Labor Law Reform
On July 13, 2017, Law No. 13.467 called the Labor Reform (“Reform”) was enacted and entered into force on November 11, 2017, substantially altering certain provisions of the Consolidation of Labor Laws (“CLT”) dated of May 1, 1943.
This summary aims at pointing out the main aspects of the Reform, with the additions arising from the Provisional Measure (“MP”) No. 808, dated November 14, 2017.
The MP, which has been in force since it was published will be the subject of review in the National Congress and may not be voted on within the period foreseen for its conversion into law, in which case it will cease to exist, but the effects produced in the period between its edition and its expiration shall be maintained. The MP may also complete, for now, the Reform.
An article by Almir Pazzianotto Pinto, lawyer, former minister of Labor, former president of the Superior Labor Court and former trade union lawyer, published in the newspaper “O Estado de São Paulo” on November 11, 2017, helps to understand the true scope of the Reform, which in his opinion would have the “… objective of repealing, altering and adding provisions to the Consolidation of Labor Laws“, but “The Reform limits itself to answer certain demands arising from the climate of legal uncertainty that characterizes individual and collective labor relations, one of the reasons for the de-industrialization and unemployment. ”
For many, the Reform is viewed as a real revolution, which may be an exaggeration. The CLT has not been revoked. “The nucleus of the CLT was not violated and resists intact,” recalls the former minister. However, it should be pointed out that the opinion on the depth and extent of the Reform is not unanimous, and a number of scholars attach substantial importance to it.
As an example, it should be remembered that certain principles present and relevant among labor law practitioners, such as the primacy of the “Reality Contract”, remain in force; the important “conversion of compulsory union contribution into voluntary”; the permanence and reiteration of the “subordination” element, treated as “legal subordination” in the PM, as the most important element for the characterization of the employment relationship, besides others.
In this sense, the former-minister warns: “To those in haste I recommend not to take it as a license for the return to voracious capitalism“, as well as “Do not ignore article 468, which declares illicit, agreements that cause direct or indirect damages to the employee“, and, lastly, that Article 9 of the CLT remains unchanged: “Acts committed for the purpose of distorting, preventing or defrauding the application of the provisions contained in this Consolidation shall be null and void“.
On the other hand, the Reform brings undeniable benefits to the work environment and to employers/employees relations and may represent the Labor Court’s loosening, with the sharp reduction in the number of labor claims filed, with the explicit provision of the burden of the defeated party for attorney’s fees, which may discourage frivolous labor claims.
Finally, this summary has the purpose of enumerating and clarifying some of the most relevant modifications of the CLT, without the expectation of covering all of them, but only to highlight those that deserve greater attention on the part of the companies, the employers and, why not, of the employees themselves.
I – THE CONCEPT OF ECONOMIC GROUP:
Under the new legislation, even if the company maintains its autonomy, not being under the direction, control or administration of another, it will be jointly and severally liable if it is part of an economic group, when one or more companies, although each with its own legal identity, are under the direction, control or administration of another, constituting an industrial, commercial group or a group of any other economic activity. In addition, there was the inclusion of a relevant provision that does not characterize an economic group as the mere identity of partners, and defining as necessary for the characterization of the group, the demonstration of integrated interest, the effective communion of interests and the joint action of the companies that are member companies.
II – LABOR SUCCESSION:
In the Reform, article 448-A was added to the CLT, providing that labor obligations, including those incurred at the time employees worked for the succeeding company, are the responsibility of the successor, pointing out that in the case of fraud in the transfer, the succeeding company will respond jointly and severally with the successor.
III – TIME AVAILABLE FOR PURPOSES OF THE WORKING HOURS:
After the Reform the CLT expressly states that hours that exceed the normal working hours will not be computed as an extraordinary period, even if they exceed the limit of five minutes provided for in paragraph 1 of article 58 of the CLT, when the employee, by his own choice, seeks personal protection, in the case of unsafety in public roads or bad climatic conditions, as well as entering or remaining in the premises of the company to carry out private activities, such as religious practices, rest, leisure, study, food, social relations activities, personal hygiene, change of clothes or uniform, among others. In this way, the company can quietly provide breakfast to the employee without running the risk of having the period computed in the working hours, and as a matter of consequence, be responsible for the payment of overtime. With regard to the change of uniforms in the premises of the company, the period intended should only be computed on the working hours when the company determines that the change is carried out in the workplace or because of the uniform characteristics that make it impossible to change in the employee’s residence.
