case and situation.

II. SERVICE RENDERING AGREEMENT X EMPLOYMENT

The regular procedure to hire an individual to render services in Brazil is through the establishment of an employment relationship under the CLT´s rules and regulations. According to article 3 of CLT an employee is every individual that renders services not eventually, under the employer subordination (obedience to rules and orders given by the employer) and that receives a salary.

Generally, employees are hired for an undetermined period of time. However, there can be, as an exception, temporary and autonomous service rendering provided that the main difference between them is that in the employment relationship the employee is legally subordinated.

This subordination consists in the way the employer sets out the employee’s activities as well as the goals. In the other hand, the service rendering without a contract requires independence and autonomy and the service renderer is responsible for his work.

In consideration to the above mentioned, its important to highlight that for Labor Law in Brazil the reality of service rendering prevails instead of the written terms. Therefore, even if there is an individual adjustment trough a Service Rendering Agreement, there is a risk of such agreement be considered an Employment Contract if the mentioned subordination is proved.

III. EMPLOYMENT RELATIONSHIP

Brazilian labor law does not require the execution of a formal written employment agreement between employer and employee to prove the labor relationship between two parties. Therefore, oral employment is fully valid and enforceable, subjecting the employee and the employer to the rules and regulation of the CLT.

As a general rule, an employee is regularly hired by means of the inscription in his/her personal Labor Card (Social Card) and of the registration in the books of the company for purpose of payment of the social taxes and contributions.

3.1 TERMINATION OF EMPLOYMENT RELATIONSHIP

The termination of an employment relationship may occur in the following cases:

Dismissal for Good Cause: The dismissal of an employee for just cause may only occur where the dismissal results from acts such as dishonesty, improper conduct or lack of self-restraint, criminal sentencing of the employee, in final judgment, provided that execution
of the penalty has not been suspended.

Dismissal without Good Cause (Unfair Dismissal): In the case of termination of the employment contract by the employer, the employee shall have the following rights:

(a) 30 days’ prior notice;
(b) outstanding salary for the days worked during the month;
(c) proportionate 13th salary (calculated based on the salary earned during the last month of employment);
(d) one-third bonus in respect of vacation;
(e) double accrued vacation, if applicable; and
(f) release of the FGTS deposits, with a fine of 40% of the total amounts deposited in the employee’s FGTS account plus 10% of especial contribution.

Therefore, in case of termination of the employment by the employer without good cause, he/she will be entitled, in addition to the basic labor rights, to a fine of 40% (forty percent) of the total amounts deposited in the account of the employee in the “Unemployment Fund – FGTS”, plus 10% (ten percent) of especial contribution according to Law 110/2001.

Resignation: A resigning employee is entitled to all the severance pay listed above, except for prior notice and release of the FGTS deposits. However, if the employee resigns prior to completing one year’s employment with one same employer, the employee will have no rights to vacation.

IV. UNIONS

The Federal Constitution insures freedom of association to professions and trade unions. The principal function of a union is to represent the general interests of its members as a group or individually. Unions may also enter into collective bargaining or agreements, and promote conciliation in Bargaining.

Collective bargaining or agreements are usually carried out through negotiation, as a means of regulating specific labor relationships. After these instruments are signed by the representative unions for the professional and economic categories, the employer must comply with its clauses since they are enforceable thereon.

These instruments are binding on the company and on all the members of the union’s professional category. This applies even if the members are not unionized.

V. BASIC RIGHTS OF EMPLOYEES

Among other rights granted to Brazilian employees, such as (i) minimal wage currently of R$200,00 (two hundred reais) per month, (ii) non decreasing salary, (iii) profit sharing, (iv) maternity and paternity leave and license, (v) right to strike, (vi) overtime compensation, (vii) risk, night and transference premium, (viii) accident insurance, (ix) family and educational allowance, and (x) transportation and food pass, we present below a brief description of the main and most important rights granted to the employees by the Brazilian Federal Constitution and by the CLT.

5.1 SALARY AND REMUNERATION

Any individual rendering any kind of service, under Brazilian law, is entitled to compensation (wage or salary), which may include in addition to the monetary value in Brazilian currency, food, housing, clothing and any other benefits the company provides habitually to employees by express or tacit agreement, and may be paid monthly, fortnightly, weekly or even per piece or task, depending on the conditions established for the hiring. The wage paid to an employee may never be less than the minimum wage or than the lowest wage level (piso salarial) established in the collective bargaining for each professional category.

5.2 HEALTH HAZARD ALLOWANCE AND RISK PREMIUM

In the case of employment in activities considered by law to be hazardous, the employer will pay an additional monthly allowance for the hazardous conditions. Such allowance will be equivalent to 10%, 20% or 40% of the minimum wage, depending on the hazard degree. In the case of dangerous activities, such as those involving contact with explosives or flammable materials, the employer shall pay an additional payment in compensation for the risks involved at the rate of 30% of the employee’s salary.

5.3 13TH SALARY (CHRISTMAS BONUS)

The employees have a right to a an additional salary bonus every year, which will be paid by the employer in December of each year, corresponding to the highest compensation paid to the employee during the year. When taking a vacation, the employee may request a proportional advance on such bonus.

5.4 WEEKLY REMUNERATED REST PERIOD

All employees have a right to, at least, one-day’s remunerated rest period, which should preferably fall on a Sunday. Payment of the weekly-remunerated rest period will already be included in the monthly salary.

5.5 VACATIONS

Every employee, who has not been absent from work more than five unjustified times during the period of one year’s service with the same company, is entitled to 30 calendar days’ vacation and the salary in relation to the vacation period must be paid at the latest 2 (two) days before the start of the vacation period.

5.6 UNEMPLOYMENT GUARANTEE FUNDFGTS

Law 5107/66 instituted the Unemployment Guarantee Fund – FGTS, a welfare mechanism devised as an alternative to the tenure system then in effect. Nowadays it has become compulsory.

Under the FGTS system, every month the employer deposits the equivalent of 8% plus 0,5% as a social contribution of each employee’s compensation for the previous month in a blocked bank account in the name of the employee.

An employee unfairly dismissed under the FGTS system is entitled to withdraw the FGTS deposit, together with interest, monetary correction and a further 40% figured on the total plus the 10% of the especial contribution. Collective bargaining can provide for an additional indemnity.

5.7 WORKDAY

For employees working in private firms, the maximum work day is eight hours; the maximum work week, 44 hours.

Work performed beyond these time limits is considered overtime. Up to two hours’ overtime a day may be rendered upon written agreement between employer and employee, or a collective bargaining. The minimum compensation for overtime is 50% higher than the normal hourly rate. Overtime payments do not apply to employees in positions, of trust, such as management.

Night work is work performed between 10 p.m. and 5 a.m., and must be compensated at least 20% more than the daily working hour.

5.8 SOCIAL SECURITY

Under Brazilian social security law, every employee must necessarily be covered by social security insurance. Social security in Brazil is made up of monthly contributions by employees, employers and the Government. These payments entitle the employee to receive social security benefits.

Decree 89312 of January 23, 1984 governs all social security benefits in Brazil. It sets out the various types of retirement pensions: disability, retirement, special and for length of service.

The employer is obliged to take out work accident insurance for its employees from the Brazilian Social Security Institute – INSS. The cost of this insurance is fixed by the Ministry of Labor and Social Security. Directors and partners of firms who are not employees, self-employed workers, and domestic servants are not covered by work accident insurance legislation.

Azevedo Sette Advogados


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