Practice: Labor and Human Resources
SPECIAL NEWSLETTER | LABOR LAW
Main Amendments Brought Forth by the Labor Reform
The main labor law rules in Brazil are defined in the Brazilian Constitution and in the Consolidated Labor Laws (CLT, Brazil´s Labor Code), in Collective Bargaining and Collective Labor Agreements, in individual employment contracts, in the rules established by the Ministry of Labor, in certain conventions of the International Labor Organization (ILO), as well as in other supplementary rules.
One of the fundamental pillars of Labor Law, both with respect to the material and procedural aspects, is the Principle of Employee Protection, which provides for the application of more favorable rules and conditions for the employee, since the employee is regarded as the weak party in the employment relationship, when compared to the employer.
However, on July 13, 2017, President Michel Temer sanctioned the Labor Reform approved by the Federal Senate on July 11, 2017, which will become effective within 120 days.
The wording of the Reform will amend several articles of the CLT and other rules that regulate employment relationships. Moreover, it regulates several specific issues that have not been provided for by law, but which had previously been legislated by the Labor Judiciary, by means of Precedents, Case Law and Court Guidance.
It is worth mentioning that the purpose of the Reform is to offer greater legal certainty to all parties subject to said laws, by ensuring minimum intervention of the Judiciary in the autonomy of individual and collective will, thus rendering more flexible the principle of employee protection. As a result, employees and employers have greater freedom to negotiate, and the Reform has also elevated collective bargaining agreements to acts of law.
In view of the foregoing, below are the main changes made to the labor laws.
· Employment Contract, Individual Agreement, Collective Bargaining and Collective Labor Agreements
I. Collective Bargaining and Collective Labor Agreements: Will prevail over statute with respect to certain rights, such as: annual bank of hours; rest period (in workdays); career plan, salaries and duties compatible with the employee´s personal condition, as well as the identification of positions that qualify as positions of trust; on-call regime; home office; change of holiday date; profit sharing plans (PSPs), etc.
Moreover, the Collective-Bargaining Agreement, a negotiation conducted between the employer or group of employers and the union representing the category of employees, will prevail over the Collective Labor Agreement (negotiation conducted between the unions representing employees and employers). Neither may not address matters set forth in the Constitution, such as the minimum salary, maximum of 44 hours of work per week, 13th salary, 30 days of annual vacations, retirement or the Employee Severance Indemnity Fund (FGTS).
II. Employment Contracts: Employment contracts now have legal effect and will prevail over the collective labor agreements whenever the employee has a secondary education degree and receives salary equal to or above twice the cap of the social security contribution salary (which is currently of BRL 5,531.31; hence, BRL 11,062.62). In such events, contracts may also include an arbitration clause, provided the employee expressly consents to such inclusion.
· Working Hours
I. 12X36 Hours: Such regime may be determined by means of individual employment contract, collective bargaining or collective labor agreement.
II. Part-Time Work: The part-time work regime has been changed from 25 hours per week to 30 hours per week, without the possibility of working overtime, or 26 hours per week, plus up to 5 extra hours per week.
III. Bank of Hours: Authorized implementation of bank of hours or working hour compensation by means of individual employment contracts, in compliance with the six-month period for the compensation thereof. Any compensation exceeding six months requires the execution of the collective bargaining or collective labor agreement. Any habitual overtime worked will not change the nature of the bank of hours or compensation of working hours.
IV. Commuting: The time the employee takes to arrive at work and to return home will not be calculated as working hours, even if the employer offers transportation.
V. Breaks and Rest Periods: Rest periods (in the workday) and meal breaks may be shortened, provided if so determined in the individual employment contract, collective bargaining or collective labor agreement. Such break must be of at least 30 minutes, and another 30 minutes may be deducted at the end of the workday. Failure to provide the meal break will result in the payment of the suppressed period, plus 50% increase on the regular hour rate. The 15-minute break previously offered to women prior to the commencement of the workday has been revoked
VI. Effective Service: The period during which the employee freely and at will choses to remain at the company to perform private activities will not be deemed overtime, such as: to study, eat, for entertainment, personal hygiene or in the event of lack of security on the streets or bad weather conditions, even if exceeding the 5-minute limit from the employee´s entry or leave time.
I. Premiums: Any sums paid as premium, allowance, food allowance (assuming it is not paid in cash), travel allowances or bonuses, even if regular, are not part of the employee´s compensation and are not included in the employment contract.
II. Equal Pay: In order to claim equal pay, the employee seeking equalization must have equal productivity and the same technical perfection as the paradigm employee. Furthermore, the difference in the time of service for the same employer that may not exceed four years, and not exceed two years in the same function. Equal pay may not be claimed for remote paradigms. No equal pay will be typified if the company´s staff is organized according to a career and salary plan. No approval by the Ministry of Labor is required.
