Employees versus something else: a clash between Brazilian labour courts and the Supreme Court

Rodrigo Tostes
Pinheiro Neto Advogados, Rio de Janeiro
rtostes@pn.com.br

Natasha Ramos Soares
Pinheiro Neto Advogados, São Paulo
nsoares@pn.com.br

Pietra Elias Negrão Vaz
Pinheiro Neto Advogados, São Paulo
pvaz@pn.com.br

In every jurisdiction, there has always been a tug of war between the concepts of employees (a condition that affords rights to social security, protection and benefits) and independent contractors (a condition purely governed by contract). While some advocate for more protection for workers, others want to advance economic freedom and the right to contract. This discussion is not new.

In Brazil, as in other countries, the existence of an employment is a question of fact. Depending on the economic reality of how the person works, she would be an employee even if she signed into a contract saying otherwise. The Brazilian Consolidation of Labour Laws (CLT) sets out a four-pronged test to determine employment (CLT, Article 3). According to this test, every person working on a personal and frequent basis, for compensation and, most importantly, under subordination (under control of an employer or agent), such person is an employee, and not an independent contractor.

Based on this concept, Brazilian specialised labour courts resisted considering any other form of work outside this framework. But the gradual passing of new legislation has loosened the knot a little bit. First, by admitting the use of temporary workers to cope with seasonal increased demand for labour, or to find substitute employees or leaves of absence (Law 6,019/1974). Then, by allowing the outsourcing of non-core activities, such as security, facilities management and others (eg, Law 7,102/1983). But that was it. And it has been so for decades. The Superior Labor Court even approved a sumula (an authoritative precedential guideline) rendering illegal the use of independent contractors in activities considered to be within the principal’s core-business (TST, S 331).

With the passing of new pieces of legislation in 2017 (nicknamed the ‘Labor Reform’), things changed. As part of this legal overhaul, legislators authorised the use of independent contractors in any business activity (core or non-core) (Law 13,429/2017) and reinforced workers’ right to contract by admitting that certain default rules under CLT could be contracted around either by collective bargaining (in general) or individual agreements (in case of certain skilled, highly educated and well-paid workers) (Law 13,467/2017).

Labour unions and employee representatives sued, with the aim to strike down the new legislation, but the Brazilian Supreme Federal Court (STF) upheld, mostly untouched, the legal changes. In one case, the STF decided that it would be legal to outsource any activity, regardless of such activity being a part of principal’s core business. The only caveat is that the STF held principals secondary liable for outsourced workers’ rights, if left unpaid by their employer.

Some traditional rules survived, especially those that define the concept of employer and an employee (CLT, Articles 2 and 3). The rule whereby arrangements with the aim to circumvent employment law could be voided also remained applicable (CLT, Article 9).

Labour courts then shifted from looking into the activities of independent contractors, to how they worked. Amid this discussion, the gig economy gained traction and platform workers’ cases started to be decided with the same frame of mind. In some cases, courts even devised a form of ‘algorithmic subordination’ (which would theoretically influence ride prices and impose indirect disciplinary actions, for instance) to find drivers as having an employment with a certain platform. Among certain scholars, not doing so would sentence several disadvantaged workers to be and stay members of the precariat class.

Contrasting with the more protective view of the labour courts, the STF took a different stance and recognised that capital (economic freedom) and labour (the value of work) can be harmonised by validating other forms of labor arrangements. This strong turn was taken in two leading cases: Theme 725 and Allegation of Breach of Fundamental Precept (ADPF) No 324. Decisions taken in such cases are binding on lower courts.

Under ADPF No 324 and Theme 725 the STF held that: (1) outsourcing, by itself, is not synonymous of precarity; (2) the differentiation between ‘core’ and ‘non-core activities’ ignores the dynamics of a modern economy; (3) the Constitution does not impose the adoption of a single production model; and (4) labour law needs to adapt to changes in the labour market and society.

These two decisions served as a foundation upon which several companies started to bring cases to the STF. While normal appeal channels to the STF are very narrow and difficult, the Supreme Court admits a standalone measure called constitutional complaint (through which anyone can bring to STF a decision from any court in violation of a binding precedent of the STF). This route allowed the STF to review and eventually vacate many decisions from labour courts reclassifying independent contractors and gig economy workers as employees.

In one of those complaints, the STF decanus (an expression we use to refer to the more experienced judge in a court’s bench) said: ‘in the end of the day, the social engineering that the Labor Court has intended to carry out is nothing more than an innocuous attempt to frustrate the evolution of the means of production, which have been accompanied by legislative developments in this matter’.^[1]

The STF understands this does not mean that everyone can now be an independent contractor, and that fraud and violations of the law are going to be overlooked. STF decisions often look into how much autonomy and agency the worker had when providing the service, or agreeing to such arrangements, and if the amount of pay was adequate.

While this stance has been upheld by a comfortable majority in the STF (out of 11 Justices, eight are taking this view), the specific issue related to gig economy workers (if they are employees or not), which is considered to be more controversial, is yet to be decided en banc by the STF. While this is not yet formally scheduled, the fact that this judgment will result in a binding precedent has caused an overflow of amicus briefs to the STF.

So far, while these STF rulings are prompting discussions among scholars and the business community, labour courts are mostly agnostic, with many lower courts and appellate courts still taking the traditional, more protective view. In parallel, Brazilian Congress is discussing a bill which could provide some regulation to gig economy workers, such as some limits to how many hours they can work and setting a minimum amount per ‘gig’ while they work. There is also a tax reform being discussed, which may change the economics of having independent contractors (currently, independent contractors can incorporate an entity and use such entity to invoice for service fees, benefiting from a lower taxation, but this taxation could change in future).

While this debate exemplifies the broader global trend of reassessing traditional employment laws in light of modern economic realities, this is just the beginning, and no one is ahead of the curve. Artificial intelligence is yet to disrupt the marketplace, and this should bring even more complexity for us to cope with.

As we navigate these changes, the balance that will be eventually struck between the traditional labour law interpretation adopted by labour courts and the new working models being recognised by the STF will shape a new labour law. Until then, the clash between these titanic branches of the judiciary is far from over.