IV – RESPONSIBILITY OF THE EX-PARTNER FOR LABOR DEBT:
Pursuant to the reformed CLT, the retiring quotaholder shall respond secondarily for the company’s labor obligations relating to the period when he was a quotaholder, only on claims filed no later than two years after the recording of the modification of the contract, observing the following order of preference: (i) the debtor company; (ii) the current quotaholders; and (iii) the retiring quotaholders. In this sense, the Reform was positive for employers, inasmuch as it set a deadline for liability for possible labor debts, but it should be pointed out that the retiring quotaholder will be jointly and severally liable when fraud resulting from the modification of the contract is evidenced.
V – INTERIM STATUTE OF LIMITATIONS:
The interim statute of limitations is that applicable in the execution of the process, extinguishing the execution in cases in which the executor does not proceed with the claim for at least two years.
With the Reform, it is established that interim statute of limitations occurs in the labor process within two years, when the executor ceases to comply with a judicial determination in the course of the execution.
VI – ADMINISTRATIVE PENALTIES APPLIED BY THE SUPERVISORY AGENCIES:
The reformed CLT provides that an employer who maintains an unregistered employee will be subject to a fine in the amount of three thousand Reais (R$3,000.00) per unregistered employee, plus an equal amount for each recidivism. The final amount of the fine will be eight hundred Reais (R$800.00) per non-registered employee, for a small company, and there is no need for a double visit by the inspection agency.
VII – WORKING HOURS:
VII.i – HOURS “IN ITINERE”:
With the Reform, the travel to and from work will no longer be computed. In this way, the employer may provide transportation, knowing that the travel time will not integrate the employee’s working hours.
VII.ii – WORK UNDER A PART TIME REGIME:
The Reform refers to the possibility of contracting part-time work in two instances:
- a) with the observance of the limit of thirty (30) hours per week, being prohibited overtime;
- b) with a limit of up to twenty-six (26) hours per week, and the possibility of adding up to six (6) hours of overtime. The supplemental hours of the normal working hours may be compensated directly by the subsequent week after the execution of the contract and must be paid in the payroll of the subsequent month in the event they are not compensated.
VII.iii – COMPENSATION AND BANK OF HOURS:
The Reform provides for the possibility of the establishment of a bank of hours individually, by means of a written agreement between employee and employer, valid for six (6) months. In addition, it considers the establishment of a tacit compensation agreement valid provided that there is compensation in the same month of the provision of the services. The provision of habitual overtime does not deprive the compensation agreement of the working hours and the bank of hours.
VII.iv – SPECIAL REGIME OF 12X36 HOURS (TWELVE HOURS OF WORK AND 36 HOURS OF REST):
The Reform makes it possible to fix the 12×36 working hours individually only for employees working in the health sector, excluding the need for the involvement of the Union. In other cases, such working hours must be established by collective bargaining convention or collective bargaining agreement, with the involvement of the Union. The Reform also provides that the monthly compensation agreed in the 12×36 working hours covers the payments due for the weekly rest paid and for public holidays, and holidays and night work extensions are considered to be compensated, when applicable. In addition, the working hours can be adopted for unhealthy activities. Caution is necessary in the adoption of the said working hours, since judges have already voiced their opinion that the aforementioned provision is unconstitutional.
VII.v – TELEWORK:
The Reform included a specific chapter on telework, providing that workers subject to such a regime are not subject to time control. It applies to those who provide services outside the employer’s premises, using information and communication technology, pointing out that attendance at the employer’s premises to perform specific activities that require the presence of the employee in the establishment does not de-characterize the telework regime. The form of hiring must be clearly set forth in the individual employment contract. The main aspect of this contract is that the employer remains responsible for the standards of ergonomics and must instruct employees clearly about the precautions to be adopted to avoid labor related diseases and accidents.
