Subcontracting in Brazil: Finally, more flexibility!

Introduction

Brazil has convoluted employment laws. These laws have traditionally been interpreted strictly, with contracting parties being given little room to make subcontracting arrangements.

Recent decisions from the Federal Supreme Court have made things more flexible.

The old position

In a long line of cases, Brazil’s Superior Employment Court held that only support activities (atividades-meio) could be performed by non-employees. All core activities (atividades-fim) had to be performed by employees whose employment terms were governed by the Consolidation of Labour Laws.

The application of the support versus core activities test was difficult and its results were, in the words of the Federal Supreme Court, “casuistic, imprecise, erratic, which [did] not permit any predictability insofar as the possibility of subcontracting”. This unpredictability led to practical difficulties for businesses in Brazil, as the risk of having a court find that independent contractors were employees was material – businesses were bound by the strict rules of the Consolidation of Labour Laws and were stuck with inflexible business structures.

Seas of change: flexibility upheld!

In ADPF/DF 324, the Brazilian Agribusiness Association challenged the Superior Employment Court’s long-held position. The case was filed directly at the Federal Supreme Court on constitutional grounds and, after more than seven years before the Court, the dispute was finally resolved in August 2021.

In a lengthy judgment in favour of the Association, the Court found that:

• “employment law and the trade union system need to adapt to the changes in the labour market and in society”;
  
• “subcontracting of support or core activities of a company finds support in the constitutional principles of free enterprise and free competition, which ensure that economic agents freedom to formulate business strategies inducing greater economic efficiency and competitiveness”; and

• “subcontracting does not, by itself, give rise to precariousness of work, violation of the worker’s dignity or disrespect for social security rights. It is the abusive exercise of its use that may produce such violations”.

• The plurality of the Court – four out of the 11 Justices dissented – proceeded to overturn the Superior Employment Court’s test and replaced it with the following:

“1. It is lawful to subcontract any and all activities […] there being no employment relationship between the contractor and the contractor’s employee.

2. In subcontracting, it is incumbent upon the contractor: i) to check the suitability and economic capacity of the subcontractor; and ii) to be secondarily liable for breaches of employment rules, as well as for social security obligations, pursuant to article 31 of Law 8,212/1993”.

Despite this decision, there was much doubt about how the courts would apply the new test. The good news is that the Federal Supreme Court has been interpreting the test broadly and this has started to permeate the Labour Courts, with decisions that do not apply the Federal Supreme Court being promptly overturned.

Final Remarks

Insofar as subcontracting is concerned, Brazil’s courts have finally become amenable to flexible arrangements. This brings Brazil into line with countries such as New Zealand, the United Kingdom and the United States where subcontracting is part of the day-to-day operations of just about every business.

Do you have any questions?

Contact me if you would like further information. My firm is ready to assist you.

Brazil Brazilian Employment Law Employment Law Independent Contractor Subcontracting

Last modified: September 5, 2024