Brazil: Applying the Labor Reform to Ongoing Employment Contracts

On Nov. 25, Brazil’s Superior Labor Court (TST) ruled that the labor reform (Law 13,467/2017) had an immediate effect on ongoing employment contracts, but only to facts occurring after the law’s effective date of Nov. 11, 2017. The court reached this majority decision in a repetitive appeals incident, establishing a binding precedent to be followed by the entire Labor Justice system.

The judgment involved a worker from JBS S.A. in Porto Velho who sought payment for horas in itinere— the time spent commuting using company-provided transportation, which had previously been considered time at the employer’s disposal prior to the labor reform. When the labor law entered into force, this obligation was eliminated. The main issue in question was whether the new rule would apply to contracts established before the reform.

Initially, the Third Panel of the TST ruled that JBS should pay for the horas in itinere, determining that this right was part of the worker’s legal entitlement, covering the entire contractual period from December 2013 to January 2018. However, JBS appealed, and the case was taken up by the Full Court of the TST due to its prominence, aiming to set a precedent for similar cases.

The reporting judge, Minister Aloysio Corrêa da Veiga, argued that the changes introduced by the labor reform should be immediately applied to ongoing contracts, but only for facts occurring after the new legislation. The court’s opinion states that, when contract conditions are derived from legal provisions, the new law applies to pending or future situations without affecting acquired rights.

The majority opinion emphasized that the constitutional principle of wage nonreduction protects only the nominal value of permanent installments, not the calculation method or variable benefits linked to future events. Thus, legal changes impacting variable payments are applicable to ongoing contracts.

Under this interpretation, JBS was ordered to pay horas in itinere only up to Nov. 10, 2017, the day before the labor reform came into effect. The decision also reinforces the application of this understanding to other changes introduced by the labor reform.

The binding precedent established by the TST is as follows:

“Law No. 13,467/2017 has immediate application to ongoing employment contracts, regulating rights derived from laws whose triggering events occurred after its effective date.”

The Superior Labor Court is composed of 27 ministers; 25 participated in the judgment, with two absent. The vote was 15 to 10. While the majority concurred, Minister Mauricio Godinho Delgado, the vice president, argued that contracts predating the reform should follow the previous rules—a position supported by the other nine ministers.

Several entities participated in the judgment, including the National Confederation of Industry, the Confederation of Agriculture and Livestock of Brazil, the National Confederation of the Financial System, and the Unified Workers’ Central.

This decision marks an important milestone in the interpretation of the labor reform, providing greater legal certainty for both employers and employees regarding the application of new rules to ongoing employment contracts.

Aline Fidelis is an attorney with Tauil & Chequer in association with Mayer Brown in Sao Paulo. © 2024 Tauil & Chequer in association with Mayer Brown. All rights reserved. Reposted with permission of Lexology.