Brazil: Pay Transparency Reports Are Due by the End of September

Companies with more than 100 employees in Brazil must post their pay transparency reports by Sept. 30. This will be the second round of reports since a new pay equity law  and its regulations went into effect earlier this year. Regulations to implement Brazil’s law requiring the pay transparency reports and action plans have been heavily criticized in the business community.

Background

In July 2023, the National Congress of Brazil passed a law with new and more stringent rules relating to equal pay, with a particular focus on mitigating the gender pay gap. The law requires a number of measures be implemented to make compensation criteria more transparent, increase oversight by the labor authorities, promote inclusion and diversity (I&D), and create training and education for women on entering, remaining, and advancing in their careers on equal terms with men.

The regulations issued by the Ministry of Labour and Employment (Ministry of Labour) in November 2023 then focused on two aspects of the law: the mandatory pay transparency reports for companies with more than 100 employees, which must be publicized twice a year, and the “Action Plan” that companies showing a gender pay gap must implement.

Companies with more than 100 employees became particularly frustrated with the ordinance because the ministry decided that the pay transparency reports would be prepared by the ministry, not the companies, with data it had collected through mandatory reports made by such companies through the eSocial platform and additional information provided through a questionnaire issued by the ministry. The shock was even bigger when the companies learned in February that they would not have full access to the criteria and data used by the ministry to prepare the reports (except that the compensation used was from 2022) and saw that the basic questionnaire was multiple choice and did not allow the inclusion of any explanation for pay disparities.

In March, companies received reports from the Ministry of Labour, all of which showed a significant gap between men’s and women’s compensation. According to the ministry, 49,587 companies in Brazil received the reports from the ministry. The information of all such companies showed that women earn on average 19.4% less than men in the same “position.” This data was likely flawed because the ministry grouped positions based on the Brazilian Occupational Classification and did not account for other variables such as seniority, experience, and performance, which companies generally consider when setting compensation.

The March data also showed that only 32.6% of the companies had a policy to incentivize the hiring of women and even fewer had policies specifically targeting certain groups: Black women (26.4%), women with disabilities (23.3%), members of the LGBTQ+ community (20.6%), women who are heads of household (22.4%), and women who are victims of violence (5.4%). Only 38.3% of companies had specific policies to promote women to positions of management.

Many companies that decided to publish their reports included their own explanations about why they did not believe the numbers to be accurate and even posted some specific comparisons with their own numbers.

Based on the results and the potential backlash that an unclear report could cause to the companies’ brands, some other companies either individually or through industrywide organizations sought an injunction to avoid the obligation to publicize their reports, claiming that the regulations went beyond the scope of the law and citing possible damage to the companies’ competition and freedom. The two most relevant cases were filed by the Federation of the Industries of the State of Minas Gerais (FIEMG) and the National Confederation of Industry (CNI).

FIEMG filed a public civil action with the Federal Regional Tribunal of the 6th Region in March to suspend the obligation of companies to publish the pay transparency report, which included a request for an urgent preliminary injunction. The injunction was granted, and while the Ministry of Labour was able to reverse the decision, on July 18, the FIEMG’s appeal was successful, and the suspension reinstated. This decision applies to all companies in Brazil. We believe this decision may be vulnerable in protecting companies not represented by FIEMG, however, as there may be discussion as to the legitimacy of FIEMG representing companies not part of the organization, the competence of the Federal Court of the State of Minas Gerais to hand down a decision with national effects covering all companies, and the effective scope of the decision.

The other relevant lawsuit is the ADI 7.612, filed by CNI with the Supreme Federal Court of Brazil on March 12, alleging the unconstitutionality of the law and its regulations. Justice Alexandre de Moraes was assigned as the rapporteur, and we are still waiting for the case to be included in the court’s agenda for judgment.

Companies with more than 100 employees are now facing the same process and dilemma. The Ministry of Labour distributed a new questionnaire at the beginning of August for the companies to answer. The questionnaire was almost identical to the last version, except for containing an additional question on whether the companies have a specific policy to promote the hiring of Indigenous women. The ministry provided no further explanation or relevant information about the criteria or possible revision of the criteria or methodology that companies believe to be flawed. This time, as of Aug. 31, only 31,936 companies answered the questionnaire, out of the estimated 52,000 companies with more than 100 employees in Brazil. Companies that have more than 100 employees and are not covered by the legal injunction will have to post their new report by Sept. 30, either on their websites or social media platforms, or may face some potentially steep fines.

Companies that do not comply with the requirement of posting their report may be fined up to 3% of their total payroll, limited to 100 monthly minimum wages (that is, 142,200 Brazilian real or U.S. $28,250), and those that require an Action Plan have 90 days to submit such plan from the date they receive the order.

It seems that the Ministry of Labour did not fine any company that did not post the first report on its website and have not ordered companies with a compensation gap to implement an Action Plan. However, the ministry may not continue to be this lenient when the new report is due in September.

The Action Plan is still a vague idea. According to the law and regulations, the plan to mitigate the discrepancies must include targets, deadlines for achieving such targets, and mechanisms to measure the achievement of the targets, including an annual plan with the execution chronology. The plan must include the creation or development of programs to promote I&D and steps to engage, maintain, and promote women to higher management positions. The plan must be prepared with the participation of the applicable union and employees’ representatives. The plan will then have to be filed with the union. Some companies have been working on an Action Plan since the last report was issued in March, but it is unclear whether their plans will work.

Brazil Pay Transparency Law Compared to the EU Directive and Some US State Laws

Although Brazil’s efforts to reduce the gender pay gap is in line with the current global trend and ahead of other Latin American countries, its law and regulations seem to have been rushed and lack practicalities that other countries took into consideration when issuing their regulations. A good example is how the points raised above compare with the 2023 EU Directive:

• The EU Directive, issued by the European Parliament on May 10, 2023, will only have to be transposed by its member states by 2026, giving companies plenty of time to prepare and adjust to it.
• By June 2027, employers with 250 or more employees will have to provide a report in the EU on the gender pay gap and provide one every year thereafter. Employers with 150 to 249 employees will have to issue a report by June 2027 (and then only every three years) and, by June 2031, employers with 100 to 149 employees will issue their report (and every three years thereafter).
• The report in the EU will be prepared by the companies using their own methodology after consulting with workers’ representatives.
• Companies required to report with a gap of 5% or more that cannot be justified and is not cured within six months from the date of the report’s submission must conduct a joint pay assessment and put together a plan, in cooperation with their workers’ representatives, to remedy such gap within a reasonable period.

Unlike the EU Directive and some U.S. state laws, such as those in California, Colorado, and New York, the Brazil pay transparency law does not impose obligations to disclose initial pay or pay range to candidates or prohibit employers from asking candidates about their pay history. Under the EU Directive, job applicants have the right to receive information about the initial pay or pay range from a prospective employer, and the employer cannot ask about their pay history. In the U.S., a patchwork of state and local laws containing differing requirements and nuances on pay transparency are a whole other issue for multistate and multinational employers trying to come up with a formula to address pay disparities from a global perspective.

Renata Neeser is an attorney with Littler in New York City. © 2024 Littler. All rights reserved. Reposted with permission.