Brazil: Extension of Permissible Outsourcing Activities

Recent labor law reform has introduced the possibility of outsourcing the main activities or “end activities” of a company. Previously only “noncore” or “intermediate” activities unrelated to the main business of a company, such as office cleaning, could be outsourced.

Previously there was no legislation specifically regulating outsourcing in Brazil. Instead, the matter was regulated by a pronouncement by the Superior Labor Court (TST)— Pronouncement # 331—which prohibited the outsourcing of end activities. For instance, a company could hire another company to provide security or cleaning services (provided that these activities were not performed by the contracting party itself) without the risk of being considered in court as the actual employer of the service provider’s personnel. However, if the company were to hire a company to provide services related to its own business activities, labor courts would automatically deem such operation a fraud designed to circumvent the first company’s requirement to hire its own personnel, which would result in a deemed employment relationship between the first company and the second company’s personnel providing the contracted services.

This has been changed by the Labor Reform Law # 13.467, which determines that contracting a third party to provide services—including those related to the contracting party’s own business activities—shall be deemed as a mere provision of services. Furthermore, the law expressly states that there is no employment relationship between the contracting party and the service provider’s personnel in such cases.

Notwithstanding these new provisions, it should be noted that companies that decide to outsource their end activities should still be wary of employment risks arising from such operation. This is because, while the outsourcing of any activity is now legal, it may still be analyzed by labor courts seeking to determine whether the relationship between the contracted party’s employees and the contracting party has all the characteristics of an employment relationship as defined by law (service provided by an individual, personality, cost, non-eventuality, and subordination). If all these elements are present, the outsourcing shall still be deemed a fraud.

Comment

With the new provisions of the labor reform, companies may now opt to outsource their end activities, which was previously prohibited in Brazil and automatically considered a fraud. Therefore, the scope of labor litigation regarding this matter has changed: instead of discussing whether a company outsourced its business activities, litigation is now likely to focus on whether the relation between the service provider’s personnel and the contracting party has the elements of an employment relationship.

Written by Eduardo Boccuzzi and Matheus Diego Perencin Vizotto of Boccuzzi Advogados Associados and Roger James of Ogletree Deakins

© 2018 Boccuzzi Advogados Associados and Ogletree, Deakins, Nash, Smoak and Stewart, P.C.