Brazil: Change Of Employment Statute Of Limitations In Brazil

Last Updated: 16 December 2014
Article by Renato Canizares

A recent decision of the Brazilian Supreme Federal Court changed the court's current understanding of the statute of limitations on the Unemployment Guarantee Fund deposits, a mandatory right guaranteed to all employees in Brazil.

1. Understanding the Unemployment Guarantee Fund (known as "FGTS")

The Unemployment Guarantee Fund (known as "FGTS") was introduced in 1966 as an alternative for the previously existing tenure achieved after ten years of work. At that time, it represented a major step towards more flexible labor rights.

As of 1988, with the enactment of the latest Brazilian Federal Constitution, this system became mandatory to all employees, and the tenure achieved after ten years of work was eliminated (for those who did not have an acquired right to it at the time).

The FGTS consists in a blocked bank account opened in the name of any individual hired as an employee in Brazil; the employer makes monthly deposits into such bank account, in amounts equivalent to 8% of the employee's remuneration. This became a legal rule intended to grant an additional compensation for the workers, especially in cases of termination without cause.

In summary, the amounts deposited into such blocked account can be withdrawn by the employee (i) upon the termination without cause of his/her employment relationship on the company's initiative, (ii) after the employee remains three years off the FGTS system, that is, three years without being hired as a regular employee in Brazil; or (iii) upon expiration of an employment contract for a definite term.

However, there are some events provided for in the law that allow withdrawal of such amount before the employment is terminated. The main events are: (i) purchase of a real property by the account holder, (ii) retirement (even if the employee continues working), (iii) serious illness (AIDS, cancer, etc.), and (iv) proven public calamity involving the account holder's residence, and such calamity must be acknowledged by a Federal Government ordinance.

In cases of termination without cause on the employer's initiative, the company will be further required to deposit a fine equivalent to 50% of the balance in the employee's FGTS account, 40% of which will be paid to the terminated employee and 10% to the government.

2. Statute of Limitations in Brazil and new rules applied to the FGTS payments

Under the legislation in force, employees have up to 2 years after employment termination to file a lawsuit in court seeking payment of any amount they understand to be due. However, the employee may only claim payments due up to five years before the date such lawsuit is filed.

Exception to this rule was the FGTS amount, which could go up to 30 years back, due to a previous court understanding that it should be treated as having a "social security nature".

After having the subject questioned in court, the Brazilian Supreme Federal Court changed its previous understanding, and recognized that such payment is worthy of the same statute of limitations applicable to other labor rights, as provided in the Brazilian Federal Constitution. In other words, it can only be claimed for the 5 years preceeding the date a claim is filed.

To such extent, said decision determined that the following rules must be observed in cases of employees who want to claim in court FGTS payments they understand to be due:

  • FGTS deposits claimed in court, calculated based on labor amounts paid after the date of publication of the decision (December 1st, 2014) will be time-barred after five (5) years.
  • FGTS deposits claimed in court calculated based on labor amounts already paid to the employee up to December 1st, 2014 will be time-barred in the following situations, whichever is first: (a) 30 years from the date the deposit should have been made; or (b) 5 years from the decision, which happens before.

For instance: If on December 1st, 2014, 27 years have passed from the date the amount was due, then the employee would have 3 more years to claim such payments, otherwise the right to receive such amounts would be barred by the statute of limitations.

On the other hand, if on December 1st, 2014, 23 years have passed from the date the amount was due, then the employee would have up to December 1st, 2019 (5 years after the judgment) to claim such amounts. 

Such decision will represent a considerable change in the contingency evaluation of companies with FGTS debts towards its employees, as the time of exposure would be reduced in 25 years, depending on the case. 

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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