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One of the features of doing business in Brazil is adapting to a new set of laws. In Brazil, many things are similar, but there are a few sets of laws that stand out as quite different and surprising: consumer protection, tax, and labor. Today, we look briefly at labor law, describing some of the features of labor law and what to expect when doing business in Brazil.
In Brazil, labor law falls under a separate set of regulations, and many labor cases are resolved by specific, labor law tribunals. Many companies have a high number of labor law cases, and lots of law firms have labor law departments. So what can a multinational company expanding to Brazil expect?
- Lawsuits. Try as hard as one wants, labor lawsuits are a feature of business. Some companies react by keeping employees instead of firing them, and other companies try to rely on short-term employment contracts to avoid liability. But labor lawsuits are a fact of life.
- Interesting decisions. As a country with a civil law tradition, the concept of binding "precedent" does not exist in the same form as it does in common law country. The judge will decide each on its merits, and two cases with similar facts can render different results. There are also "moral damages" that compensate the employee for damage to reputation. For a glimpse of this, check out a recent opinion from a court in Goias (in the interior of the country) condemning a Siemens subsidiary to pay 4,000 reais in moral damages for revoking a promise to work. The court also found the defendant litigated in bad faith, adding to the award in favor of the employee.
- Potential trouble. According to leading news journal Exame, the owner of the brand Zara recently had to deal with a third-party manufacturer who was keeping immigrant employees in "slave-like" conditions. It appears the company is responding to the allegations and trying to keep greater control of its contractors, but this is an important issue to keep in mind from a legal and public relations perspective.
So what should companies do to limit the possibility for liability as described above? Here are a few suggestions:
- Hire slowly. It may seem like the first thing to do when entering the country is hire employees, but for a company exploring the market or just dipping its toe in, it may be better to consider a truly independent contractor or agent/distributor. This can depend on the situation, but starting with an independent contractor can give the company the exposure to potential clients and business without the risk of labor lawsuits in the near future.
- Be prepared. Labor lawsuits are going to come, and the decisions from the courts may appear baffling. But it's part of doing business in Brazil right now.
- Manage well. If you cannot prevent the lawsuits, then it's best to take the steps to minimize their impact and avoid the specter of a potentially big decision hurting the bottom line. Some law firms are better at this than others, and they can offer flat rates to handle labor cases. It helps to have a knowledgeable attorney with experience handling labor lawsuits to make sure they do not get out of control.
While this might sound foreboding, it's nothing that should limit a company's decision to expand to Brazil. Like all countries, there are differences in the legal culture. It just helps to be prepared.
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