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Saturday, May 25, 2013


Does Labour Law Matters for Companies Doing Business in Brazil?

With ever-expanding global markets, labour framework has assumed an important role in assessing the performance of individual economies and in influencing both national and international policy decisions. As labor laws pervade virtually every aspect of business practice anywhere in the world, managers regularly confront employment law questions when doing business abroad. Brazil is no exception for this general rule. From an economic, political and historical perspective, Brazilian labour legislation impacts wages, employment, domestic consumption and economic growth, among others. Labour legislation also affects labor market outcomes and business operations as part of the “Custo Brasil” – Brazilian Cost (the high cost of doing business in Brazil).

There is no disagreement that an ineffective labour system has a negative impact on sustainable economic growth especially in emerging markets such as Brazil. Over the last decades, Brazil has increasingly established itself as one of the world’s most important emerging markets and the largest economy in Latin America. Brazil is a very promising and exciting emerging market. Success in doing business in Brazil, however, requires commitment and patience and may be time consuming as well. It is true that doing business in Brazil presents practical challenges in areas such as infrastructure, communication and logistic. Besides that, Brazil presents challenges for foreign investors in legal areas such as labour and tax laws.

The labour law framework in Brazil is quite complex and complicate. Labour legislation raises operational costs and some legal uncertainty and ambiguity. The current Brazilian Constitution promulgated in 1988 contains an entire chapter dealing with “social rights” (e.g., employees’ rights), which elevates to the constitutional level employees’ rights such as, maternity and paternity leaves, annual paid vacations, minimum wage, unemployment insurance, severance-pay fund and several other rights. Besides the Constitution, Brazil has a broad set of rules and norms with over 900 articles that regulate labour activities in the country: the Consolidation of Labour Laws (Consolidação das Leis do Trabalho – CLT). Other legal instruments may also be taken into consideration as part of the Brazilian labour legal framework, such as collective bargaining and labor agreements; standards issued by the Ministry of Labour; International Conventions, the United Nations Declaration of Human Rights (UDHR); the Fundamental Conventions of the International Labour Organization (ILO); and the case law decision of the High Labour Court (Tribunal Superior do Trabalho – TST). From this perspective, one can argue that the Brazilian labour law represents a tool for the protection of employees’ rights.

Indeed, the set of rules and standards that represent the Brazilian labour legal framework reflect a very high protection of the rights of workers, but they bring out costs associated to the rigidity of the system to employers. The labour law framework in Brazil is very complex and raises operational costs to local or foreign companies operating in Brazil due to a series of aspects. For instance, one can recall the social benefits collected by employers to the social security institute (INSS), the Severance Fund FGTS and other social contributions that represent a final cost for companies when compared to other countries.

The Brazilian law does not provide space for negotiations between employers and workers. It means that there is no flexibility on employment agreement negotiations’, which in turn may represent a challenge before changes in the economic environment. Besides, as the legal framework brings certain ambiguity, companies become vulnerable to exhaustive lawsuits with inclined enforcement towards employees by Brazilian courts. These are some of the reasons why Brazilian labour law is considered as one of the contributors of the “Custo Brasil” – Brazilian Cost.

Regulatory changes have to be made in the near future or the cost of production in Brazil will become unbearable for companies, in particular when compared to the other BRIC countries. If no changes are made, labour laws in Brazil may affect the economic growth and development of the country.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP and associated professor at Sciences Po. Paris.