Brazil: New Government Promises Labor Reform

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By Ed Taylor

Aug. 1—Brazil's new government, in office since May, has promised a major overhaul of the country's antiquated and highly bureaucratic labor legislation.

Labor Minister Ronaldo Nogueira said on July 20 that the government will release by the end of the year a labor reform proposal that will stress collective bargaining and legalize outsourcing, which today is restricted and frequently rejected by labor courts. He added that basic labor rights will be maintained but several areas will be opened to negotiations between management and labor.

Noqueira reflected the opinion of business leaders when he criticized Brazil's existing labor legislation, which was inspired by the labor code of Mussolini's Italy in the 1930s and 1940s, saying that the legislation no longer reflects the reality of the marketplace. Brazil's business associations have long lobbied for labor reforms but have made little progress.

From 2003 to this May, Brazil was governed by the leftist Workers Party, which as its name suggests is strongly pro-labor. The Workers Party governments routinely rejected any proposal to reduce the suffocating bureaucracy faced by companies forced to deal with a myriad of labor laws. Because of the literally hundreds of laws defining workers' rights and guaranteeing benefits, large companies must maintain battalions of labor attorneys to protect them from suits by disgruntled employees, which average over 3 million a year.

These suits are handled by Brazil's ubiquitous labor courts, which are famed for their pro-worker paternalistic mentality.

‘A Working Hell'

The rigidity of Brazil's labor laws prevents management and workers from negotiating changes in salaries or working hours even when the company is facing bankruptcy, and generous guaranteed severance payments create incentives for employees to seek dismissal. In addition, companies cannot reward good employees with pay raises without passing on these same pay hikes to other, less efficient employees.

“Brazil has managed to create a working hell,” Jose Marcio Camargo, a university professor and respected labor expert, said at a seminar on labor legislation held in Rio de Janeiro on July 27. “Brazilian labor legislation is an entanglement of things that are difficult to understand. No one can follow it completely. This means that investing here has an enormous uncertainty.”

The prospects for altering this bleak picture have improved markedly since May when leftist president Dilma Rousseff was suspended and removed from office to face an impeachment trial in Brazil's senate. She was replaced by vice president Michel Temer, who is from a different party, a frequent occurrence in Brazil. Temer and his party are center-right and largely pro-business.

Rousseff's trial is expected to be completed at the end of August and polls of senators have shown that approval of her impeachment is a near certainty. Emboldened by this situation, Temer has begun to unveil his full program, emphasizing a labor reform proposal.

Major Overhaul

According to labor minister Noqueira, the government's proposal will contain a major overhaul of existing legislation, known as the consolidated labor laws or CLT for its initials in Portuguese. Over the years, the CLT has undergone hundreds of minor alterations caused by labor court rulings, which have added to the bureaucracy and uncertainty faced by companies in dealing with Brazilian labor laws.

“The peculiarities of Brazilian justice have given the judiciary in the labor area an exaggerated force, going beyond what is normally the case,” said former labor ministry official and highly regarded labor consultant Jose Pastore.

In announcing the government's reform intentions on July 20, Nogueira said that “the CLT will be updated with the objective to simplify so that interpretations will be the same for workers, employers and judges. Workers' rights won't be revoked.”

He added that the government will also make permanent the Employment Protection Program launched last year, which permits reductions in workweeks and salary for companies facing severe economic hardship.

As part of the government's initiative, Noqueira opened talks on the reform proposal with union leaders on July 27, promising to involve them in the development of the proposal through a work group with government and organized labor representatives.

Joao Carlos Goncalves, general secretary of the FS federation, Brazil's second largest union umbrella group, said he favored the strengthening of collective bargaining “as in other countries.”

Conspicuously absent from the encounter, however, was a representative of CUT, Brazil's largest union federation, which is linked to Rousseff's Workers Party. CUT leaders oppose the Temer government and have vowed to combat any labor reform proposal in congress.

Officials of the government remain confident, however, that once the impeachment issue is resolved at the end of August they will be able to negotiate congressional approval of the labor reform.

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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