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News & Knowledge

Brazil: Economic Freedom Law – Modifications to Labor Rules

2nd October 2019

The so-called Economic Freedom law, was sanctioned and released by the Official Gazette (“DOU”) on 20th September 2019. The new law introduces the Declaration of Rights to Economic Freedom, establishing rules for the protection to the freedom of initiative and development of economic activities. MSI's Brazil law member DDSA - De Luca, Derenusson, Schuttoff e Advogados provides further insight into the change in regulation, which might of be interest to foreign businesses doing business in Brazil.

It establishes how the Government should act on its legislative and regulatory roles and modifies several statutes including part of the Brazilian Labor Code (the “CLT”).

Because the Freedom of Economy PM changed some labor rules, it was originally referred by press as a “mini labor reform”. However, after “shrinking” under Congress and Senate reviews, we may say that Law # 13,874/2019, as approved, essentially represents adequacy to reality, and not drastic changes to the Labor Code.

Among the modifications to Brazilian statutes just introduced by Law 13,874, we highlight the following:

  • Working hours recording: The recording of working hours is no longer mandatory for companies with over 20 employees. Previous rule had a threshold of 10 employees. It seems however important to clarify that this is not a suppression of employment rights, since the release from the obligation to keep working-hours records does not exclude the obligation to pay for overtime. Overtime shall be paid or offset whenever worked, regardless if it is recorded or not and regardless of the number of employees in the establishment. In addition, the recording will be necessary in case employer intends to offset overtime against time off – to avoid extra payment – even if the company has less than 20 employees.
  • Permission to record only exceptions to regular hours: Employer is now authorized to keep record of overtime only, if authorized by a collective bargaining agreement or by the employment agreement. This is to say that employer would no longer be required to keep track of regular working hours. This possibility however exists since 2011, introduced by the Ministry of Employment through Ordinance # 373. That possibility though was quickly put aside by employers as it was not accepted by courts. We foresee the same resistance by the Labor Courts.
  • Labor Card (“CTPS”): for the admission of employees, new law creates the digital labor card in substitution to the existing paper one (the so-called CTPS). In addition, it cancels the deadline to return employee’s CTPS in 48 hours and the respective penalty, establishing now a deadline of 5 days from admission. In practice, the existing paper CTPS was not very useful anymore and facilitated frauds to the Social Security System (“INSS”).
  • eSocial: The eSocial system shall be substituted by a simplified system for digital recording of labor and tax obligations, as well as obligations with the Social Security system. Until the “simplified system” is created, the eSocial remains mandatory.
  • Piercing of corporate veil: this is actually a change to the Civil Code but with labor impacts. The idea is that the piercing of corporate veil – which allows the attachment of personal assets of quota holders to pay for labor debts recognized in court – is conditioned to proof that the same quota holder had illegally benefited from the noncompliance behind the debt. In addition, the new law brings clear definition to important conditions of the institute such as “misuse of corporate purpose” and “assets confusion”, reducing the opening for different court interpretations and, therefore, reducing the judicial uncertainty.
  • Previous Inspection: The new law revokes the article in CLT which subjected new companies to previous inspection on health and safety work conditions. This is a clear example of adequacy to reality as the inspection bodies have stopped doing those inspections in 1983.
  • Presentation of documents in digital format: Allows the company to keep file of labor documents exclusively on digital format, with the same legal value of originals, for all purposes, including inspections by governmental bodies.

Important aspects were excluded from the original version by Senate to enable the approval, including the possibility to offset the weekly rest within the same week and general authorization for work on Sundays, which remains limited to a list of authorized businesses or dependent on administrative authorization.

About DDSA - De Luca, Derenusson, Schuttoff & Advogados - Sao Paulo

DDSA - De Luca, Derenusson, Schuttoff & Advogados (DDSA) is a full service law firm based in Sao Paulo, Brazil with a deep knowledge of our clients’ businesses and different markets.
Our firm has adopted a global, multidisciplinary client management model, which addresses all of the areas required to solve our clients' varied demands. Our core values include quality, professionalism and ethics, always striving to offer a customised client service.

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