· Annual Leave (Vacation)
I. Different Vacation Periods: The mandatory 30-day annual leave (vacation period) may be divided into up to 3 periods, as long as the employee agrees, and one of the periods must be of at least 14 consecutive days, and the other periods must be of at least 5 consecutive days each. Additionally, the vacation period may not begin on the period of two days preceding holidays or the paid weekly rest period.
· Unhealthy Work
I. Pregnant or Breastfeeding Employees: Pregnant or breastfeeding employees may work at low or medium-risk sites, provided there is no risk for the baby (to be proven by medical report). Breastfeeding employees may work at unhealthy sites of any risk level, also provided there is no risk for the baby.
· Annual Release of Obligations
I. Term of Release: Upon employee´s consent, employer may annually obtain release of all obligations arising out of the employment contract, provided this is done before the union and upon the drafting of a term of release expressly confirming that all the dues were paid.
· Termination of the Employment Contract
I. Termination upon Mutual Agreement: Possibility to terminate the employment contract upon mutual agreement between the employer and employee, when the employer must fully pay the severance payments, except for the prior notice and fine applicable on the FGTS balance, which must be paid by half, and the employee will be entitled to use the FGTS account, and may withdraw up to 80% of the deposited amount. In such event, the employee loses the right to Unemployment Insurance.
II. Need for Ratification: The ratification of the termination of the employment contract no longer requires assistance by a union or the Ministry of Labor.
· Employee Termination
I. New Modality for Termination With Cause: One more modality of termination with cause has been included, in addition to the events provided for in Article 482 of the CLT, relative to the loss of the ability or the necessary requirements provided for by law to perform the professional activity. Such loss must take place as a result of any conduct intentionally practiced by the employee, which prevents such employee from performing his/her duties, as is the case of the loss of license to practice law or medicine, or even the loss of one´s driver license, for cargo drivers.
II. Termination Without Cause: No prior consent of the union or execution of Collective-Bargaining Agreement is necessary to render effective multiple or mass terminations without cause.
III. Voluntary Dismissal Plan: The voluntary dismissal plan provided for in the Collective Labor or Collective-Bargaining Agreement, for individual, multiple or mass terminations, will result in the full and irrevocable release of the rights resulting from the employment relationship, except if otherwise agreed to by the parties.
· Employee Representation
I. Internal Representation: Mandatory organization of the employee committee for companies with more than 200 employees.
II. Union Dues: The employee does not have to pay annual union dues to the relevant union. The employer may only make the deduction relative to the union dues upon the employee´s previous and express consent.
· Non-pecuniary Losses
I. Concept: Inspired by Civil law and to be regulated under Labor Law, non-pecuniary losses consists in any violation of reputation, honor, intimacy, sexuality, leisure and physical integrity. Such loss may be either mental or emotional.
II. Damages Awarded: Pain and suffering or emotional distress is now limited, based on the calculation of the last contractual salary of the employee who suffered the distress, at the following proportion: light offense – up to three times the relevant salary; medium offense – up to five times the relevant salary; serious offense – up to twenty times the relevant salary; and very serious offense – up to fifty times the relevant salary.
· New Work Modalities
I. Intermittent Work: The intermittent work modality has now been regulated, which consist in services provided at irregular intervals, not continuously. In other words, the employee provides services and, immediately thereafter, has a period of inactivity (in hours, days or months). Such modality must be expressly provided for in the employment contract, including the relevant hourly rate, which may not be lower than the hourly rate of the minimum salary, or the rate due to the other company employees performing the same function, under intermittent contracts or otherwise.
II. Independent Workers: Possibility to hire independent workers, irrespective of the exclusivity, which may be continuous or otherwise, without requiring any classification thereof as employee, provided all legal formalities have been met.
III. Remote Work or Home Office: The remote work or home office modality has been regulated, whereby employees work outside the company´s facilities. In order to do so, the individual employment contract must expressly set forth the regime, the activities that must be performed, as well as determine which party will be liable for the purchase, maintenance, supply and reimbursement of the material necessary to perform the work. It is necessary to execute a term about the occupational health and safety instructions.
· Employer´s Liability
I. Business Group: Joint and several liability of the companies of the same business group has been maintained. However, in order to characterize such liability, it is necessary to demonstrate an effective communion of interests and the joint performance of activities of the companies that are part of the group. Merely having the same partners/members no longer suffices.
II. Resigning Partner/Shareholder: Resigning partners/shareholders will be secondarily liable for labor obligations arising out of the company in which they were partners/shareholders. In other words, such persons will only be liable upon depletion of all of the resources of the debtor company and current partners/shareholders. Liability is limited to a two-year term from the registration of the relevant withdraw. In the event of proven fraud, liability will be joint and several.
