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Notice period in Brazil
Employee termination in Brazil
Post-termination restriction in Brazil
Waivers in Brazil
Transfer of undertakings in Brazil
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Termination of employment in Brazil
Termination of employment in Brazil
When terminating an employment contract in Brazil, certain guidelines and procedures must be followed to ensure that the process is conducted in compliance with local labour laws and regulations.
In this guide, we will cover several important factors you need to know about Brazil’s termination of employment process, including the notice period, post-termination restraints, transfer of undertakings, and more.
Employment law termination in Brazil
There are various employment laws that govern Brazil’s termination of employment. The Federal Constitution and the Consolidated Labour Laws (Consolidação das Leis do Trabalho – CLT) provide the framework for termination, ensuring that both employers and employees have clear guidelines to follow when ending an employment relationship.
In Brazil, employers can terminate employees with or without cause. For terminations without cause, employers are generally required to provide a notice period of at least 30 days or pay in lieu of notice. Upon termination, employees are entitled to several payments, which may include severance pay, a balance of salary, vacation pay plus one-third, a 13th salary (akin to a Christmas bonus), and a 40% FGTS (a government-managed severance fund) fine on the total amount deposited during the employment contract.
On the other hand, a termination with cause, which is considered the most severe penalty for an employee, requires neither prior notice nor payment of the severance package commonly due in terminations without cause. However, it demands substantial evidence or a significant breach of contract on the part of the employee.
Moreover, some categories of workers enjoy special protection against dismissal, including pregnant women, union leaders, and employees nearing retirement. Termination agreements should be in writing, signed, and dated to be valid. In the case of mutual consent, specific conditions apply, including payment of half the notice period and half the FGTS fine.
Mutual termination agreement in Brazil
The country’s legal system acknowledges mutual termination agreements between employers and employees. This allows both parties to agree on ending the employment contract with mutual consent. Since November 2017, with the implementation of the new Labour Law No. 13.467/17, mutual termination has become an official method for contract termination, providing a legal structure that benefits both parties involved. This approach facilitates a reduction in termination costs for the employer while ensuring certain rights for the employee, which might not be as comprehensively protected under a unilateral termination by the employer.
Mutual termination agreements in Brazil offer a more flexible approach to ending employment relationships compared to traditional firing or resignation procedures. This includes certain benefits for employees, such as reduced access to the FGTS (a government-managed severance fund) and specific severance payments, while also enabling employers to manage separations more cost-effectively, without fully sacrificing the worker’s rights.
Notice period in Brazil
The statutory notice period commences with a base of 30 days. The employer is required to provide a notice of 30 days to any employee who has completed one year of service. For those who have served beyond one year, an additional three days of notice are required for every subsequent year of service, to a maximum of an additional 60 days. This ensures that the longer an employee has served, the more time they are given to adjust to their impending change in employment status, which can be crucial for long-term employees who might face more significant adjustments post-termination.
During this notice period, employees are entitled to all of their usual compensation, including benefits. Moreover, employees have the option to reduce their daily working hours by 2 hours or to take 7 consecutive days off, without a reduction in salary, to facilitate their job search. This is crucial in supporting the employee’s endeavours to secure new employment without undue financial strain.
Employees themselves are also required to give a 30-day notice if they decide to resign, maintaining a reciprocal arrangement that respects the operational needs of the employer.
In cases where the termination is mutually agreed upon, the law provides a provision to cut down on the required notice period. This can be particularly beneficial in scenarios where an amicable agreement is reached, allowing for a smoother and potentially faster transition.
When implementing a structured termination process, keep in mind the mandatory notice period to avoid any legal repercussions.
Probationary period in Brazil
The maximum duration allowed for a probationary period in Brazil is 90 days. Employers have the option to either establish the whole 90 days from the start or to initially set a shorter period and then extend it, as long as the total probationary period doesn’t exceed 90 days. For example, an employer could set an initial probationary period of 45 days and later extend it by an additional 45 days if necessary.
Employee termination in Brazil
There are various regulations that govern the termination of employment in Brazil. Typically, employers must give employees notice for at least 30 days before dismissal. If a longer notice period has been agreed upon within the employment contract, the timeframe must be followed.
In addition, Brazil’s employment contracts are at-will. This means either the employee or employer may conclude the contract without cause, provided that any mandatory notifications are respected, and necessary severance is disbursed. However, the employee usually reserves termination for grave violations or breaches of contract terms.
Every termination must be formally documented through a written notice that is both signed and dated, ensuring clarity and formal acknowledgment of the employment’s conclusion.