VII.vi – INTRA WORKING HOURS INTERVAL:
With the Reform, it will be possible to reduce the intra working hour’s interval to a minimum of thirty (30) minutes, through a collective bargaining agreement. Employees who earn a salary higher than double the social security ceiling may negotiate the reduction of the intra working hour’s interval directly with the employer. In addition, if there are irregularities in the fixation of the intra working hours, only the compensatory period will be paid as indemnification, and the full hour would no longer be deemed indemnification.
VIII – VACATION:
Pursuant to the Reform, as long as there is agreement of the employee, the vacation can be enjoyed in up to three (3) periods, but one of them cannot be of less than fourteen (14) consecutive days and the others cannot be of less than five (5) consecutive days, and it is prohibited the beginning of the vacation in the period of two (2) days prior to a holiday or weekly rest day paid.
IX – PROTECTION OF WOMEN’S WORK:
The requirement of the 15 (fifteen) minute interval before the beginning of the working hours was eliminated. As to the other points, the pregnant employee will be removed from work, from any activities that are considered unhealthy, during the pregnancy, and consequently the payment of the unhealthy supplement during the period was eliminated. If the employee wishes, she may work in unhealthy activities or operations of a medium or minimum degree, provided that she voluntarily presents a health certificate issued by a doctor of her confidence, from the private or public system, that authorizes her to remain in the carrying out of her activities. During lactation, the employee should also be removed from unhealthy activities, provided that she presents a certificate issued by a doctor of her confidence.
X – INDIVIDUAL EMPLOYMENT CONTRACT:
X.i – SELF-EMPLOYED WORKER WITHOUT AN EMPLOYMENT RELATIONSHIP
The article of the Reform that deals with the subject is deemed to be unnecessary and only confuses the issue, and may be viewed as a trap for the employers. It sets forth that the employer can hire a freelancer who works continuously as long as he meets the legal formalities, which appears to be misleading. The freelancer cannot be hired on an exclusive basis. However, facts prevail in the labor courts and once the self-employed person works under subordination, among other characteristics, the employee will have the employment relationship recognized, even if he/she has signed a contract. Therefore, employers should not hire freelancers, in view of the risk of a subsequent characterization of an employment relationship.
X.ii – PROVISION OF INTERMITTENT SERVICES
The Reform established the possibility of the provision of intermittent work, emphasizing that contract for intermittent work is the contract in which the provision of services, under subordination, is not continuous, occurring with the alternation of periods of service rendering and inactivity, defined in hours, days or months, regardless of the type of activity of the employee and the employer, except for aeronauts, governed by their own specific legislation. It is a hypothesis in which the employee will be bound to the employer, but will only work whenever requested, earning a remuneration, proportional vacation at time and a third, pro-rata thirteenth salary, paid for weekly rest and additional legal expenses related to the service period. The employee will receive a call to work and once the job offer is accepted, the party who fails to comply with the contract, for no cause, will pay the other party, within thirty (30) days, a fine of fifty (50%) percent of the remuneration that would have been due and compensation in the same period is permitted. The means to be adopted for a call and answer for the provision of services may be agreed by the parties. Payment will be made on the agreed date, and cannot be stipulated for a period that exceeds one (1) month, counted from the first day of the service period. The remuneration for periods of inactivity is prohibited. In addition, after a one-year deadline without any call from the employee counted from the date of execution of the contract of the last call or the last day of service, whichever comes later, the intermittent employment contract shall be deemed terminated for all purposes of the law. In the event of extinction, an indemnified prior notice compensation will be due in half, plus indemnification of the FGTS, in addition to the other amounts in their entirety. The movement of the FGTS account will be limited to up to eighty (80%) percent of the value of the deposits, there having no authorization for securing unemployment insurance. Severance will be calculated based on the average of the amounts paid during the contract, considering the last twelve (12) month period. It is important to note that the employee hired and registered for an indefinite period can only provide services as an intermittent, for the same employer, after eighteen (18) months from the termination of his employment contract.
XI – UNIFORM:
Article 456-A to the CLT dealing with uniform was included, providing that it is up to the employer to define, in the work environment, the dressing pattern. Fixing a uniform suits the interests of the employer, but it cannot be something that exposes the employee to embarrassment. Article 456-A also states that it is lawful to use logos of the company itself or partner companies in the uniform, thus avoiding the filing of claims in which the employees may claim indemnification for advertising in their uniforms. Regarding hygiene, article 456-A sets forth that this is the responsibility of the employee, unless there is a need for procedures or use of different products in the hygiene of clothing commonly used, as in cases of work in contact with radioactive products or pesticides.