III. Business Succession: Previously regulated by means of court precedents, both companies involved in the succession were jointly and severally liable for labor debts. Under the Reform, liability now falls only on the successor, including when the employee used to provide services to the succeeded company. However, if any fraud in the employee transfer is determined, both companies will be jointly and severally liable for such fraud.
IV. Employer´s Duties: The employer that does not adequately register its employees will be subject to the payment of fine in the amount of BRL 3,000.00 per non-registered employee, increased by the same sum in the event of recurrence. The fine applicable to micro and small businesses is of BRL 800.00.
· Procedural Amendments
I. New Type of Proceeding: The Reform has implemented the voluntary jurisdiction proceeding to ratify out-of-court settlements. As such, the parties, duly represented by their counsel, may jointly file a petition with the terms of the settlement and motion for court ratification.
II. Statute of Limitations: In addition to the two-year and five-year statute of limitations, the intervening limitation of action has been introduced in labor proceedings. If, during the execution phase, the employee fails to comply with the court orders and remains inert for a two-year period from the last court order, then the action will be deemed time-barred and the case will be dismissed.
III. Precedents: Thanks to the new wording, the Superior Labor Court (TST) and the Regional Labor Courts of Appeals (TRTs) may not establish precedents restricting rights provided for or create obligations that are not provided for by law. The Precedents may only clarify any provisions set forth by law.
IV. Terms: Labor Court terms will be counted in business days, excluding the first day and including the expiration/maturity day.
V. Appeals: The judicial deposit to appeal may be replaced by a bank letter of guarantee or a performance bond. Moreover, the amount of the deposit may be reduced in half for domestic employers, not-for-profits, microbusinesses and micro-entrepreneurs. Companies in court-supervised reorganization and philanthropic entities are exempted from such requirement.
VI. Parties´ Attendance at the Hearings: The representative present at the labor hearing will not have to be a company employee. Moreover, if the employee is absent at the hearing, the employee will be ordered to pay the court costs, except if such absence took place with cause/reason.
VII. Attorneys´ Fees: Except for the beneficiaries of free legal aid, all plaintiffs or defendants in Labor Courts will pay for the attorney´s fees in the event of defeat, to be determined by the Court, and which may range from 5% to 15% of the amount of the net award.
VIII. Free Legal Aid: Such benefit will be extended only when the party proves, in the record, to have insufficient funds to pay for the court costs.
IX. Liability for Procedural Losses: The party may be ordered to the payment of fine for malicious litigation, ranging from 1% to 10% of the amount in dispute, adjusted for inflation. Additionally, the losing party must bear with all the attorneys´ fees and all expenses incurred in the proceeding, such as with expert evidence.
X. Enforcement: Unlike currently determined by the CLT, the spontaneous enforcement by the Court or Courts of Appeals may only take place when the parties have not been duly advised by lawyers. It is otherwise necessary to wait for the creditor´s request to promote the relevant enforcement. Additionally, an eight-day term for the parties to challenge the Court-ratified calculations is now necessary.
XI. Piercing of the Corporate Veil: The procedure provided for in the Brazilian Code of Civil Procedure will be used in the event of piercing of the corporate veil in the Labor Courts.
Initially, Law 13,429/2017 was sanctioned on March 31, 2017, having amended Law 6,019/74, which refers to the outsourcing of temporary employees, to then introduce, in the legal wording, the possibility of engaging temporary workers to perform any activity in the company, including relative to the company´s core activity, without typifying employment relationship. Additionally, the law now authorizes the outsourcing of certain and specific services.
The Labor Reform (Law 13,467/17) has amended the wording of such Law (6,019/74). Now it especially provides for the engagement of outsourced employees to perform any type of activity, including the company´s core activity. Additionally, employees of the outsourced company acquire certain rights, such as:
I. Benefits provided for the employees of the contracting company, such as food, transport, medical assistance, training and occupational health and safety protection measures;
II. If the contracting company and the outsourced company thus determine, the employee will be entitled to salary equivalent to the salary paid to the contracting company´s employees.
Finally, the new wording determines that employees dismissed by the contracting company may not provide services to such company as an outsourced employee for eighteen months following termination of the relevant employment contract.
Though sanctioned by the President of Brazil, and considering the Reform has brought forth significant and material changes to employment relationships, and also given the protectionist nature of the Labor Courts, we believe the wording thereof will still be subject to intense debate at the Higher Courts, since institutions such as the Labor Prosecution Office have already expressed their interest in filing constitutionality challenges.
As such, it is necessary to be very careful and to seek assistance from counsel prior to the implementation of any measure, given the current political-legal instability.
Please feel free to contact us should you need further clarification.
Castro, Barros, Sobral, Gomes Advogados