Brazil: The Supreme Federal Court Renders Decisions Affirming the Legality of Hiring Independent Contractors

Authors:  Gabriela Lima, Mariana Fiorotto and Ana Carolina Maciel

The Supreme Federal Court of Brazil (“STF”) has recently focused its judicial lens on the practice of hiring independent contractors (commonly referred to in Brazil as “PJs”).

Although it has always been possible to hire independent contractors, in some situations, the PJs are or were misused. It means that even though the worker should have been hired as an employee, the PJ structure is or was used to try to pay less employment, social security and income taxes. However, several PJs later filed labour claims to have the relationship recognized as an employment relationship. The Labour Court was the proper court to analyse and rule the cases.

Despite no legislative changes, the STF has been deliberating on several PJ cases based on prior judgments that affirmed the constitutionality of outsourcing both core and non-core activities.

While most recent STF decisions have been favouring the legality of hiring PJs and overturning previous Labour Court rulings that recognized employment relationships, the STF has still not reached a unanimous consensus. A minority of rulings have supported the Labour Courts’ decision, recognizing employment relationships with PJs when fraudulent practices were evident. In these cases, the STF has emphasized the importance of respecting the factual findings and evidence presented in the lower courts.

Given the divergent opinions within the STF and the ongoing debate in Labour Courts, the legal status of PJs remains a critical issue. It is evident, therefore, that the subject requires further deliberation to establish greater legal certainty for various contracting arrangements beyond employment.

Key Action Points for Human Resources and In-House Counsel

• Monitor the STF’s decisions closely to ascertain the prevailing legal interpretation; and
• Given the current uncertainty, wait for a prevailing legal interpretation before reconsidering the engagement of PJs.