Employment termination law and legislation in Brazil

1. Dismissal of employees

1.1 Reasons for dismissal

An employment agreement can be terminated by the employer and the employee can be dismissed in two different ways: with cause, when the employee has committed one of the breaches specified in the labour laws, or without cause, when the employee is dismissed at the employer’s discretion, due to redundancy or other reasons that do not necessarily need to be specified.

The difference between dismissal with cause and without cause lies in the severance payments that the employer must make to the employee upon dismissal (see below).

The labour legislation determines that an employee can be dismissed with cause for the following reasons:

  1. dishonesty;
  2. sexual harassment or inappropriate behaviour;
  3. the employee competes with the employer’s line of business or carries out other business prejudicial to the employee’s work, on his / her own or through third parties, without the permission of the employer;
  4. the criminal conviction of the employee, resulting in the employee being incarcerated and not able to attend work;
  5. poor performance;
  6. frequent drunkenness or drunkenness at work;
  7. disclosure of company secrets;
  8. insubordination or indiscipline;
  9. the employee abandons his work;
  10. insult, defamation or slander, or physical offence, carried out at work against any person, except in legitimate self-defence or in defence of a third party;
  11. insult, defamation or slander, or physical offence, carried out at work against the employer or superior, except in legitimate self-defence or in defence of a third party;
  12. frequent gambling;
  13. losing the professional qualification necessary to perform work due to the employee’s fault; and
  14. being involved in actions contrary to the national security, as duly evidenced through an administrative proceeding

The following employees have the right to stability, and cannot be dismissed without cause from their employment:

  1. pregnant employees cannot be dismissed without cause from the date the pregnancy is confirmed until five months after giving birth to the child;
  2. an employee who suffers an accident at work and is prevented from attending work for at least 15 days cannot be dismissed without cause for a period of one year, counted from the date the employee returns to work; and
  3. an employee elected president of the internal commission for accident prevention cannot be dismissed without cause from the date he registers to run for the position until one year after the end of his / her tenure.

In addition to dismissal of the employee with cause or without cause, the employer and the employee can amicably agree to terminate the employment agreement. In such a case, lower severance payments are due (see below).

1.2 Form

The employer must notify the employee of the dismissal in writing. In addition, the parties must execute a term of termination, and the employer must register the dismissal in the employee’s employment booklet and inform the competent authorities.

1.3 Notice period

Except in cases of termination with cause, where no prior notice is required, or if a longer notice period is stipulated in the employment agreement, employees must be notified of the dismissal at least 30 days in advance.

In addition to the 30-day notice period, the employee must receive payment in lieu of an additional “notice period” equivalent to the salary for three days per year of employment up to a maximum of 90 days. If no dismissal notice or less than a 30-day notice is given, the employer is obliged to pay the employee the salary that would otherwise be due for the full 30-day
notice period.

1.4 Involvement of works council

Not necessary.

1.5 Involvement of a union

No involvement normally, other than in the case of a program of collective voluntary dismissal (see below).

1.6 Approval of state authorities necessary

Not necessary.

1.7 Collective redundancies

There is no requirement in Brazil for any specific measure to be taken in case of collective redundancies. However, the employer may elect to agree with the employees’ union to a programme of collective voluntary dismissal. Under such a programme, the employer can be authorised to make reduced severance payments for employees who voluntarily choose to adhere to it. From the employer’s perspective, the programme allows the employer to pay less than it would otherwise pay to employees who are dismissed without cause. For employees, the programme can be beneficial as they may be able to receive some indemnification that they would otherwise not have be entitled to had they decided to terminate their employment agreement themselves.

1.8 Summary dismissals

Summary dismissals (dismissals without notice) are only permitted for dismissals with cause. For dismissal without cause, a 30-day prior notice is generally required (see above). However, the employer may elect to provide financial compensation for the prior notice period. In this case, the employer has to pay to the employee the salary the employee would have earned during the 30-day prior notice, and the employee is not required to work during this period.

1.9 Consequences if requirements are not met

The employee may have various claims against the employer related to his dismissal. For example, in case of dismissal for cause, the employee may have a claim for unfair dismissal and require payment of the severance dues that would have been payable for a dismissal without cause. In case of a dismissal without cause, the employee may have a claim with respect to the severance payments received, or other employment-related rights accrued during the employment term which were not paid.

Employment claims are made before specialised labour courts in Brazil.

1.10 Severance pay

In case of dismissal for cause, no severance pay is due to the employee.

In such cases the employer must only make payments related to rights the employee accrued during the employment period, which can include pro-rata payment for accrued holiday entitlements (1 / 12 of the employee’s holiday pay for each month of the incomplete holiday accrual period at the time of dismissal (such holiday pay being, in full, equivalent to one monthly salary plus an additional 1 / 3 of monthly salary), proportional 13th salary (1 / 12 of one monthly salary for each month worked in the then current calendar year), as well as double payment for any overdue holiday periods (i. e., holiday periods not enjoyed by the employee within 12 months of the employee acquiring the right to enjoy such holiday period).

If the employee is dismissed without cause, the employer must pay to the employee, in addition to the payment of accrued rights and as a penalty for unfair dismissal, an amount equal to 40 % of that which the employer has deposited into the employee’s severance compensation fund (“FGTS”) during his / her employment. In addition, the employer must pay a further 10 % of the amount deposited into the FGTS to the government. Every month, employers are required to deposit 8 % of the employee’s monthly salary into his / her FGTS account, which is managed by the Federal Savings Bank on behalf of the employee. Thus, this penalty will depend on the length of employment and on the amount of the employee’s monthly salary.

