Brazil’s labor reform is being overhauled by the courts

. Jan 12, 2020
Brazil's labor reform is being overhauled by the courts Photo: Guilherme Cunha/Unsplash

Changes to Brazilian labor laws have been on the agenda ever since the beginning of the Michel Temer government in August 2016, after the contentious impeachment of Dilma Rousseff. In the past three and a half years, these rules have been altered to a greater or lesser extent, from the approval of sweeping labor reform in 2017, to the Economic Freedom Law of 2019, which increased flexibility for employers and gave more power to private contracts.

But the history of workers’ rights in Brazil begins in the 1930s, during the first term of President Getulio Vargas. It was then that the analysis of all labor protection rules began.

In 1943, with Vargas having established a dictatorship, the result of these debates on workers’ rights culminated in the so-called Consolidated Labor Laws (CLT), which unified all the rules concerning labor rights into a single document. According to President Vargas, the CLT represented the “economic emancipation of workers,” as the legislation was designed to protect employees at a time when their employers held excessive power. These rules largely remained in place until recently.

</p> <p>Returning to the 21st century, the idea of a broad labor reform faced a lot of resistance from public opinion and trade unions. However, with the worsening of the economic crisis, changes to legislation were reluctantly accepted under the promise that they would <a href="">bring employment along with them</a>.</p> <p>However, the fulfillment of this promise has been extremely slow. Up to September, Brazil created just over 700,000 jobs. The current <a href="">unemployment rate</a> is 11.8 percent, meaning 12.5 million Brazilians are out of work.</p> <p>Since its approval, the 2017 labor reform has been going through several changes and ratifications in the Judiciary. Many of these alterations take place outside of the law, as judges have often not complied with the legislation under the most diverse of arguments.</p> <p>But this can change. An indication of this was given by the new head of the Superior Labor Court, Judge Maria Cristina Peduzzi, in an interview with newspaper <a href=""><em>Folha de S.Paulo</em></a>. According to her, &#8220;if the law has been sanctioned, judges are bound to enforce it.&#8221; However, she admitted that there has been no uniformity in the rulings of labor courts.</p> <h2>Breaking the labor legislation</h2> <p>One of these noncompliances involves the limit of the amount of compensation for damages. While previously the figure was freely determined by the judges, the new labor law established that such redress must be calculated according to the worker&#8217;s salary. &#8220;For judges, this tariff would make a person who earns less, in theory, &#8216;less important&#8217; than those who earn more,&#8221; explains labor lawyer Julio Almeida.</p> <p>Until October of 2019, according to <a href="">Superior Labor Court data</a>, compensation for damages was the fourth-most recurrent claims, amounting to just over 85,000 lawsuits among the new cases and existing claims on the court&#8217;s backlog.</p> <p>The Brazilian courts have also not followed legislation with regard to the payment of labor remuneration, for example, holiday pay and end-of-year bonuses. While the law says these amounts should be adjusted for inflation by the so-called &#8220;Referential Rate,&#8221; the courts have used a different index, the IPCA-E.</p> <p>The Referential Rate is a monthly index created in the 1990s to serve as a reference for charging interest during high inflation periods. The idea was to deindex the economy and combat the dizzying rises in prices. The IPCA-E, on the other hand, is an index that accounts for prices charged for basic products, such as food, housing, clothing, transport, health, education, and communication.&nbsp;</p> <p>Brazilian judges have ignored the legal provision and continue to apply the IPCA-E, according to labor lawyer Priscila Schweter, on the grounds that the Referential Rate does not sufficiently adjust the amounts workers are due.</p> <p>The rules of free legal aid—an institute created by Brazilian law for those unable to pay for procedural costs—has also been disrespected. Before 2017, anyone who declared they could not pay for legal services was made exempt from fees, but that has changed.&nbsp;</p> <p>Now, the rule limits the award of free legal aid to those who receive a salary equivalent to up to 40 percent of the retirement ceiling—just over BRL 5,000—and who can effectively prove they cannot afford the costs in question. Even so, some judges, Ms. Schweter says, do not apply the law, stating that a simple declaration is sufficient to guarantee access to free legal aid.</p> <h2>Ratifications</h2> <p>The Brazilian judiciary is not only limited to changes, it is also called upon to assess the validity of any law passed by Congress. In the labor field, one of the main ratifications was that which confirmed the possibility of outsourcing the primary activity of any business.&nbsp;</p> <p>Information from the Superior Labor Court shows this is another issue that takes up a lot of the courts&#8217; time. In all, there are 72,000 cases pending before the tribunal discussing this model of hiring employees. Before the labor reform, outsourcing was only allowed for secondary activities. For instance, a media outlet could outsource its cleaning staff or IT team, but reporters and copy-editors would have to be directly employed.&nbsp;</p> <p>These contracts were governed by a precedent of the Superior Labor Court, which is a form of &#8220;legislation&#8221; created by members of high courts. However, in 2018, the Supreme Court decided that all activities of a company could be outsourced. In this scenario, the same media outlet mentioned above could now hire journalists as independent contractors. The court also ruled that outsourcing contracts dating prior to the labor reform should be considered lawful, as there was no law prohibiting the practice.&nbsp;</p> <p>&#8220;The justices understood that a binding precedent could not prohibit outsourcing, as it would challenge economic freedom and several constitutional principles, such as free enterprise and the right to work; in addition to respecting the separation of branches of power,&#8221; says labor lawyer Paula Santone.</p> <p>But the problem goes beyond the Judiciary. Mariana Machado Pedroso, a lawyer specialized in labor law, recalls that several of the government&#8217;s Provisional Decrees related to labor laws were left to expire, as they were not analyzed and approved by Congress.</p> <p>Ms. Pedroso used outsourcing as an example of this confusion: &#8220;Many decisions that recognized the employment relationship between contractors and companies that hired these services will be reformed because of these legislative gaps.&#8221;&nbsp;</p> <p>Amid so many changes and diffuse interpretations, what is certain is that Brazilian labor laws will undergo further changes. On the one hand, some issues—for example, the possibility of intermittent work contracts—still have no firm precedents and divide the opinion of judges.</p> <p>Meanwhile, there has also been a movement in Congress to bring back the mandatory payment of union dues, which was done away with by the 2017 reform.

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Brenno Grillo

Brenno has worked as a journalist since 2012, specializing in coverage related to law and the justice system. He has worked for O Estado de S. Paulo, Portal Brasil, ConJur, and has experience in political campaigns.

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