XII – REMUNERATION (BONUS):
Article 457 of the CLT that deals with remuneration as a premium and bonus was amended to provide that, even if paid regularly, the bonus will not be deemed of a salary nature. Paragraph 4 of article 457 defined what is to be treated as a bonus, emphasizing that the payment, including in cash, is for a performance higher than ordinarily expected in the carrying out of the activities. In addition, in contradiction with the caption of Article 457, paragraph 22 established that the liberalities granted by the employer shall be considered a bonus up to the limit of twice a year. Therefore, it is recommended that the employer should set semiannual awards, avoiding discussions about the concept of “habituality”, one of the elements that characterize the evidence of an employment relationship. The CLT clearly establishes that there will be no levy of tax contributions on the payment of bonus, and it is up to the employer to effectively demonstrate that the payment of bonus is made as an extraordinary payment; otherwise the amount paid will be deemed of a salary nature, subject to the burdens on compensation of a salary nature.
XIII – SALARY EQUALIZATION:
The Reform established certain limiting requirements for the characterization of salary equalization. The CLT requires that both employee and a paradigm work in the same establishment. The Reform also established the rule of seniority, providing that the employee hired for more than four (4) years cannot serve as a paradigm, because he is actually more experienced, independently of the previous diverse function carried out. This contrasts with the difference of two (2) years in the same function of the previous law. The Reform also provides that the paradigm and employee have effectively worked together, preventing the equivalence in cascade, and with remote paradigms.
XIV – CONTRACTUAL EXTINCTION:
The need for homologation (approval before the Union) was revoked and there is no longer further monitoring and assistance by the Union or Public Labor Attorney’s Office. The Reform also included the possibility of an extra-judicial settlement before a labor court, increasing its jurisdiction to approve out-of-court settlements. Therefore, instead of carrying out homologations before the Union, the parties will seek the Labor Court directly. The deadline for payment of the severance amounts will be unified, that is, ten (10) days from the date of termination of the employment contract, no further split between prior notice worked or indemnified, and payment may be made in cash, deposit (DOC or TED) or check, except for the illiterate who cannot receive payment through a check. There will be no need for the issuance of forms to the FGTS and unemployment insurance, the notation on the employee’s employment card will be sufficient, and the employer must communicate the waiver to the competent agencies, there being no further need for a prior authorization for collective dismissal of employees.
XIV.i – VOLUNTARY RESIGNATION PLAN:
Voluntary or Incentivized Resignation Plans, for individual resignation, optional active joinder of resignation, or collective resignation contemplated in a collective agreement or collective bargaining agreement allow full and irrevocable discharge of the rights arising from the employment relationship, unless otherwise stipulated by the parties, for the purpose of validity of agreements entered into between the parties.
XIV.ii – NEW HYPOTHESIS OF CAUSE:
A new hypothesis is provided for the dismissal for cause: the loss of the qualification or of the requirements established in the law for the exercise of the profession, as a result of willful misconduct of the employee.
XIV.iii – EXTINCTION OF THE AGREEMENT THROUGH SETTLEMENT:
The waiver by agreement is a new form of contractual termination, the termination by agreement between the employee and the employer is now contemplated in the CLT, and in those cases, prior advance notice and penalty of the FGTS in half, in addition to granting the withdrawal of only 80% of the amounts in the FGTS are due, and the employee is not entitled to unemployment insurance. In case of suspicion of coercion, the employee will be responsible to prove a possible vice of consent.
XV – ARBITRATION CLAUSE:
In individual employment agreements whose compensation is two times higher than the maximum limit set for benefits of the General Regime of Social Security may be agreed an arbitration clause, provided that the initiative is the employee‘s or through the employee’s express consent, which may come to be objected by the Judiciary.
XVI – ANNUAL TERM OF RELEASE:
Under the Reform, whether the employment contract is in force or it is not possible for employees and employers to enter an annual release of labor obligations before the Union of the employees of each category. The term shall disclose the obligations to do and to be performed monthly and the annual release given by the employee shall be included in the term, with the effective release of the installments specified therein.
