Brazil: Labor Courts Set Norms for Non-Compete Clauses

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By Ed Taylor

Recent Brazilian labor court rulings have established the procedure companies must follow in drafting noncompetition agreements.

Such agreements are being used with increasing frequency by Brazilian employers but are being challenged by employees asserting the agreements prevent them from accepting work in their area of expertise for extended time periods and restrict their ability to earn income.

In the latest case, a labor court in Brazil's business center Sao Paulo ruled in favor of a company's former sales manager, ordering the former employer to pay him $121,500, the equivalent of his former salary for the 24-month period covered by the noncompete agreement.

Brazil has no legislation addressing noncompete agreements, so the rules governing them have been established entirely by case law.

Placing Limits

The former sales manager had worked for the company for 18 years and on leaving was subject to a noncompete clause that prevented him from working in the same sector for two years.

Attorney Mayra Fernanda Ianeta Palopoli of the law firm Palopoli & Albrecht, who represented the former employee, argued that for noncompete agreements to be valid “the worker must be compensated in some manner so that he can maintain his standard of living.”

The court agreed and ordered payment of the plaintiff's salary over the 24-month period established in the noncompete agreement.

In September of last year, the superior labor court invalidated a noncompete agreement preventing a former employee from working anywhere in Brazil on the grounds that such a geographical limitation was unreasonably broad.

Based on these and similar rulings, attorney Gabriel Henrique Santoro of the law firm RL&AC told Bloomberg Law that companies must establish reasonable time and geographical restrictions as well as offer monetary compensation if their noncompete agreements are to withstand judicial scrutiny.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For More Information

For more information on Brazilian HR law and regulation, see the Brazil primer.

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