Smith International Legal Consultants, P.A.

Although arbitration has increasing acceptance for commercial matters in Brazil, there is significant opposition in other areas of the law. One of the strongest sources of disapproval has historically been labor law. But a recent decision from the labor courts of São Paulo marks a continuing trend in favor of arbitration.

Labor law in Brazil normally falls into a completely different set of rules and decisions. The substantive law tilts in favor of the employee, and the labor courts exercise their jurisdiction jealously. The labor courts have high case loads, and there is little in the form of binding precedent, as the common law system recognizes. Further, it is not uncommon for two nearly identical cases to have completely contrary results. And for years, these courts have refused to recognize arbitration clauses, even in contracts with high-level executives. It appears that trend is changing.

Valor Economico is reporting that the one of the labor courts in São Paulo recently refused to enforce an arbitration clause between a high-level executive and his former employer, BTG Pactual, a highly renowned Brazilian investment bank. Labor courts routinely seek to protect workers from arbitration using the theory that the labor contract is a contract of adhesion. In other words, the employer foists the contract on the employee, so the court should not enforce a one-sided negotiation. In Valor article, the labor court rejected the application of this reasoning because the executive had sufficient bargaining power to allow the court to enforce the arbitration clause.

Although this decision is not binding on other courts, it shows a continuing trend in the Brazilian judiciary. Where contracts with high-level employees call for arbitration, courts increasingly enforce the arbitration clause.

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