Outsourcing is a lawful way for companies to increase their competitiveness by seeking out specialised labour, thereby improving the efficiency of their production and reducing transaction costs. In this way, outsourcing is a tripartite involving:
- the workers;
- the company contracting the services; and
- the service provider.
However, the use of outsourcing has historically been uncertain in Brazil, particularly in relation to the outsourcing of a company's core business.
Outsourcing and impact of labour reform
Before the enactment of Law 13,429/2017, according to Precedent 331 of the Superior Labour Court, outsourcing was restricted to a company's non-core activities. In these cases, an employment relationship was deemed to exist between the individual providing the services and the contracting company.
This case law construction brought great legal uncertainty, particularly because of the difficulty in accessing the nature of the activities to be transferred to third parties – that is, whether the outsourced activity was part of the company's core business or considered non-essential.
In general, 'non-core activities' are defined as those not representing the company's main purpose and must be unrelated to the company's productive process.
On its turn, 'core business' is defined as the essential and regular activities for which the company was organised – in order words, the main corporate purpose (ie, the performance of the activities set out in its articles of association).
The difficulty in characterising the core business appears when the company includes, in its corporate purpose, the performance of several activities, such as imports, industrialisation, commercialisation and service provision. In these cases, the core activities must be identified by determining which activities would jeopardise the whole company structure if they were not performed – something which is difficult to determine due to the complexity of corporate structures.
In addition, for the outsourcing to be valid, the working relationship between the outsourced workers and the contracting company cannot have the same characteristics as an employment relationship (eg, compensation, personal service, subordination and work on frequent basis), especially the rendering of work under subordination.
Seeking to bring greater legal certainty to corporate businesses and thus promote the economic development of Brazil, Law 13,429/17 authorised the outsourcing of determinate and specific services. Although this new law expressly authorises outsourcing in general, doubt still remains as to whether this authorisation comprises companies' core business.
Law 13,467/2017 (known as the labour reform) will come into force on November 11 2017. It creates a scenario of greater legal certainty for outsourcing because it expressly authorises the outsourcing of any activities, including a company's core business.
However, the contracting company may be considered to employ outsourced workers directly in the case of unlawful outsourcing – that is, in the case the outsourcing agreement includes elements constituting an employment relationship (eg, compensation, personal service, subordination and frequent work). Therefore, even after the labour reform, these elements cannot be contained in an outsourcing agreement, to avoid acknowledging a direct employment relationship between the outsourced employee and the contracting company.
In any event, the regular outsourcing of an activity implies the subsidiary liability of the contracting company for the labour obligations relating to the period in which the services are provided.
The labour reform sets out that the service provider must be a private law legal entity with an economical capacity compatible with the performance of the services to be outsourced. Despite the fact that the labour reform has not defined what will be considered appropriate 'economic capacity', there are formal requirements which must be met by the company providing the services, including evidence of:
- enrolment with the Brazilian Registry of Corporate Taxpayers;
- filing with the Registry of Commerce; and
- the company's capital stock, which must coincide with the number of employees.
Therefore, the service provider must be a regular company as regards the mandatory registries and enrolments, and must comply with the parameters regarding capital stock indicated below:
- companies with up to 10 employees must have a minimum capital stock of R10,000;
- companies with 10 to 20 employees must have a minimum capital stock of R25,000;
- companies with 20 to 50 employees must have a minimum capital stock of R45,000;
- companies with 50 to 100 employees must have a minimum capital stock of R100,000; and
- companies with over 100 employees must have a minimum capital stock of R250,000.
Although the economic capacity of the company cannot be assessed based on its capital stock, it seems that the legislature opted to establish the capital stock as one of the parameters to make this determination. Therefore, the corporate documents (eg, articles of association and incorporation) will be important tools for contracting companies to control the economical capacity of service providers.
Finally, there are two lawsuits filed before the Supreme Court both claiming the unconstitutionality of Law 13,429/2017 (ADI 5685 filed by political party REDE and ADI 5735 filed by the Prosecutor General of the Republic).
The lawsuits will be decided simultaneously and, despite the absence of an estimated date for the ruling, if the lawsuits are considered to be grounded, following the consequential declaration of the unconstitutionality of Law 13,429/2017, companies could be prohibited from outsourcing their core businesses.
The labour reform offers an opportunity for companies to review the possibility of outsourcing, including as regards their core business.
Thus, the labour reform will create a scenario of greater legal certainty for companies to outsource services to a private law legal entity with the economic capacity needed to execute the relevant services.
Therefore, even considering the court discussion regarding the possible unconstitutionality of the law, the regulation of outsourcing by a specific law provides for greater legal certainty, as well as a reduction in transactional costs and thus greater efficiency for the Brazilian companies.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information of this topic please contact Cleber Venditti da Silva, Roberto Nasato Kaestner or Filipe Vergette Conceição at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email ([email protected], [email protected] or [email protected]). The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at www.mattosfilho.com.br.