If the dismissal is amicably agreed to between the employee and the employer, the employer will have to pay half of (a) the financial compensation for prior notice, if the parties agree that the prior notice will be financially compensated for instead of the employee actually working during such period, and (b) the penalty equivalent to 40 % of the amount the employer has deposited into the employee’s FGTS (i. e., 20 % of the amount deposited into the FGTS).

All other termination payments, such as amounts due in respect of accrued rights, should be fully paid.

In cases of fixed term employment contracts where there is no provision allowing the parties to terminate the agreement early without cause and the employer opts for early termination without cause, the employer must pay the employee half of the amount the employee would otherwise have been entitled to receive during the remainder of the agreement term.

1.11 Non-competition clauses

The law does not deal with the validity of non-compete clauses. Currently, the validity of such clauses is still being debated at the labour courts. On the one hand, some courts understand that non-compete clauses breach the constitutional rights of all persons to carry out any work, profession or activity of their own choosing, provided the professional qualifications are met. On the other hand, other decisions have confirmed the validity of non-compete clauses, provided some restrictions are included, such as:

  1. the non-compete clause shall be reasonably limited in time and to a certain geographic area;
  2. the restriction shall be related to the activities the performed during his / her employment, and it shall be necessary and reasonable to protect a relevant interest of the employer;
  3. the employee shall be entitled to receive financial compensation if he / she is restricted from work due to the non-compete provision; and
  4. the non-compete clause shall be agreed on at the outset of the employment.

1.12 Miscellaneous

The above rules and guidelines apply to private employment agreements. Public officials and public employees are generally subject to a specific employment regime which, among other things, provides for employee stability, meaning that they cannot be dismissed without cause after a probation period.

2. Dismissal of managing directors

In Brazil, the rights and obligations of a ‘director’ are the same whether they are for a ‘managing director’ or any other type of director. Although this is not the normal practice, a director may also be an employee of the company. If that is the case, the relationship between the company and the director will be subject to labour laws, as well as to the legal / statutory rules applicable to the appointment / dismissal and duties / responsibilities of directors. This table only covers the removal of managing directors from their positions as director, and does not cover termination of any contract of employment or other employment issues.

2.1 Reasons for dismissal

A managing director may be dismissed at any time for any reason, unless the articles of association or bylaws of the company provide otherwise.

2.2 Form

The dismissal of the managing director will require the resolution of the shareholders or board of directors of the company, as applicable, which shall be recorded in a written document, such as the minutes of a shareholders’ / board of directors’ meeting, or an amendment to the articles of incorporation. In order for the dismissal to be effective before third parties, such minutes or amendment must be registered at the Companies’ Registry and, in the case of a corporation, published in local newspaper.

If the company is incorporated as a limited liability company (“limitada”), the removal of the directors is subject to the following voting thresholds, depending on (i) whether the elected director is also a shareholder or not, and (ii) whether the director was appointed in the articles of association or in a separate document, such as the minutes of a shareholders’ meeting:

  1. if the director was appointed in a separate document, whether also a shareholder or not, the removal will require the decision of a majority of the capital holders;
  2. if the director is also a shareholder appointed in the articles of association, the removal will require the approval of 2 / 3 of the capital holders, unless the articles of association provides differently; and
  3. if the director is not a shareholder, but was appointed in the articles of association, the removal will require the approval of 3 / 4 of the capital holders.

If the company is incorporated as a corporation, the managing director can be appointed either by the shareholders or by the board of directors (if any), as determined in the bylaws of the company. If managing directors and other executive officers are appointed by the board, their removal normally requires the approval of a majority of the board, unless the bylaws provide for a different threshold. If appointment is made by the shareholders, removal usually requires the approval of the holders of a majority of the company’s share capital, unless the bylaws stipulate a higher threshold.

2.3 Notice period

Removal as a director is immediate unless otherwise specified in the articles of association, bylaws of the company, or the shareholders’ / board of directors’ resolution

2.4 Involvement of works council

No involvement.

2.5 Involvement of a union

No involvement.

2.6 Approval of state authorities necessary

Not necessary.

2.7 Collective redundancies

Not applicable.

2.8 Summary dismissals

No special rules apply.

2.9 Consequences if requirements are not met

The removal of the director is void.

2.10 Severance pay

Not applicable.

2.11 Non-competition clauses

If the managing director is also an employee, a non-competition clause could be agreed upon in the employment agreement. The law does not deal with the validity of non-compete clauses, and the validity of such clauses is currently being debated at the labour courts. On the one hand, some courts understand that non-compete clauses breach the constitutional right of all persons to carry out any work, profession or activity of their own choosing, provided the professional qualifications are met. On the other hand, other decisions have confirmed the validity of non-compete clauses, provided some restrictions are included, such as:

  1. the non-compete shall be reasonably limited in time and to a certain geographic area;
  2. the restriction shall be related to the activities the employee performed during his employment, and it shall be necessary and reasonable to protect a relevant interest of the employer;
  3. the employee shall be entitled to receive financial compensation if he is restricted from work due to the non-compete provision; and
  4. the non-compete clause shall be agreed on at the outset of the employment.

If the managing director is not an employee, and the non-compete  clause has been established in a corporate document (bylaws, minutes   of shareholders’ or board of directors’ meeting), courts are normally more inclined to uphold its application. However, the court would here evaluate specific aspects of the relation and assess whether, despite the director not being an employee, the non-competition clause could diminish the managing director’s employment capacity.

2.12 Miscellaneous

Not applicable.