Brazil: Employment Rules And Regulations In Brazil - An Overview

1. GENERAL ASPECTS

Employment and labor practices in Brazil are basically governed by the Constitution, the Consolidation of Labor Laws and collective labor agreements.

Brazilian labor legislation is deemed of public order and the rights granted by the same may not, as a general rule, be waived by an employee or denied by the employer. As a result, any rights contractually granted by an employer to an employee (or which result from the employer's general practice) are in addition to those already provided for by Law.

Under Brazilian law, there are three types of workers: the employee, the self-employed and the freelance worker. They are all generically referred as "workers".

An employment relationship is established whenever the following elements are present: subordination, exclusivity and regularity of personal services rendered by an individual to another individual or company in return of a wage. Brazilian and foreign employees alike must bear an annotation as to such employment status in their Work and Social Security Record ('CTPS').

The employment may be contracted orally or in writing. In Brazil, however, employment contracts in writing are usually adopted as a legal guarantee. Trial employment contracts in writing are mandatory.

An employment contract may establish whether the period of employment is definite or indefinite. A contract for an indefinite period is one in which the parties do not stipulate any termination date. The great majority of the employment contracts in Brazil is of this type.

A contract for an indefinite term can only be broken upon prior notice to the other party. failure by the employer to do so, without the presence of any of the legally recognized grounds for dismissal (which we shall call "justified causes") entitles the employee to certain rights for breach of contract (see item '3' below). No indemnity is payable to an employee on termination of his/her employment after expiration of a fixed-term contract. But if the employee is unfairly dismissed during the course of the contract, he/she is entitled to an indemnity of half of the salary due to him/her for the unexpired portion of the contract. On the other hand, if it is the employee who rescinds the contract, he/she is liable to indemnify the employer for any loss resulting from this breach of contract.

According to Brazilian law, employment contracts may be terminated if the employer has justified cause. Below are the cases which may give rise to termination of employment by a justified cause:

  • any dishonest act;
  • lack of self-restraint or misconduct;
  • the employee's doing regular business on his/her own account or on behalf of third parties without the employer's consent, or whenever there is a conflict of interest between any such activities and those of the employer to the detriment of the latter;
  • the employee's criminal prosecution in final judgment, provided that the penalty has not been pardoned;
  • sloth in the employee's performance of his/her duties;
  • regular intoxication, or intoxication during working hours;
  • violation of trade secrets;
  • any act of indiscipline or insubordination;
  • abandonment of employment;
  • any act detrimental to the honor or reputation of any person, practiced during working hours, as well as physical violence practiced under the same conditions, except in case of self- or third-party defense;
  • any acts detrimental to the honor or reputation of the employer or ranking superiors, or physical violence against them, except in the case of self- or third-party defense; and
  • constant gambling.

In these cases no indemnity is payable to the employee upon termination of his/her employment contract, but the employer has the burden of proof as to any of the legal situations above.

2.EMPLOYER'S PAYROLL COSTS IN BRAZIL

2.1.Salaries

In addition to the amounts paid to employees as a salary, any other amounts paid on a regular basis are, for all legal purposes, considered as part of the employee's salary and are, in general, taken into account, at the time of payment, among others, of vacation remuneration, 13th salary and unemployment compensation Fund - 'FGTS', as well as severance payments.

Monthly salaries may not be lower than the minimum amount established by applicable legislation. presently the "minimum salary" is equivalent to approximately US$ 112.00 (one hundred and twelve U.S. Dollars). Some specific activities have minimum salary amounts agreed with the respective Unions.

A Brazilian worker may not be paid a lower wage than a foreign worker for performing the same work, except in certain special circumstances established by law.

2.2.Vacation Remuneration

After a period of 12 (twelve) months, employees are entitled to a paid annual vacation of 30 (thirty) continuous days which must be taken within the subsequent 12 (twelve) months and remunerated at an amount equivalent to 1 (one) month and 1/3rd (a third) of his/her salary. In the event the legal period to take a vacation has already expired, then the employer must pay the employee in double.

2.3.13th Salary (Christmas Bonus)

At the end of each year, employers must pay employees an annual bonus equivalent to 1 (one) month's salary.

2.4.Overtime

Normal working hours should not exceed 8 (eight) hours per day and 44 (forty-four) hours per week. This 44-hour workweek applies to any employee, with such exceptions as bank clerks, telephone operators and so forth, who are subject to different workweeks pursuant to specific regulations.

Time worked in excess of the above is treated as overtime. In general, compensation for overtime work is at least 50% (fifty percent) above compensation for normal working hours.

2.5.Night Shift Additional Payment

Employees that work between 10:00 p.m. and 5:00 a.m. are entitled to night work additional payment, which corresponds to an increase of, at least, 20% (twenty percent) of the daily working hour.

2.6.FGTS (Unemployment Compensation Fund)

Under the 'FGTS' system, employers must deposit monthly, on employees' behalf, in a blocked bank account, an amount equivalent to 8% (eight percent) of the remuneration of each employee. The 8% (eight percent) unemployment Compensation Fund is borne by the employer, without any discount on the employee's salary.

2.7.Social Security

Companies must pay to the governmental social security institution ('INSS'), an amount equivalent to 20% (twenty percent) of the total payroll (monthly remuneration paid to employees and third parties rendering services to the company).

