Grounds for Termination
In Brazil, employments are at will, meaning that any party may terminate the employment agreement without cause upon the mandatory prior notice and payment of the severance. It is not necessary to mention any reason for termination, except if it is a termination with cause. Termination with cause is the most severe sanction for an employee and results in the reduction of the employee’s severance entitlements. Also, the termination with cause is always an exemplary action before other employees.
The employer should only terminate an employment with cause when the misconduct is foreseen by law and serious enough to justify such a severe sanction. The Brazilian Labour Code lists the following as misconduct:
- improbity (e.g. fraud);
- business dealings by the employee for his/her own or someone else’s benefit without permission of the employer;
- competition with the employer;
- criminal conviction (final decision);
- negligence in the performance of his/her duties;
- drunkenness, either habitual or at work;
- breach of confidentiality by the employee;
- act of disobedience or insubordination by the employee;
- abandonment of employment by the employee;
- libel, slander and any other defamation acts, exercised at worksite by the employee, against any person, or physical acts of offence under the same conditions, except in the case of self-defense or defense of third parties;
- libel, slander, any other defamation acts or physical acts of offence exercised by the employee against the employer and hierarchical superiors, except in the case of self-defense or defense third parties;
- gambling or similar conduct by the employee; and
- loss of qualification or of the requirements established in law for the exercise of the profession, as a result of willful misconduct of the employee.
Fixed-term employment relationships may terminate exactly on the last day of such term or may end before it. If it terminates on the last day of such a term, the employee will be entitled to the severance payments set forth by law. However, if the termination occurs before the fixed-term, there are two alternatives regarding the severance that vary in accordance with the wording of the employment agreement: (a) the terminating party must pay the equivalent of 50% of the amount that would be due until the end of the agreement or (b) if there is a specific clause in the employment agreement mentioning that, upon early termination of the fixed-term employment agreement, the termination will be treated as a termination of an indefinite term employment agreement and the regular severance for termination of indefinite term employment agreements will be due.
Labour legislation in Brazil is silent on the concept of mass termination (collective dismissal). It is possible to infer that the employer may legally terminate all employments without cause, provided it pays all mandatory severance. In accordance with the Labour Reform, collective dismissal does not require prior negotiation with the union. However, mass termination is still a very controversial matter in Brazilian Labour Courts and depending on the industry and number of employees involved, a prior negotiation with the union may still be recommendable.
Since employment agreements are at will, an employer can terminate an employment agreement at any time, provided that the notice period is granted. Some employees cannot be terminated without cause due to temporary job stability. That is the case of Union representatives, members of the Internal Committee for Accidents Prevention (CIPA), pregnant employees, employees that have work-related accidents, among other situations that may be set forth in the applicable collective bargaining agreement. Termination with cause and resignation are allowed even if an employee has temporary job stability. A termination with or without cause or resignation should be communicated to the other party in writing. No prior communication or requests of authorisation to the employees’ union or Ministry of Labour are required to perform any type of termination.
The Labour Reform introduced a new type of termination called ”termination by mutual agreement’’ in which both parties decide to end the employment agreement.
The employer must take the following procedures upon termination:
- Schedule a mandatory medical examination with an employment doctor, to check any possible work-related disease that could prevent a termination without cause (job stability, as mentioned above);
- Pay the severance amount within 10 days as of the last worked day. Non-compliance with such term results in a penalty to be paid by the employer to the employee in the amount equivalent to one monthly salary; and
- Validate the termination before the union or the Ministry of Labour is no longer necessary, except if it is established in the applicable collective bargaining agreement.
Is Severance Pay Required?
In Brazil, severance pay is mandatory, but the amount differs based on the type of termination, i.e. in case of resignation, termination by mutual agreement, without cause, and with cause in an indefinite term agreement and fixed-term agreement, as follows:
||Type of Termination
||Proportional to the length of service. Minimum of 30 days and maximum 90 days. Employees shall provide 30 days’ prior notice.
|30 days by the employee
||Half of the regular notice period: 15 to 45 days
||30 to 90 days to the employee
||1/12 of compensation per month of work during the calendar year, including the prior notice period.
|Vested and Proportional Vacation Not Taken
||After each period of 12 months of work, the employee is entitled to 30 days paid vacation, plus 1/3 bonus.
||Only vested vacation
||It corresponds to 40% of the FGTS account´s balance payable to the employee.
||Half of the regular FGTS penalty (20%) that is due to the employee.
If the termination without cause occurs 30 days before the annual salary increase date established in the collective bargaining agreement, the employee is also entitled to an indemnification equivalent to 1 monthly salary. Collective bargaining agreements, internal policies and individual contracts/offer letters must also be checked since they may establish additional rights. In the event fixed-term agreements are terminated without cause, the terminating party must pay damages in the amount of 50% of the compensation established for the remaining term of the agreement.
- Is a Separation Agreement required or considered best practice?
Brazilian Labour Law does not require a separation agreement. However, it may be considered good practice in the event of termination of a high-level employee/worker, who would be entitled to a special severance package beyond the severance payments determined by Brazilian Labour Law, or by the contract executed between the parties.
However, the separation agreement is not binding, i.e. even though the employee/worker signs the agreement, he/she may claim additional rights before the Brazilian Labour Courts. Despite its unenforceability, any amounts paid in connection with the separation agreement, if properly identified, may be offset against future amounts sentenced in a judicial claim, if necessary. Additionally, the separation agreement has a moral effect upon the employee/worker and is very useful to avoid claims. If the employee/worker feels satisfied with the negotiation he/she will likely not file a claim after signing the separation agreement.
- What are the standard provisions of a Separation Agreement?
The standard provisions are: (a) provision by which the employee/worker grants general release from any and all possible rights and/or payments related to or which might have arisen from the relationship with the company; and (b) provision stating that the employee/worker grants to the company the right of offsetting with the values paid in the separation agreement, any and all values that the company may be compelled to pay to the employee/worker, for any reason, as a result of any judicial or administrative determination.
- Does the age of the employee make a difference?
- Are there additional provisions to consider?
It is advisable to properly list, when possible, the nature of the amounts paid to the employee/worker in the separation agreement in order to be able to offset such amounts in the future, against amounts sentenced in a judicial claim.
Remedies for Employee Seeking to Challenge Wrongful Termination
There is no specific provision about wrongful termination in Brazil. However, since the Brazilian Federal Constitution prohibits any type of discrimination, if an employee evidences that his/her termination has resulted from a discriminatory act, he/she may file a lawsuit against the company claiming reinstatement and moral damage indemnification.
While there is no specific law regulating whistleblowing systems, the Brazilian Clean Company Act provides credits for companies that have implemented a compliance program. In this context, a whistleblowing channel is an important element of a compliance program. Internal policy should regulate it, establishing provisions about confidentiality, privacy and non-retaliation, among others. The Federal Constitution’s principles such as the right of privacy and intimacy, the protection of image and reputation and non-discrimination rights, should be complied with when implementing a whistleblowing program.