Brazil: Outsourcing In Brazil: Impacts Of A Possible Legal Regulation

Nowadays there is no legal definition or regulation about the outsourcing in Brazil. The only regulation about this issue is made by the labor courts.

The guide of this regulation is Precedent No. 331 of the Superior Labor Court:

"SERVICES AGREEMENT. VALIDITY.

I – The hiring of workers by an intermediary company is unlawful, and, as a result, a direct employment relationship is established with the services client, except in the case of temporary work. (Law 6.019 of 03/Jan/74)

II – The irregular hiring of a worker through an intermediary company does not generate an employment relationship with the direct and indirect public administration agencies and foundations. (art. 37, II, of the 1988 Federal Constitution)

III – The hiring of surveillance services does not establish an employment relationship with the services client (Law 7.102, of 20/Jun/83); this is valid also for conservation and cleaning services as well as for specialized services linked to the non-core activities of the services client, provided that the elements of personal (intuitu personae) character and the direct subordination are absent.

IV – The default on labor obligations by the employer entails the services client's subsidiary liability for those obligations, provided that they have taken part in a procedural relationship and are also included in a judicially enforceable debt instrument.

V- Direct and Indirect Public administration agencies have a subsidiary liability, at the same conditions as item IV above, if it is evidenced its guilty conduct at the fulfillment of the obligations set in law 8.666, from June 21, 1993, especially at the inspection of the fulfillment of such contractual and legal obligations of the services' provider as employer. Mentioned responsibility does not result from the mere lack of fulfillment of labor obligations assumed by the company regularly contracted.

VI – The subsidiary liability of the services' client comprises all the labor payments resulting from condemnation, related to the period of the services' provision to it."

The precedent transcribed above presents the three primordial aspects in the current discussion about outsourcing in Brazil:

  • Nullity of the outsourcing of core-activities, resulting in acknowledgement of an employment relationship between the contracting company and the services renderer;
  • Acknowledgement of employment relationship between the contracting company and the services renderer in case it is verified the elements of an employment relationship (services provided on a personal and continuous basis, against payment and involving subordination); and
  • Subsidiary liability of the contracting company, in case of non-compliance of labor and social security obligations by the contracted company.

Notwithstanding the precedent dispositions, there is no definition of what would be core and non-core activities of a company. Thus, the concept is created by the courts in a case-by-case analysis, what brings insecurity to the employers, further considering the militant stance against outsourcing that most labor courts have.

The scenario explained above will be extremely modified in case the Legislative Bill 4330/04 - which intends to regulate the outsourcing in Brazil - is turned into law, in the terms of the current "clean bill", under way at Brazilian Congress.

The first important change intended by the bill is the possibility to outsource any activity of the company. The target of the bill is the technical specialization of the hired company.

In this sense, there would be no relevancy anymore in the concept of core and non-core activity.

However, some formalities would be required to verify the contracted company's specialization, such as sole corporate purpose; which means that the analysis would be focused on the contracted company and not on the contracting company anymore.

Further, the bill intends to create some formalities that will be mandatory in an outsourcing agreement - for instance, guarantee clauses and mandatory documents to be presented by contracted company -, so checking these formalities would become some important issue for the companies.

Other important issue that would be changed is regarding the contracting company's liability. According to the terms of the bill, contracting company's liability is subsidiary, if the contracting company proves an effective surveillance of the compliance with these obligations by the contracted company; and joint liability if this surveillance is not proven. How the surveillance shall be made is also provided for in the bill, which establishes some documents that shall be monthly (if applicable) required by the contracting company.

Thus, a measure that currently is only a best practice recommendation, would become an obligation.

Regarding the acknowledgement of an employment agreement directly with the services renderer, it can still be acknowledged in case the elements of employment relationship - mainly the subordination - are verified.

Bill 4330/04 is under way at the Brazilian Congress since year 2004, when it was proposed by Congressman Sandro Mabel. After several changes to the original text, the Clean Bill proposed by Congressman Arthur Maia is ready to be voted by the Congress, although there is no scheduled date for this yet.

Even though there is no assurance that the bill will be approved - and if approved, there is also no assurance that the text will be the same - in case the project is turned into a law, important changes will occur regarding services rendering in Brazil.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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