Employee termination severance pay in Brazil
When employment is terminated without cause, employers are required to pay severance to the dismissed employee. This payment can be quite complex to calculate and includes a number of items, such as outstanding salary, pro-rata 13th salary (a bonus salary typically paid at the end of the year), accrued vacation time plus 1/3 constitutional bonus, and a 40% penalty over the total amount deposited in the employee’s FGTS (Fund of Guarantee for Time of Service) account during the course of employment. Employers contribute to the FGTS, typically around 8% of the employee’s monthly earnings. The FGTS fund serves as a form of severance payment that is meant to assist workers after job loss.
When an employment termination is executed with cause, it is important to note that while the employee is entitled to any accrued and unused vacation pay, including any vacation bonus, as stipulated in the applicable collective bargaining agreement or individual contract, there are certain benefits that are not payable. In particular, there will be no disbursement from the FGTS (Severance Pay Fund) or payment of an additional month’s salary.
In situations where termination is mutually agreed upon, the requirements slightly change. The company bears the responsibility of covering half of the notice period and 20% of the FGTS balance, in contrast to the employer’s unilateral termination that requires a 40% payment. Moreover, the employee in this scenario has the right to withdraw 80% of the FGTS balance, unlike the full 100% accessible in company-initiated terminations. However, it’s critical to note that employees terminated through mutual agreement are not eligible for unemployment benefits.
Post-termination restriction in Brazil
The country’s labour laws do not address post-termination restraints. Therefore, enforcement of post-termination restraints may be challenging.
To increase the likelihood of a court upholding post-termination restraints, employers should ensure that the clauses are reasonable in terms of duration, geographical scope, and the scope of activities they cover. It’s also important to note that such clauses may also require compensation for the employee after termination to offset the limitation on their ability to work within their area of expertise.
Post-termination non-competes in Brazil
Brazil’s labour law does not explicitly regulate non-compete post-termination restraints, making their enforcement challenging. However, judicial precedence suggests that non-compete periods of up to 24 months might be accepted, though periods of 6 to 12 months are typically favoured for enforceability. For such clauses to potentially be upheld, they must be reasonable in terms of duration and geographical scope.
Post-termination customer non-solicits in Brazil
Non-solicit clauses are generally permissible. This includes both customer and employee non-solicitations.
Post-termination employee non-solicits in Brazil
The employee non-solicitation agreements, while not explicitly addressed through specific labour laws, are considered through the lens of the country’s Civil Code. According to Article 608 of the Civil Code, there is an indemnity obligation for those who solicit individuals who are already under a binding contract with another party.
Although this does not explicitly target the concept of employee non-solicitation post-termination, it implies legal recognition of obligations related to the solicitation of contracted individuals, which, by extension, can apply to scenarios involving employee non-solicitation.
In addition, the general principle in Brazil’s labour law emphasises that restrictive covenants, such as non-competition, non-dealing, and non-solicitation clauses, are enforceable only if the employer can demonstrate that they have a legitimate business interest to protect, and that the restriction is reasonable in scope and duration to protect that interest.
Waivers in Brazil
Waivers in employment contracts, including releases or any agreements that result in an employee waiving their legal rights, are generally not enforceable unless such waiver or settlement has been ratified at a court. This means that for a waiver of rights, often included as part of termination agreements or severance packages, to be considered valid and legally binding, it must receive court approval. This regulatory measure serves to protect employees from potentially waiving their statutory rights unknowingly or under duress, ensuring that any relinquishment of rights is made transparently and with judicial oversight.
Therefore, employers and employees must seek judicial approval for any settlement or waiver in an employment contract to ensure its enforceability within Brazil. This court ratification process guarantees that any agreements made in the context of employment disputes, terminations, or any modifications to the contractual terms that involve a waiver of rights are thoroughly examined for compliance with the country’s labour laws and standards of fairness.
Transfer of undertakings in Brazil
There are significant restrictions on changing employment terms and conditions following such transfers. These restrictions are grounded in the principle of protecting employees from adverse changes to their working conditions as a result of corporate restructuring or a change of ownership. Brazil’s Labour Courts have developed the doctrine of “”labour succession,”” under which the new owner or controlling entity of a business unit inherits all employment liabilities and obligations. This includes adhering to existing employment contracts and maintaining the original terms and conditions of employment laid out prior to the transfer.
These restrictions are intended to protect employees’ rights and welfare during the transfer of undertakings. Employers cannot unilaterally change employment terms to the detriment of employees without potentially facing legal challenges. Any significant change to employment conditions typically requires negotiation with the employees or their representatives, and, in some cases, collective bargaining agreements may be required.
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