President Michel Temer recently signed the changes in the Brazilian “Consolidation of Labor Laws” (or CLT in Portuguese). Fruit of a dark age and an even darker dictator, Getúlio Vargas, the CLT is inspired in a similar Italian legislation promulgated by Benito Mussolini. The year, 1930. Esprit du temp? Maybe, but it is not justifiable that this old piece of legislation remained unchanged and un-modernized for 87 years.

Proof of the inadequacy of CLT is the fact that 95% of all labor claims in the world are filed in Brazil. I`ve written here a couple of times on the subject. CLT made Brazil one of the worst places in the world to create jobs. And that was saluted by the Unions as a “right” and as a “guarantee” of employment. I use to say that the only right effectively guaranteed by CLT over the years was that of remaining unemployed. Nothing good came of out it except filling the pocket of the Unions with the compulsory “Contribuição Sindical” (Union`s Contribution) of 1 day of salary per year per employed person, even not unionized employees. This amount of money justified another excrescency of the Brazilian labor system – 14 thousand + unions – even an “Union of the Employees in Unions”. Dystopic…

Let`s check the main changes in CLT. Foreigners, please don`t laugh! This has been a huge step ahead, though insufficient[1]:

1 – Employment Contract – New text of CLT allows employer and employee to, in mutual agreement, extinguish the employment agreement. Surreal? Yes. Before this, contract could be changed only by the employer to have full benefits to employee computed in the severance calculations – With this new text, employee can agree to leave and receive 80% of the FGTS (Unemployment Benefit Fund) and employer needs to pay only half the termination period and half of the “fine on FGTS” (20%). Before this change, it was common to employee ask employer to fire him, in order to receive liberation of FGTS, and used to “give back” the fine on FGTS “off-books”. Legislation creating tax evasion;

2 – New types of working hours – At long last, the home office was acknowledged within the legislation (well, having to be acknowledged is, per se, an excrescency). Intermittent working periods (employees paid by the hour worked, without a fixed working period) was also introduced as a valid possibility. This is good. The bad part of it is that another piece of legislation will have to be issued to regulate the intermittent working hours. In Brazil we can always expect a huge amount of bureaucracy to control this – and probably new possibilities for creative lawyers to sue the companies;

3 – Change in the present working hours contracts – innovations such as partial working time and 12 hours X 36 off-working hours was introduced as a valid arrangement. Incredibly, some professional categories already used this kind of arrangement for decades, such as doctors and nurses, which agreement had to be done in a case-by-case format. Partial time also changed – from 25 hours no overtime allowed, to 30 hours, or 26 (6 hours overtime allowed) total weekly;

4 – End of Mandatory Union Contribution – I salute this as the main change, and certainly the one that will contribute most for the modernization of the labor relations. Why? With lots of cash available and an army of “mobilizable” personnel, Unions are a political force as of today, backing some political agendas, not always good to the worker. Some “popular movements” of today are not exactly “popular” being composed of 10 to 20 thousand unionists, looks very democratic in the cameras.  As of now, the employee decides whether to contribute or not. Immediately after the signing of the law, a long line of employees[2] went to the Union to cancel their affiliation and avoid paying contributions. As will be seen very clearly, the perception of the employees on the Unions is quite negative – Unions being merely political instruments of some parties and not having the employees best interests at heart;

5 – Negotiation versus Legislation – As from the promulgation of the CLT changes, Legislation will be subordinated to the agreements between Unions and Employers, in 16 important points such as working hours, individual bank of hours (compensation with overtime), adhesion to Employment Insurance, Job and salary plan; Company`s Internal Regulations; On-site representative of the employees, online work, oversight of intermittent work, productivity compensation, registration mode of working hours, change in Holidays; identification of positions requiring apprenticeship quota, definition of insalubrity conditions; extension of working hours in insalubrity environments; incentive premiums on goods or services; participation in profits or results of the company.

6 – Lunch Time – Incredible how something so simple elsewhere can become a nightmare here. Previously, 1 hour is the minimum lunchtime, non-negotiable (even if you want to suppress your lunch and go home earlier, you cannot do it). Well, employees in production lines cannot decide that themselves due to the nature of the job performed. Many office workers cannot choose. If the employer allows it, he/she does it at his/her own peril – employee can go to court against him/her for lack of adequate lunchtime hours (some lawyers even consider that in their claims as “working conditions analogous to slavery!).   AS of now, lunchtime can be reduced to 30 minutes and the time “saved” can be used to shorten the exit time. Ridiculous, but a huge “benefit” for both sides…

7 – Time at Disposal of Employer – New text of CLT clarifies some aspects of the time that can be considered “at the disposal of the employer” and what cannot, and therefore cannot be considered as overtime – examples: a)time that exceeds the working hours but that the employee decides to spend within the company`s premises; b)use of company`s premises to personal activities, as religious practices, leisure time and lunch and social relationships. Paradoxically, companies that provided employees with good leisure infrastructure, like soccer fields, games and reading rooms, places for religious practices, were penalized for it – I`ve seen my shares of employees that played soccer on company`s team and charged the company as “overtime”…; c)uniform changes, personal hygiene, etc.

8 – Overtime – Proposal maintains a limit of 2 hours per day of overtime, with payment of at least 50% additional on the hour, but a new article foresee that the Hours Bank (existing as of now) can be agreed between the parties individually and not only as a result of collective agreements. The compensation of the Hours Bank must be done in a maximum of 6 months. • A proposta de reforma mantém o limite de duas horas extras por dia, com pagamento de pelo menos 50% sobre o valor da hora. If a severance occurs, residual amount will be paid in cash, as overtime.

