Brazil Labor & Employment Update

Recently published information shows that Brazil’s economic struggle continues to affect employment. According to information provided by the agency IBGE, the unemployment rate after the first quarter of 2016 was 11.2%, with 11.4 million individuals currently unemployed. Specialists believe that the unemployment rate will continue to increase until 2017.

It is also apparent that the government program PPE (Employment Protection Program) has not thrived as expected.  To implement a PPE program, an employer must first negotiate a temporary reduction in working hours and salary with the union, subject to the limitations and conditions established by the PPE law, and then get the Labor Department’s approval of the deal.  According to the institute FIPE, based on the data obtained from 371 collective bargaining agreements filed with Brazil’s Labor Department establishing a temporary reduction of working hours and correspondent salary, only 125 of the agreements were subject to the PPE.  The bureaucracy required for the Labor Department’s approval and the mandatory job stability component of the PPE are considered by many as the biggest issues with the program, but the government claims that the program helped to save 58,000 jobs and has vowed to make it permanent.

The increase in unemployment rates has not surprisingly resulted in an increase of single plaintiff employment claims. Last year, the lower labor courts received a record number of lawsuits, approximately 2.6 million new cases. Courts expect that this year will break records yet again, since from January to April 2016, 900,000 cases were filed, an increase of 7.9% comparing to last year. Employees who perhaps would not fight for certain unpaid or underpaid wages and benefits if they could find a new position, are more likely to sue their former employers when they are unemployed.  Furthermore, the Superior Labor Court has just announced a 9.5% increase in the amounts required as security deposits for employers to file appeals. The new rates effective August 1, 2016 are approximately $2,727 for appealing a trial court decision and $5,452.91 for an appeal to the highest courts.

To further complicate matters for employers, the former employees have up to two years after termination to file a claim, so the number of new claims will likely continue to grow and remain high for at least the next two years. Employers operating in Brazil should evaluate their compliance with labor and employment laws and assess their risk so that they are equipped to make strategic decisions.

Coming into compliance now is key, not only because employers may be more susceptible to possible lawsuits, but also because the implementation of the government’s eSocial program is just around the corner. eSocial is a reporting system through which employers will be required to provide all information pertaining or relating to employees and service providers, from personal information to information about wages, hours, benefits, accidents, etc., to the Brazilian authorities, i.e., the Brazilian equivalent of the IRS, social security, labor department, and the unemployment savings fund FGTS. There are rumors that the government will postpone the launch of eSocial, but so far the regulation issued by the eSocial Council establishes that employers with a 2014 revenue of R$78 million must start using the system this September with other employers required to begin in January 2017. 

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.