Labor Reform First Anniversary: Breakthrough or Flop?
Despite its immediate controversy, how much has the reform really affected work relations and litigation?
In 1943, enactment of the labor code, the Brazilian economy was essentially pulled by the primary industries. Industrialization was a toddler and services were irrelevant.
How can one truly expect a law from those days to be equally helpful to modern business activities with such different characteristics?
Loyal to its social character, Brazil has a wide set of rules protective of the employees which are generally inflexible. The protection of the employee has cultural origins and constitutional provision. Accordingly, the fundamental rights are unnegotiable.
The reform has not revoked nor reduced any fundamental right. The reform aims at decreasing the degree of inflexibility, though innovation in the mechanism to manage and exercise such rights, depending on collective or individual agreements. Several protective rules remain inflexible as confirmed in the reform text (however redundant such provision). For example, vacations still have 30 days and are still paid with a 1/3 premium. Its partition used to be limited to cases of holiday (or other) shutdown or extraordinary operation need. Now, parties may agree upon partition.
The reform is thus the elaboration of the set of tools to the work relations.
Why did it not increase employment rate? The reform polarizes exceedingly reformist and restrictive views. Both perspectives, however, share the frustrated expectation of improvement of employment rates. The reasons are very clear: first, companies create new jobs, not the law; second, the economy was in very bad shape; third, the reform did not substantially change the employment system (which was not expected anyway); last, because the highest employment cost is the social security tax paid by the company by almost 30% of the employee’s wages in spite of the clearly insufficient social counterpart from the government in healthcare and other welfare (thus forcing companies to provide health insurance).
The reform in a glance. Its main detectable effect has been the decrease of litigation due to more strict procedural rules sanctioning frivolous or unsubstantiated litigation. In 2018, the number of cases decreased by 40% as compared to the previous year.
The reform also affected the unions. They can no longer collect compulsory contributions from workers. Few workers agree to make voluntary payment and they have the support for the courts. Such loss of revenue affected all but the less organized or representative ones had to cease operations. The more traditional and stronger ones look for other sources of revenue and along comes the fees for negotiating the Collective Bargaining Agreements paid by the company. However, such payment may pose a risk of compliance. The union is not public agent, but it performs a public service nevertheless. Anyway, depending on the company’s internal policy, such payment may be quid pro quo, thus in violation of business ethics and conflicts of interest.
There is litigation brought against the reform. The Supreme Court will review if some of its provisions are in line with the principles of the Federal Constitution, the most important ones being: procedural rules that allocate the risk of court fees to the employee (not only to the company), union contribution and intermittent work.
Intermittent work is a novelty that not many companies have chosen to embrace. It will not fit all sort of businesses that depend on permanent workforce, but it may be a helpful mechanism to IT, engineering and consultancy business, for example, needing resources on a project-basis. Such companies frequently need some of their workers for a certain period only and will not need them before another project comes in. Paying for their availability in-between projects makes no sense BUT engaging them as contractors is a well-known risk of misclassification of employee. The intermittent work might fit such gap.
In practice, the most helpful novelties are: (a) More flexibility in the management of work time and vacation among other employment clauses and (b) Special court proceeding for settling unasserted disputes through compromise.
I will be revisiting such topics eventually.