Brazil: The Bill for Labor Reform

By Dario Abrahão Rabay, Aline Marques Fidelis and Vivian Simões Falcão Alvim de Oliveira Almeida © Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados Jun 19, 2017

​Brazil recently underwent an unprecedented political and financial crisis. In view of this scenario, recovery of the country's economic growth and political stability is paramount.

In order to reduce unemployment and modernize the labor regime, the government has proposed a labor reform, based on Bill 38/2017, which was already approved by the House of Representatives and is being discussed by the Senate. The bill sets out a meaningful change in the Labor Code by amending, excluding and including several articles.

On April 27, 2017, the House of Representatives passed the bill, which is now expected to be voted on by the Senate. However, the bill's passage in the House of Representatives does not mean that the Senate will also pass it. Further, even if the Senate passes the bill, the president will have to validate it, passing it either in full or vetoing in full or in part.


Since it would significantly modify the labor laws, the labor reform has faced strong opposition from employee representatives in certain sectors. However, despite the concerns surrounding the labor reform, when actually analyzing its wording and intent, it is clear that it would be a modernization of Brazil's labor regime. This is because when the Labor Code was created in 1943, Brazil had been in need of a strong labor regulation due to the fact that it had just started to improve labor rights, having lacked them until that point. As a result, the Labor Code was understandably created with a view to giving strong protections to employees.

However, in the past 75 years, the society has gone from one end of the pendulum to the other, varying between rules reducing labor rights and excessively protective laws.

The reform seeks an equilibrium.

By maintaining employees' fundamental rights as set out in the Constitution with no reductions, the labor reform seeks to adapt employment law to the existing climate, which favors collective negotiation with labor unions.

Among the more than 100 articles that would be amended by the bill, Article 652(f) is a clear example of the balance that the labor reform seeks. Article 652(f) sets out that the "Labor Courts shall have authority to decide on the negotiation of the out-of-court agreement related to matters under the responsibility of the Labor Justice."

At present, there is significant resistance from the labor sector regarding out-of-court negotiations, based on the argument that employees do not have the independence and freedom to negotiate an agreement with their employers without assistance from a judge. The critics of this measure believe that employees' rights will unavoidably be jeopardized in an out-of-court agreement as they are the weaker party during negotiations.

However, by validating out-of-court agreements, even if they continue to depend on approval by a judge, the bill allows labor controversies to be solved by the parties themselves, which would help to accelerate and reduce the number of litigations before the labor courts. Further, offering out-of-court settlements would make it easier to resolve issues in which there is no need to appeal to the judiciary, as the parties would have full capacity to compromise in the way that serves them the best.

Under the bill, out-of-court agreements would be permitted provided that they are approved by a labor judge, preventing employees from being jeopardized during negotiations. Once again, this change evidences the search for a balance in labor relations. In fact, the International Labour Organization advises parties to seek a resolution for conflicts.

The fundamental rights of employees and employers are constitutional guarantees and would continue to be respected. Any change restricting said rights would not be approved by the labor courts.

Out-of-court negotiations represent the wills of the parties and would thus be considered law between those involved and could not be ignored or invalidated without a careful analysis of the peculiarities of the case.

There have been cases in which the labor courts have approved out-of-court agreements. For instance, a Fourth Panel of the Superior Labor Court decision confirming the Labour Appellate Court's decision held as followed:

"We cannot consider harmful a contractual amendment, freely agreed with the assistance of an attorney, in a transaction in which the plaintiff receives a significant amount of money and may freely use this amount that he was not even sure he would receive in the future, considering the uncertainty of the concretization of the estimated life and existence and the economical strength of the defendant throughout the years. We cannot talk, in the specific case of the records, in an occurrence of loss to the plaintiff."

Therefore, Article 652(f) represents one of the ways in which the government is seeking to modernize Brazil's employment laws without jeopardizing employees' rights. Introducing alternatives such as out-of-court negotiations would help to reduce the number of claims before the labor courts and ensure that employee and employer rights are balanced.

Dario Abrahão Rabay and Aline Marques Fidelis are attorneys with Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados in São Paolo. Vivian Simões Falcão Alvim de Oliveira Almeida is an attorney with the firm in Brasilia, Brazil. © Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados. All rights reserved. Reposted with permission of Lexology.


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