Brazil's Supreme Court ("STF") issued on 13 November 2014 a decision which triggered a profound change in the current statute of limitations for the collection of deposits due under the Government Severance Indemnity Fund ("FGTS") system.
The STF declared that the 30-year statute of limitations for the recovery of FTGS amounts, by employees or public authorities, is unconstitutional and reduced the term to only 5 years for all cases going forward.
The STF argued that the new Brazilian Federal Constitution of 1988 classified the FGTS as a social and labor right which is placed in the same roster of other rights and guarantees of urban and rural workers.
When recognizing the labor nature of the referred allowance, the STF stated that the same statute of limitations of all other labor entitlements must be observed, namely those set forth by Section 7th, item XXIX of the Brazilian Federal Constitution, which is of five years, and lawsuit must be filed within two years as from the termination of the employment contract.
Considering the potential consequences of the judgment, the STF determined that this new understanding will not have retroactive effect and will not apply to situations existing before the date of the decision (13 November 2014).
Thus, for the cases where the initial term of statute of limitations (i.e. the date on which a violation to FGTS rights occurred) occurs after 13 November 2014, the new rules apply immediately, causing the right to file a lawsuit to be partially time-barred within five (5) years as from the judgment.
However, for the cases in which a violation occurred before 13 November 2014 and where the statute of limitations is already in progress, it will be applied whichever occurs first i.e. the 30-year period – counted as from the statute of limitations' initial term – or five (5) years as from 13 November 2014.
In practical terms, if an employee with an employment contract in force has outstanding or irregular FGTS deposits since 1994, as per the old provision ruling the FGTS statute of limitations, outstanding credits could be fully covered by a lawsuit filed until 2024, being progressively time-barred to the extent another day/month/year passes until the effective filing date.
However, as from the 13 November 2014 decision of the STF, the deadline to claim for the full receipt of such deposits (or differences in the deposits made) will be possible only until 2019 since, in this case, the 5-year statute of limitations occurs before the (old) 30-years term.
In contrast, if the employee has shortfalls of FGTS rights in 1987, for example, he/she has under the new rule only until 2017 to file a claim to receive the credit, since the 30-year statute of limitations will expire before the 5-year term.
Note that in all of the above scenarios, the rule of the 2-year statute of limitations to file a lawsuit – counted as from the termination of employment relationship – will still apply.
We expect that many queries will arise from the change in the rules regarding the FGTS statute of limitations since the decision appears to be stating that the statute of limitations will be used as criteria for fixing the deadline to file a lawsuit, under penalty of full exclusion of the right to claim for outstanding amounts – the so-called "full time-barring" provision.
This understanding is contrary, however, to what was being observed until the recent judgement, since the statute of limitations applied to FGTS had a "partial time-barring" nature, allowing the interested claimant to plead for the recovery of at least part of his/her rights.
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