2.8.Insurance Against Labor Accidents

Payment of insurance by employers against labor accidents is normally due at rates which vary from 1% (one percent) to 3.0% (three percent) of the total remuneration paid to employees, depending on the 'degree of risk' presented by the type of activity of the company.

2.9.Education-Salary

Employers are also required to pay to the 'INSS' a monthly education-salary equivalent to 2.5% (two point five percent) of the total remuneration paid to employees.

2.10.Other Additional Payments

  • payments contractually agreed upon between employer and employee;
  • additional remuneration due to employee for unhealthy and dangerous activities;
  • transportation vouchers;
  • weekend and vacation remuneration;
  • remunerated absence (sickness, paternity-leave, marriage, military service and electoral service enrollment, etc.);
  • labor union fees;
  • payment to specific institutions ('INCRA', 'SESC', 'SESI', 'SEBRAE') etc.

The 1988 Brazilian Constitution substantially increased employees' rights. Some studies indicate that labor legal duties and charges increase a company's payroll costs by between 60% (sixty) to 100% (one hundred percent), depending on the company's specific activities and applicable labor Union Agreements.

3.SEVERANCE PAYMENTS

These payments are due to employees upon termination by the employer of a labor relationship without a justified cause:

3.1.Prior Notice

A thirty-day prior notice must be given in writing in the event an employee is dismissed without justified cause, or upon resignation by the employee. if employment is terminated without such notice by the employer, the latter must pay the employee a fine corresponding to 1 (one) month's salary.

3.2.FGTS

An employee unfairly dismissed under the 'FGTS' system is entitled to withdraw the 'FGTS' deposits, together with interest, monetary correction and a further 40% (forty percent) figured on the total. Collective labor agreements can provide for an additional indemnity.

3.3.Vacation

Upon termination of an employment contract, employees are entitled to payment of past due annual vacations which are pending settlement. In the event the legal period to enjoy vacation has already expired, the employer must compensate employee in double.

Employee shall also be entitled to payment of "proportional vacation" corresponding to the year of termination, equivalent to 1/12th of his monthly salary for each month worked until the termination of the employment contract, plus 1/3rd of that amount.

3.4.Proportional 13th Salary (Christmas Bonus)

Upon termination of the employment contract, payment of the 13th salary (Christmas Bonus) referred to in item 2.3., above, is due proportionately to the number of months worked.

3.5.Salary Balance

The Balance of salary for the days worked but not paid until the dismissal day must also be settled, including any additional amounts required by Brazilian labor laws, such as overtime worked or any compensation paid to employee on a regular basis or contractually agreed upon.

In addition, employees are also entitled to indemnification equivalent to 1 (one) month's salary, in the event of a dismissal 30 (thirty) days prior to the date of the annual salary readjustment.

4.GENERAL INFORMATION REGARDING PAYMENTS ABROAD AND FOREIGN EMPLOYEES IN BRAZIL

The Brazilian Superior Labor Court issued an ordinance declaring that labor relationships are ruled by the laws in force where the services are rendered and not by the laws of the place where they were contracted.

Consequently, foreign employees working in Brazil are entitled to the rights granted by Brazilian laws as well as to any rights contractually agreed with the employer abroad or which derive from employers regular practices or from laws of the Country of the employer, if applicable.

Further, any additional amounts paid abroad, in foreign currency, on a regular basis are, for all legal purposes, also considered part of an employees' salary and must therefore be taken into account by the employer when effecting regular payments which take the employees' salary as the basis for calculation. The same principle applies to settlement of the severance payments mentioned above.

A foreigner may only exercise remunerated activities in Brazil if he/she holds the appropriate temporary or permanent visa.

Like many other countries, Brazil has taken steps to preserve the job opportunities of its citizens, by means of the principle of proportionality, under which all commercial, industrial and other enterprises with more than three employees are obliged to employ Brazilians in the proportion of at least 2/3 (two thirds) of their total personnel. The same rule applies to the total remuneration. This proportion may only be reduced by government decree.

Finally, specific rules apply to foreign technicians resident abroad hired on a temporary basis to render specialized services. In addition to any benefits contractually agreed upon, such foreign technicians are restricted to a minimum salary, weekly rest, annual vacation, standard working hours, and social security.

5.LABOR CLAIMS - STATUTE OF LIMITATION

Since the enactment of the 1988 Constitution, an employee has two years after termination of his/her employment relationship to sue his/her former employer for credits related to the terminated contract. Any such claims, however, can only refer to the last five years of the underlying employment relationship, whereas the preceding years will be time-barred.

6.SUCCESSION

Pursuant to Brazilian labor laws, a company's succession applies in the event of A merger, transformation or amalgamation, or upon the sale of one of its establishments. The succession criterion will also apply to a change in a company's name.

The employees' working conditions are fully protected and must remain unchanged for succession purposes. The Consolidation of Labor Laws expressly provide that any change in a company's name or legal nature does not affect the existing employment relationship.

The purchaser assumes all of the seller's obligations, for the company itself is held directly liable for any such obligations. The purchaser's right of recourse against the seller may be set forth in a private instrument entered into between them, but this will not, in any way, affect the purchaser's liability for past or future claims.

7.JOINT LIABILITY - GROUP OF COMPANIES

Also pursuant to Brazilian law, companies within the same economic group are jointly liable for each of their labor obligations as regards their employees. In these cases, an employee's labor credit may be paid by another company in the same group, even if this employee has never worked for the payer

The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.

For more information please contact us.

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