Brazil: Superior Labor Court Defines The IPCA Index As The Index For Monetary Correction Of Labor Credits

The Full Session of the Superior Labor Court (TST), ruling on an ancillary proceeding of unconstitutionality, unanimously decided that credits resulted from labor claims should be updated/adjusted according to the inflation, adopting the index of the Consumer Price (IPCA-E) and not the Reference Rate (TR).

This decision follows the understanding of the Supreme Federal Court (STF), which recognized as unconstitutional the use of the TR as a monetary correction index and determined that the IPCA-E is the index that reflects the inflation and maintains the value of the currency, thus, rebuilding, equity that may have been affected.

The effects of the TST's decision shall prevail since June 30, 2009, the date on which the provision that was declared unconstitutional by the STF (Article 1-F of Law 9,494/1997, introduced by Law 11,960/2009) entered into effect. The change of the index, however, does not apply to consolidated legal situations resulting from payments made in judicial proceedings which are in progress or have been extinguished by the performance or accomplishment of the obligation, albeit partially.

This decision will certainly bring a huge impact to the companies that have outstanding debts before the labor courts, particularly if we consider that the accumulated IPCA-E index from the period of June 2009 to date was of approximately 38.43%, whereas the accumulated TR index for the same period was only 3.61%.

Consequently, we suggest that companies with outstanding debts before the labor courts should revise the amount of their contingencies/provisions, avoiding future problems with cash flow at the time of the payment of the amount due to the plaintiff.

TST's Jurisprudence Commission will define the changes that will be made, in particular on the cancellation or revision of the Court Precedent nº 300, of the SBDI-1, which currently regulates the subject.

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