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back to index backLATINtalk December,  2016


Brazil: Company retrieves partial repayment from an employee in relation to his non-compete covenant

As he failed to comply with his non-compete clause, the former superintendent of a recognized banking institution was ordered to return part of the amount he received for signing such clause, in which he agreed not to work for any other company for a specified period of time. The superintendent filed an appeal before the Superior Labor Court, but the 7th Panel dismissed this appeal and noted that the principle of good faith and the duty of loyalty should apply to labor relations.

The bank stated that the superintendent was hired by another bank that was taken over by the defendant in 2006. In order to avoid harassment from competitors, the institution offered the employee a substantial amount of money to stay in the company for two years following execution of the agreement. Although he accepted the offer, he subsequently resigned. This then led the bank to file an action requesting fulfilment of the penalty clause.

After failing in the first and second instance, the superintendent then filed an interlocutory appeal to bring the discussion to the Superior Labor Court. This appeal was also without success.

The reporter judge, Minister Vieira de Mello Filho, confirmed that the parties are free to stipulate rights and obligations, subject to the limits provided for in the law (Article 444 of the Labor Code).  In his view, the clause for staying in the company was not against the principles and dispositions of protection of work, and the bank’s interest in retaining its best and most important employees was legitimate, as was its interests in wanting to stop these employees from transferring to its competitors.

He explained that the stipulation of a penalty clause, despite discouraging any breach of the agreement, did not stop the employee from obtaining another more promising or more profitable job to the extent that he had to  terminate the employment agreement with the Bank to go to another company. The order is to return the part of the payment that he received as a bonus for staying in the company. Thus, "it is evidenced that the fine set forth in the agreement is fair and balanced", he said.

According to the magistrate, the "principle of good faith and the duty of loyalty apply to labor relations and permeate all aspects and phases, including pre- and post-contractual, addressing both sides of the employment relationship". Article 422 of the Brazilian Civil Code states that "the contractors are required to keep, at the conclusion of the contract as well as in its implementation, the principles of probity and good faith". For the reporter, it is unfair that the employee, "who received a large amount of money to stay in the business - regardless of his salary - does not comply with the agreement (infringing legitimate expectations) and is then not subject to the contractual penalties agreed". The decision was unanimous.

Source: Baker McKenzie - GAI






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