Brazil: Supreme Court Rejects New Indexer on Labor Debts

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By Ed Taylor

July 14—A justice of Brazil's supreme federal court has overruled a dramatic change in the indexer used to correct company labor debts.

In August of last year, Brazil's superior labor court replaced the indexer that had been in use with another that amounted to a significant increase in the cost for companies to appeal Brazilian labor court decisions.

It is common for companies in Brazil to appeal labor court rulings that go against them, and these appeals can drag on for years. Over this period, the courts correct the charges the companies are appealing for inflation. Until last August, the courts used an indexer that was favorable to companies, falling below annual inflation, but the superior labor court replaced this with Brazil's consumer price index, which is significantly higher.

Companies and banks have challenged this decision, and on July 5 supreme court justice Dias Toffoli issued a ruling suspending the labor court decision. The ruling came in a challenge of the new indexer filed by Brazil's national federation of banks and the Safra bank.

The plaintiffs pointed out that the previous indexer, known as the reference rate, had shown a variation of 1.1 percent in 2015, while the consumer price index posted a rate of 10.70 percent. According to the Safra bank, this raised its labor debt by $303 million.

Toffoli rejected the labor court's use of the new indexer against Safra, stating that a supreme court injunction issued last October had already suspended the application of the indexer. His decision now must be ratified by the full supreme court, but no date was set for this.

Attorney Juliana Bracks of Bracks Attorneys complained in an e-mail to Bloomberg BNA on July 12 that the labor courts are continuing to ignore the October injunction of the supreme court. Bracks stated that all lower courts should now follow Toffoli's decision. Brazil's judicial system, however, does not use the concept of binding precedents.

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

The text of Toffoli's ruling is available here.

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

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