9 – Communication of Exceeding Overtime – Previously, when overtime in excess to the 2 hours allowed by legislation occur, Company must communicate the Ministry of Labor. As of now, Company does not need to do it, but must keep the practice limited to urgency matters, emercencies and Force Majeure. Employee can denounce cases of abuse of the practice.

10 – Commuting Time – Incredibly, in the Brazilian labor dystopia, the time spent in commuting that exceeded the maximum labor time (hours plus overtime) should be compensated by the employer. This generated a series of artificialities in the Market, once companies tried to hire people close to their facilities, qualified or not. This also generated over the years a concentration of “richness pockets” around some cities with good education and a concentration of population in smaller and smaller areas (who knows Brazil cannot understand why such a big country has such narrow streets and packed metro areas – well this is just one of the many reasons). New CLT establishes that the commuting time is not to be computed as working hours. Here lies one of the main speeches of the Unions – ‘this is a loss of rights’ – again, the right of remaining unemployed, as can be easily seen.

11 – Working Hours for Women / Pregnancy and Breastfeeding – Some differences between man and women existed in the CLT and were removed, such as an old disposition that a woman always needed 15 minutes leave before starting overtime period (!). In addition, during pregnancy of breastfeeding, women were forbidden to work considered as being of “insalubrity”. The changes in CLT propose that a woman can continue to work normally during pregnancy and breastfeeding, provided that: a)she wants it; b)present a doctor`s certificate informing that the conditions are acceptable for the continuation of the work.

12 – Vacation – It comes as a shock to some foreign companies to know that in practice Brazilians, no matter their age or length of service, have 30 days of vacation per year. CLT did not allow these vacations to be divided into less than 10 days, and a maximum of 2 periods (resulting in 20 plus 10 days, only). The new proposal is that vacation time can be split into a maximum of 3 periods, provided that both sides agree with it and one of them cannot be shorter than 14 days calendar. None of the period can be of less than 5 days. Well, it`s a good change, and gives the employers some more latitude as to program production, and avoid hiring additional personnel. Still, it is quite a narrow-sighted legislation.

13 – Awards to Employees – Unbelievably, even the act of being magnanimous in Brazil was punishable by the law. Rewarding a good employee with a 20% bonus on salary, for a good work or exceptional performance in a certain task, was punishable with a full load of social charges attached to it – the amount was considered as “In Natura Salary” and therefore subject to at least 42% of social charges. Changes in CLT finally allows it to be done without incorporation of the amount to the base (taxable) salary, provided that it is in fact non-habitual. Certainly progress (or, let`s say, less intervention in the workplace).

14 – Burden of Loss – Legal Fees – it is quite tranquil to the employee to litigate with former employers, as it was. Nothing would come as a result of litigation in bad Faith or ungrounded claims. Even with a totally ungrounded claim, employees were not charged with legal fees, but Company should pay for it. This fact, together with the “national sport” of litigating just for the sake of extracting some more Money from the company (companies use to settle just to avoid litigation costs) made Brazil the world Champion on labor litigation. Not anymore, at least from the burden of losses angle – now each party pays its own legal fees, and in case of partial success in some causes, the compensation of burden of loss with actual legal fees is forbidden – Companies tend to hire better (and more expensive) lawyers, and this keeps the continuation of “Labor Soccer” at bay.

15 – Free Labor Justice – Until the modification of the law, any employee, no matter the level of salary, could benefit from free justice. Now, with the change in CLT, only upon a declaration of a monthly salary equivalent to 40% of R$ 5.5 thousand (maximum private sector retirement), or some US$ 1.7 thousand can request free justice – frankly, progress.

16 – Bad Faith Litigation – That was awesome! Until now, Brazilian employees could litigate without the production of a single thread of evidence. It clearly justifies the vicious circle of employment in Brazil – No need of evidence plus free justice, plus no costs in litigation, resulting in millions of lawsuits clogging our labor justice. Now, punishment was establish for bad faith litigation, and even result in penalties under the law. As of now, the Labor Law “imported” the concept of bad faith litigation from the Civil Process Code (also updated recently). This is certainly bad news, for litigating labor lawyers…

17 – Appeals Deposit – Labor law did not take into consideration the size and financial capability of a company when determining the amount of appeals deposit. This has been partially changed – as usual, the change is insufficient but hailed as progress – as of now, the deposit for not-for-profit and philanthropic organizations, home employers, small and medium size businesses. It is also valid for companies under Chapter 11 (Brazilian equivalent) and beneficiaries of free justice.

Overall, those are great points, though insufficient, to generate a revolution in the Brazilian marketplace. Coming from an extremely unpopular government, in the middle of scandals involving parties normally supported by Unions, this is almost a miracle… or the recognition that the worst financial crisis in Brazilian 517 years since discovery must be dealt with no matter the party ruling the country. We hope for the best. We do not think that such measures will make the Brazilian worker less protected. On the contrary, it will make the individual relations more necessary and the use of the labor courts as a threat, less frequent. This will make job-creation in Brazil less expensive and risky, and will certainly create wealth.

 

[1] Thanks largely to Gazeta do Povo (www.gazetadopovo.com.br) for the basic information for our article.

[2] See http://www.otempo.com.br/capa/economia/trabalhadores-fazem-fila-para-n%C3%A3o-pagarem-contribui%C3%A7%C3%A3o-sindical-1.1469409

 

Wesley Montechiari Figueira

Managing Partner