The Brazilian Senate has recently approved Law No. 13,467/2017 (the “New Law”) to amend the Brazilian Labor Code (Consolidação das Leis do Trabalho – CLT) and related regulations. The purpose of the labor reform is to lead to the creation of new jobs and reduce unemployment rates, through the implementation of less restrictive rules, which are consistent with present-day employment relationships.

Despite the strong antagonism by labor unions in the country, once the New Law enters into effect in November, it will unquestionably bring a breath of fresh air to a much outdated labor regime. The Brazilian Labor Code was enacted in 1945 and, although amended through the course of time, it has remained an inflexible and overprotective set of rules, incompatible to the present-day employment relations.

The pivotal changes about the Brazilian labor reform that you need to know are:

Effective Service Time. Under the New Law, if an employee remains at the employer’s premises in order to avoid inclement weather or unsafe conditions, that time will not be overtime. In addition, the time spent by the employee to commute to the workplace, even if the employer provides the transportation, will not be considered working hours if the employee is not at the employer’s disposal.

Remote Work. An employee that primarily performs work from home, or otherwise out of the premises of the employer, will be expressly excluded from the working hour system, so long as the employment agreement specifically states that arrangement.

Intermittent Work. The employee will be able to alternate between periods of work and inactivity. Under this arrangement, which must also be expressly stated in the employment agreement, the employer will be required to pay, at the end of each period of work: (i) pending salary, (ii) proportional holidays and additional 1/3; (iii) proportional Christmas bonus; (iv) paid weekly rest; and (v) social security and Severance Indemnity Fund (“FGTS”).

Part-Time Work. Presently, employers can employ workers under a part-time regime if the employee works for up to 25 hours per week, without the option of overtime. The New Law provides that the maximum hour limit will be 30 hours per week, without the option of overtime, or 26 hours per week, with the possibility of up to 6 overtime hours per week.

Vacation. Vacation time will be allowed to be split into three periods, so long as the employee agrees. One such period must last for at least 14 consecutive days and the other two remaining periods must be of at least 5 consecutive days.

Equal Pay. The New Law provides for different rules under which an employee can claim equal pay. Not only must the activities between the compared employees be the same, but it must also have been performed within the same business site. In addition, the compared employees cannot have a difference of more than 2 years in the same position and the difference between lengths of service cannot exceed 4 years.

Allowances. Meal vouchers, cost allowances, travelling expenses, bonuses and medical insurance will no longer be considered part of the employee’s remuneration, even if they are paid in a regular basis.

Economic Group. The mere fact of having the same individual or legal entity as an equity holder in two different legal entities will no longer be sufficient to establish economic group status among such entities. Evidence of pooled operations and common interests will be required to attribute them joint and several liability for labor obligations.

Retiring Partner/Shareholder. A retiring equity holder will only be liable for claims concerning labor obligations that are filed within two years from the date such equity holder formally retired from the company.

Termination. Termination of employment agreements will no longer need ratification by labor unions or the Ministry of Labor. The New Law also establishes the possibility of termination by mutual consent. In such cases, the employee will receive reduced prior notice indemnification and FGTS.

Voluntary Resignation Program. Voluntary resignation programs will be valid under the New Law. If the employee adheres to a Voluntary Resignation Program, the employee gives full and irrevocable discharge of their rights under the employment agreement, unless agreed otherwise between the parties.

Arbitration. The current Brazilian Labor Code, as a general rule, does not allow for arbitration clauses in employment agreements. Under the New Law, the parties to an employment agreement will be allowed to agree to an arbitration clause when the employee’s remuneration exceeds BRL 11,062.62.

Workers Representative Committee. Workers of companies with more than 200 employees may constitute a committee that will be a focal point for deliberations with the employer. The New Law also establishes the election criteria and provides for job stability for at least one year after the end of the mandate for the elected representatives.

Union Contributions. No longer mandatory, union dues will be optional to employees.

Collective Bargaining Agreements. The agreements executed between employers and the unions representing their employees’ interests will prevail over labor laws when their object concerns to: (i) working hours; (ii) annual time banking; (iii) breaks; (iv) employees’ representative in the workplace; (v) holiday exchange among other topics in article 611-A of the New Law.

It is important to note that President Michel Temer may still edit the New Law before its implementation in November 2017, through Provisional Measures.

Squire Patton Boggs is ready to assist you with any questions you may have concerning the Labor Reform in Brazil. For more information, please contact our Brazil Desk.