Manpower outsourcing problems under Brazilian labour law

By Geir Sviggum, Wikborg Reinand and Andrea Falcão, Vieira Rezende Barbosa e Guerreiro Advogados
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The use of outsourced labour has historically been a bone of contention for employers in Brazil. The issue has featured regularly in the Brazilian media and has been the subject of a variety of legal and judicial interpretations. Chinese companies establishing or acquiring subsidiaries in Brazil, or engaging in natural resources or other projects, should therefore take great care when using outsourced labour for construction, mining or any other activity.

Geir Sviggum
Geir Sviggum
Managing Partner
Wikborg Rein

Due in large part to the high costs associated with employing Brazilian nationals, employers have increasingly turned to outsourced manpower as an alternative. This has in many cases served to reduce employment costs, but has also frequently harmed employees’ labour rights.

Historically, Brazilian labour law has offered workers a high level of protection. It is therefore not surprising that outsourcing initiatives in Brazil have come under the spotlight of the national authorities, which have strengthened the oversight of such activities and applied sanctions in cases where they have deemed conduct to be illegal.

Brazilian labour law

Andrea Falcão
Andrea Falcão
Vieira Rezende Barbosa e Guerreiro Advogados

Outsourcing itself is not prohibited under Brazilian law. Indeed, it represents, in principle at least, a feasible and entirely legal activity. There is presently no strict and specific law setting out the basic rules relating to outsourcing. Rather, the issues arising in relation to outsourcing have for the most part been settled by case law and debated by legal scholars.

Few of these scholars have been prepared to defend the argument that outsourcing is legal unless it harms employees’ legal rights and provided that all labour rules are duly complied with. Indeed, most Brazilian legal scholars consider the outsourcing of the main activities of a company to be illegal, a view supported by a strong body of case law.

Against this background, it is only the outsourcing of a company’s support activities which will be acceptable under Brazilian labour law. This means that outsourcing will be permitted only in connection with the contracting of another company to provide specialized services, so that the contracting company may concentrate its efforts on its core activities.

In this regard, in May, Brazil’s highest labour court amended a 1993 paper (Precedent 331) which provides general directions on legal outsourcing. According to this, outsourcing will be illegal – and therefore the contracting party will be subject to fines and considered to be the actual employer of related employees – unless the outsourced activities are merely support services provided to the contracting company, and as long as the activities are not provided by specific personnel appointed by contracting company and there is no direct subordination to it.

Despite this, the continuing absence of a proper legal definition of “support activities” and “main activities”, and the lack of a specific law setting out in full the details of rules governing outsourcing, means there is still plenty of scope for subjective interpretation with regard to the legality of outsourcing in Brazil.

Moreover, even if outsourced activities are not related to the core business of the contracting company, the Brazilian authorities may still consider them illegal in cases where the main characteristics of a traditional employment relationship are present.

Contracting companies’ liabilities

In those cases where outsourcing is construed as illegal by the Brazilian authorities, the contracting company will be deemed liable in terms of the employees’ labour rights and will also be responsible for the payment of any relevant fines levied by the public authorities.

It should also be noted that even in cases where outsourcing is construed as legal, employers in Brazil can still be held responsible for labour obligations and therefore be liable for the payment of any amounts due to the outsourced employees. This is because Brazilian labour law adopts the principle of universal protection in the case of the workforce, whereby workers’ rights must be fully respected by those who benefit from their activities.

As a consequence, even in cases where outsourcing is considered legal from a Brazilian labour law perspective, the contracting company will still assume labour-related obligations towards the outsourcer’s employees in the event that the latter fails to meet them.

Legislative trends

Over a period of years there have been innumerable legislative initiatives in Brazil designed to create effective legal standards applicable to outsourcing. The House of Representatives has received more than 20 such proposals on this subject alone.

Notwithstanding such initiatives, it is not possible to anticipate what will happen next. For this reason, it is vital to take into consideration all existing and relevant case law in order to arrive at a sound commercial decision about outsourcing, without falling foul of the regulators.

Risk prevention

On the evidence of recent trends and related case law, the legal basis covering the outsourcing of manpower in Brazil is still a work in progress. For that reason it is advisable for employers to take extra precautions when deciding whether to contract workers as their own employees.

In this regard, the following key points should be borne in mind by employers at all times when considering the use of outsourced labour:

  • the main activities of a company (that is, activities related to the company’s core business) should be performed by its own employees;
  • companies that choose to outsource their support activities should distance themselves from the outsourcer’s employees, thereby demonstrating that they have no involvement in their employment relationships, nor have any part in directing their activities;
  • it is essential to check whether the outsourcer is in good standing with regard to its labour liabilities towards its employees, not only before entering into an agreement but also during its performance; and
  • outsourcing agreements should contain a clause stipulating that the contracting company will be entitled to perform periodic audits and also to retain any amounts payable under such agreements until the full accomplishment of labour obligations is demonstrated by the outsourcer.

Geir Sviggum is managing partner of Wikborg Rein in Shanghai. Andrea Falcão is a partner at Vieira Rezende Barbosa e Guerreiro Advogados, an associated law firm of Wikborg Rein, in Rio de Janeiro


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