Tracking of working time rules in Brazil: recent developments

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Rodrigo Seizo Takano
Machado, Meyer, Sendacz e Opice Advogados, São Paulo
rtakano@machadomeyer.com.br

Murilo Caldeira Germiniani
Machado, Meyer, Sendacz e Opice Advogados, São Paulo
mgerminiani@machadomeyer.com.br

Pedro Schor
Machado, Meyer, Sendacz e Opice Advogados, São Paulo
pschor@machadomeyer.com.br

One of the most significant reforms achieved by labour movements after the Industrial Revolution was the setting of limits on working hours per day and per week. In recent decades, however, rules regarding the tracking of working hours and overtime are examples of issues that have been most influenced by social changes. Legislators have been struggling to adjust provisions of law in light of these changes.

In Brazil, working hours are regulated by the Brazilian Consolidated Labour Laws (Consolidação das Leis do Trabalho, or CLT) and the Brazilian Federal Constitution, which, among other constitutional rights, establish the maximum working hours per day and per week, as well as the right to payment for overtime.

Work hours are limited in Brazil to eight hours per day and 44 hours per week, except if otherwise established by the parties in an employment agreement or in an applicable collective bargaining agreement (but only for fewer hours per week).

Employees who work more than the legal limit on working hours, or more than the the working hours defined in their employment agreements or in the applicable collective bargaining agreement, are entitled to be paid for the corresponding overtime hours worked. Additionally, they are entitled to an overtime premium of at least 50 per cent (or 100 per cent if the overtime work occurs during the employee’s weekly time off or holidays). Overtime hours paid on a regular basis must also be taken into consideration when calculating labour and employment and social security charges, which increases overtime-related costs.

The CLT also establishes that, as a rule, employees are subject to control and tracking of work hours. Until November 2017, when the Brazilian Labour Reform (Law No 13467/2017) implemented significant changes to the CLT, there were only two exceptions to the rules regarding the tracking of working hours and, thus, eligibility to receive overtime payments: external employees and employees holding positions of trust. In other words, these were the only categories of exempt employees in Brazil.

External employees are those who work outside the employer’s premises, such that it is impossible for the employer to control their working hours. Brazilian case law establishes that, for an employer to be able to legally classify employees as external and, thus, exclude them from eligibility for payment of overtime, it cannot have any means of tracking their working hours, activities and daily routine. If there is any possible means of tracking their working hours, payment of overtime is due to them. Due to new technologies, however, this requirement is currently extremely difficult to meet and, therefore, overtime-related claims filed by former external employees (that is, external sales employees) usually involve significant sums.

Employees holding positions of trust are those employees holding management powers (eg, powers to represent the company, hire and fire and so on). The Brazilian standards are quite restrictive when assessing whether an employee holds a management position for the purposes of excluding them from eligibility for payment of overtime. The line between ordinary employees and those holding management positions is drawn on a case-by-case basis and is thin. In this context, there has historically been a significant number of labour lawsuits filed by former employees, claiming overtime-related payments on the basis that they were misclassified as exempt.

Overtime-related claims by remote workers are also very common in Brazil, given that the CLT did not consider remote workers to be exempt employees until the Brazilian Labour Reform of November 2017.

In this context, overtime-related claims, historically, have been extremely relevant for companies in Brazil, as they are one of the most common claims employees make when filing labour lawsuits. In 2017, according to the Brazilian Superior Labour Court, the number of new labour claims involving overtime was 509,863.

The significant number of labour lawsuits involving overtime-related claims is mainly related to the fact that, over the last few decades, Brazilian labour courts have created several precedents granting additional rights related to overtime payments, based on a broad interpretation of the law. For example, there was a precedent according to which the time spent from home to work and vice versa (in itinere) could be deemed to be part of an employee’s working hours, depending on the location of the company and lack of public transportation, which created significant unexpected labour liabilities.

Since the Brazilian Labour Reform, significant changes have been implemented, aimed at providing a higher level of legal certainty and reducing the number of claims in Brazil.

This is especially important because developments in technology and the evolution of social relations are constantly changing the way employees interact with each other and the manner in which services are rendered. Consequently, the laws, regulations and case law need to be constantly updated, in order to reflect the new dynamics of social and labour relations in the workplace.

From a legal perspective, the Brazilian Labour Reform established that the rendering of services predominantly outside of the employer's premises, using information and communication technologies is considered to be remote work. Employees providing services as remote workers are exempt from the tracking of work hours. This guarantees a higher level of legal certainty for this type of engagement.

In addition, the changes in employment laws in Brazil over the last two years have also encompassed changes in the way working hours are tracked.

Before the recent legislative changes, companies employing more than ten employees were required to keep track of their working hours through specific handwritten, mechanic or pre-approved electronic systems. In the case of litigation, the burden of proof regarding lack of overtime was on the company. Thus, if a company employing more than ten employees did not track their working hours through these systems, it would have to rely on witnesses and documents to try to demonstrate that an employee did not work overtime. This is so because, according to Precedent No 388, I, issued by the Superior Labour Court, if a company is not able to demonstrate that an employee did not work overtime, the employee’s claim will prevail.

More recently, Law No 13874/2019 changed the rules related to the tracking of work hours. Consequently, now only companies with 20 or more employees are required to track working hours, which has reduced indirect labour costs for small businesses and startups.

Moreover, Law No 13874/2019 changed the CLT, so as to establish that employees and employers may execute individual agreements to regulate the tracking of work hours by exception. In this system, employees must input into the tracking system only the hours that diverge from their usual working hours. Through this mechanism, it is presumed that employees worked their regular work hours, unless they input that, on a given day, they worked overtime.

Before this change, the lawfulness of this mechanism was often challenged by former employees before the Brazilian Labour Court. For this reason, companies avoided using it. This legislative change came into effect after the Brazilian Superior Labour Court expressly recognised the lawfulness of this mechanism, when implemented through the execution of a collective bargaining agreement. With the recent legislative changes, the mechanism for the tracking of working hours by exception may be implemented even without the involvement of the labour union, which makes it much easier to be implemented by companies, especially startups.

In addition to this, even though the Brazilian Labour Reform did not alter weekly or daily limits on work hours, as this is a constitutional matter, it also allowed parties to directly negotiate mechanisms to compensate working hours during a six-month period (the so called ‘Hours Bank’). This previously required the execution of a collective bargaining agreement with the labour union. Individual agreements addressing this type of compensation were not valid in court.

This also reflects a new reality in which employees are allowed to negotiate certain working conditions directly with their employers, in order to better fit their needs and wants. Furthermore, it also reflects a change in the rationale behind labour and employment laws in Brazil. By letting employees and employers negotiate certain employment conditions, provided that constitutional rights are respected, Brazilian laws are following a global trend to minimise governmental interference in labour and employment relations.

These legislative changes reduced bureaucracy in employment relations by allowing employers and employees to better adapt their relationship to their specific conditions, and also guaranteed a higher degree of legal certainty for companies.

As a result of the Brazilian Labour Reform, over the last two years the number of new labour lawsuits involving overtime-related claims has substantially dropped, amounting to 335,148 in 2018 and 317,373 in 2019. This represents a reduction of almost 40 per cent when compared to the numbers prior to the Brazilian Labour Reform in 2017.

This number is still significant, but the new regulations have contributed to increasing the legal certainty for companies when implementing alternative mechanisms for tracking work hours. These are more practical and cost-effective when compared to traditional tracking mechanisms (eg, electronic time-cards), which are too burdensome and no longer fit with the new workplace or the work performed by employees.

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