XVII – EXTRAPATRIMONIAL DAMAGES:
The Reform has added to the CLT a specific title called “Extra-Patrimonial Damages”, that is, moral damages in which the possibility of moral damages suffered by a legal entity, that is, a company, can be compensated when, as an example, there is the defamation of the trademark. The quantification of moral damages is split in accordance with the degree of the offenses among light, medium, serious or very serious. The light damages would include compensation of up to three (3) times the amount of the maximum limit of the benefits of the General Social Security System, the average damages of up to five (5) times, the serious damages of twenty (20) times and very serious damages of up to fifty (50) times, at double the amount of the payment in case of recidivism. The parameters do not apply to extra-patrimonial damages resulting from death. In this hypothesis, there is no limit for setting the indemnification.
XVIII – COLLECTIVE LABOR LAW:
XVIII.i – OPTIONAL TRADE UNION CONTRIBUTION:
The union contribution will become optional, payable and collectible to the extent it is previously and expressly authorized.
XVIII.ii – PREVALENCE OF NEGOTIATION OVER LEGISLATION:
The collective bargaining convention and the collective bargaining agreement have precedence over the law when, among others, they provide for a pact regarding: working hours within the constitutional limits; bank of annual hours; interval between working hours, at the minimum limit of thirty (30) minutes for working hours in excess of six (6); adherence to the Insurance-Employment Program (PSE); plan of job positions, salaries and functions compatible with the personal condition of the employee, as well as identification of job positions that are deemed positions of trust; internal rules; representative of employees in the workplace; telecommuting, regime for warning, and intermittent work; remuneration for productivity, including gratuities received by the employee, and compensation for individual performance; working hours registration modality; holiday day exchange; the degree of unhealthiness; extension of working hours in unhealthy environments, without prior permission from the competent agencies of the Ministry of Labor; incentive awards in goods or services, possibly granted in incentive programs and sharing in the profits or results of the company. In the above cases, the parties may negotiate collectively and whatever is negotiated will prevail in face of what is legislated.
XVIII.iii – ULTRATIVITY OF THE COLLECTIVE LABOR NORMS AND PREVALENCE OF THE COLLECTIVE AGREEMENTS:
The collective bargaining conventions and collective bargaining agreements are in force within the indicated period, not integrating in a definitive manner the employment contract. Collective bargaining agreements will always prevail over the conditions stipulated in collective bargaining conventions.
XIX – LABOR PROCEDURAL LAW:
XIX.i – RATIFICATION (HOMOLOGATION) OF EXTRAJUDICIAL LABOR AGREEMENT:
The competence of the Labor Courts was extended for decisions on the ratification (homologation) of extrajudicial agreements in matters of competence of the Labor Court. Thus, the parties may enter into an agreement provided that each party is accompanied by their lawyer and subsequently submits the agreement for ratification (homologation) by the Labor Court.
XIX.ii – PROCEDURAL TERMS:
The procedural deadlines will be counted in working days, excluding the day of commencement and inclusion of the expiration day.
XX – FREE JUSTICE:
The free of cost jurisdiction will be awarded to those whose remuneration is equal to or less than forty (40%) percent of the maximum benefit limit of the General Social Security System. Otherwise, there will be a need to prove the state of legal miserability.
XXI – EXPERT FEES:
The Reform provides that the court may not set advance expert fees. Even if the party is a beneficiary of the Free Justice, it will be responsible for expert’s fees, which may also be paid in installments.
XXII – ATTORNEY’S FEES FOR LOSS OF CLAIM:
Attorney’s fees for loss of claim shall be due, between a minimum of five (5%) percent and a maximum of fifteen (15%) percent of the amount resulting from (i) the calculation of the award; (ii) the economic gain obtained; or, if it is not possible to measure it, (iii) on the updated value of the claim.
XXIII – DEPOSIT FOR APPEAL:
The value of the deposit for appeal, which is the guarantee that the company must make a deposit to be able to appeal of decisions and judgments in the Labor Court, will be reduced in half for non-profit organizations, domestic employers, individual micro entrepreneurs, micro enterprises and small business companies. Beneficiaries of free justice, philanthropic entities and companies under judicial reorganization are exempted from the deposit for appeal. The deposit for appeal may be replaced by bank guarantee or judicial guarantee insurance.
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