Is this the first step for labour reform? - International Law Office

Introduction
Previous law
New bill
Comment

Introduction

Although their aspirations may conflict, Brazilian employees and employers share a common view - Brazilian labour law needs to be updated. In fact, considering that the Labour Code dates back to 1943 (despite having been slightly updated in 1988 when labour rights were included in the Constitution), it is easy to see that the labour laws are ripe for modernisation.

Brazilian society has long been awaiting labour reform. Comprising a package of measures that have been subject to wide social debate, it is hoped that the reform will establish a new pattern that may satisfy the aspirations of both employees (through job protection and preservation of rights) and employers (through reduction of the high labour charges levied on salaries and benefits). However, in the past, both the National Congress and the government have avoided starting a social discussion on this subject. While the reform of employment law has been on the government agenda for some time, it seems that the political cost of promoting the debate and committing to an alternative is too high. Successive governments have therefore pushed such discussions to the bottom of their priority lists.

Previous law

According to the Labour Code 1943, when an employment agreement in effect for an indefinite term was terminated by a company without cause, employees were entitled to 30 days' notice. The law provided that this 30-day period could be worked after the actual delivery of the notice. Alternatively, at the discretion of the employer, the notice could be paid as cash compensation and the employee was released from the obligation to work on being notified of the employer's decision to terminate the employment agreement unilaterally.

The basic rights of employees are listed in Article 7 of the Constitution, which states that employees are entitled to receive a prior notice "that is proportional to the term of their contract, granting a 30-day minimum". The Constitution also established that the proportion should be regulated through a specific law, which was to be enacted in the future. However, after 23 years, such regulating law had yet to be enacted. This situation has finally been rectified by the National Congress.

New bill

On September 21 2011 the National Congress passed a bill to regulate the provision in which it finally set forth the criteria for calculating the proportionality between time of service and the length of the prior notice for termination. According to the new model, employees who have worked for up to one year in the same company will be entitled to 30 days' notice. Those who have worked for longer periods will have an additional three days added to the notice period for each year of service, capped at 90 days. Once this law is in effect, the termination notice in Brazil will vary between 30 and 90 days in cases of termination by the employer without cause. If the employee decides to resign voluntarily, the same applies for the notice that the employee must give to the employer, including the new variable notice period.

Comment

Once the bill comes into force (following presidential approval), the law will result in the already high cost of hiring an employee in Brazil being further increased. Although discussion on the matter is just starting and it is therefore too soon to foresee the consequences, this additional cost is expected to result in yet another incentive for the informal hiring of workers. Brazil's workforce is already prone to informality, causing significant losses to the country (and to the unbalanced social security system). The costs of doing business (eg, taxes, pseudo taxes, social security contributions and employment costs) are already high and any attempt to increase these costs should be viewed with trepidation.

It is hoped that this bill will be the first step of a broader labour reform aimed at modernising the labour law system, and that it will spark a wide and rational discussion among the parties in the labour scenario (ie, the government, employees and employers). At the very least, any new regulation must strike the difficult balance between job protection and reduction of labour costs.

For further information on this topic please contact Eduardo Soto or Luiz Guilherme Migliora at Veirano Advogados by telephone (+55 21 3824 4747), fax (+55 21 2262 4247) or email (eduardo.soto@veirano.com.br or luiz.migliora@veirano.com).