Brazil: Unconstitutionality Of The Thirty-Year Statute Of Limitations Applied To The Guarantee Fund For Length Of Service (FGTS) Declared By The Brazilian Supreme Court

The Guarantee Fund for Length of Service (FGTS) is a legal and constitutional right that aims to protect the Brazilian employees in case they are terminated without cause by their employers. It can also be used by the employees in the future in case of retirement for length of service.

Until a recent judgment passed by the Supreme Court of Brazil, any employee who intended to take any FGTS-related issue to court could do it within thirty years, as this was the statute of limitations acknowledged by the nonconstitutional legislation and by the judicial decisions.

Justice Gilmar Mendes, of the Brazilian Supreme Court, recently acknowledged the "unconstitutionality of article 23, par. 5, of Law 8036/1990, and article 55 of the FGTS Regulation approved by Decree 99684/1990, where they establish the "privilege of the FGTS to the thirty-year statute of limitations". According to such judgment, the legal rules in force violate the Brazilian Federal Constitution, especially its art. 7, XXIX." (Lawsuit ARE 709212/DF)

In short, the logical path taken by the Supreme Court to recognize the unconstitutionality was: (i) due to the existing discussions prior to the Constitution of 1988, part of the opinion of jurists found that the FGTS had social security nature, and therefore a thirty-year statute of limitations would apply to it, as provided for in article 144 of Law 3807/60; (ii) the doubt about the legal nature of the FGTS was resolved with the rule of article 7, III, of the Brazilian Federal Constitution, which expressly established that the Fund was a right for city and rural employees, therefore it was an independent right resulting from the work relationship; (iii) as to the legal nature of the FGTS, the current decisions of the Federal Supreme Court are in line with the provisions of the Federal Constitution of 1988; (iv) however, the judicial decisions were not in line with the constitutional provision that establishes the five-year limitation period to file the action, until the limit of two years.

In the opinion of Justice Gilmar Mendes, after the Brazilian Federal Constitution was enacted in 1988, there is no reason for acknowledging the thirty-year statute of limitations.

As it is known, the mere amendment to a law may render outdated several opinion of jurists and constructions that the judicial decisions consolidate over time.

However, when a piece of legislation is amended, often the Precedents, usually described as the crystallization of the prevailing judicial decisions, do not keep up with it.

An analysis of the origin of Precedent 362 of the Superior Labor Court (TST), which supported the application of the thirty-year statute of limitations, shows that it really did not keep up with the changes in the legislation, to the extent that it had incorporated another Precedent amended in 1980 (Precedent 95 of the TST - Original wording - RA 44/1980, Court Gazette (DJ) of 5/15/1980).

Therefore, the portion of Precedent 362 of the TST on the thirty-year statute of limitations arises from a Precedent of 1980, way before the Constitution in force. On the other hand, considering the great majority of decisions that gave rise to Precedent 362, which supported the application of the thirty-year statute of limitations to actions seeking FGTS payment, only five of them were rendered after 1988.

And the constitutional issue was not specifically addressed in none of them -as correctly pointed out by the Brazilian Supreme Court; there is only reference to the then prevailing opinion of courts, in a nonstandard procedure.

The basis of the Supreme Court's decision is the nature of the credit that the FGTS represents. It is a credit resulting from the work relationship between employee and employer, which is expressly provided for in article 7, XXIX, of the Brazilian Constitution of 1988, which already established the statute of limitations "of five years for city and rural workers, up to the limit of two years after the end of the employment agreement".

Thus, the nonconstitutional legislation and the judicial decisions could not establish a limitation period different from the one provided in such article 7, XXIX, of the Federal Constitution, under penalty of unconstitutionality, which was now expressly declared by the Supreme Court.

However, due to the understanding so far adopted by the Supreme Court and the Superior Labor Court on the limitation period (thirty years), in order to avoid damages to and instability in the existing legal relationships, the Brazilian Supreme Court suggested that the five- and two-year statutes of limitations only be applied to lawsuits brought after the decision that declared the unconstitutionality. It seems to us that this last issue will cause major conflicts for the Brazilian Justice.

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.