International Labor & Employment Law Committee Newsletter

Issue: September 2012

Editor: Tim Darby | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Canada Editor: Gilles Touchette | Asia and Oceania Editor: Ute Krudewagen

Brazil, Page 2

Effectiveness of New Law on Staffing Agencies (Cooperatives) in Doubt

José Carlos Wahle, Veirano Advogados, São Paulo, Brazil

On July 19, 2012 the Federal Government enacted Law 12,690 regulating staffing agencies, known in Brazil as cooperatives (civil associations).

Brazil actually has regulated cooperatives for decades, but the pre-existing legal framework was quite open. As a consequence, in the early 1990's, self-proclaimed services cooperatives became abundant. In fact, they were services companies in disguise looking for simpler taxation and housekeeping andfor a drastic cut in statutory employment costs that did not apply to their associates. Soon, the courts responded to litigation, including class actions brought by the Labour Public Attorney's Office, and as a result of such reaction, many companies ended up with huge direct employment liability to the cooperative's associates. By the late 1990s, few cooperatives remained as legitimate operations, mainly in medical services and agriculture.

The new law in many ways confirms the general pre-existing framework, adding elements of the contemporary concern that cooperatives are not a proper alternative to regular staff, such as:

  • a general prohibition on reducing standard labor conditions (precarization),
  • A prohibition on acting as manpower agencies,
  • Mandatory benefits to associates, including minimum wage, paid weekly rest, premium for unhealthy or hazardous work, and insurance,
  • Strict penalties
    • if the cooperative acts an agent of manpower, a penalty of BRL 500.00 per worker,
    • if the cooperative does not meet legal standards,workers are considered to be directly employedby the company retaining the services,
    • for fraudulent cooperatives, criminal prosecution and liquidation of the cooperative.

Interestingly, the Law does not apply to certain professional activities with more specific rules on work relations, such as medicine and transportation. The only possible interpretation is that it really aims at protecting the unskilled workman from the fake cooperatives that neglect their employment rights.

The law poses interesting background questions:

  • Will the revamped law foster new cooperatives?
  • Will the memory of litigation in the 90's discourage companies from retaining cooperatives as service suppliers?

Social Security Rates Lowered for Additional Industries as Stimulus Measure

Carolina Davies and Rodrigo Takano, Machado, Meyer, Sendacz e Opice Advogados, São Paulo, Brazil

Additional sectors of the economy--including call centers, hotels, design houses, and several other industrial sectors--have had social security rates reduced from 20% to 1% or 2% and based on gross operational revenues rather than on total amount of payroll in April 2012 as an economic incentive measure under Provisional Measure No. 563 (PM 563), increasing the number of industries initially covered under a January 2012 measure.

Also as part of the initiatives to reduce payroll costs, the Brazilian government has studied and discussed the possibility of reducing the income tax due on payment of profit sharing bonuses to employees. A final decision on this subject is expected by the end of 2012.

PM 563 replaces PM 540, which came into force in January 2012 and, among other provisions, replaced the 20% contribution with a variable contribution between 1.5% and 2.5%, depending on the sector, for the information technology sector, information and communication technology sector, and some industrial sectors, and specified that such contribution was to be calculated based on gross operational revenues. This measure was enacted as part of a Government Plan called "Brasil Maior" ("Greater Brazil" in English) which involves an industrial, technological and foreign trade policy being pursued by President Dilma Roussef. The government has announced that the purpose of this modification is to increase the competitiveness of domestic industry by reducing labor costs, as well as to stimulate the formal labor market. However, since a substantial part of the social security contribution would depend on revenues and not on payroll, if the value of the company's payroll is not greater than its gross operational revenues, as is the case, for example, of automated companies, this measure will not result in a reduction of the tax burden.

The government will soon analyze the impact of increasing the list of sectors covered by this "tax incentive" to determine its effect on social security funds and to determine whether this measure is effectively stimulating the growth of domestic industry in order to decide if this Provisional Measure should be converted into law.

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