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backLATINtalk February, 2012

New Trends on Collective Terminations in Brazil

Initially, please note that in Brazil, by force of law, both employees and employers are represented by unions. Thus, this representation does not depend on the individuals' or the company's decision or desire to join a union. Unions have legitimacy to represent employees and employers in discussions that affect the entire category, such as salary increases and negotiations relating to work conditions to be applied to the entire category. As a result of the negotiations, the union that represents the employees and the union that represent the employers sign annually a Collective Bargaining Agreement ("CBA"). The provisions of the CBA are mandatory, similarly to Brazilian laws.

Despite the requirement to have unions representing employees and employers, Brazilian Federal Constitution sets forth that only one union is allowed to represent each category of employees or employers in one determined territorial base, which cannot be lesser than one City. To identify which union is legitimate to represent a certain company and the company's employees, we must verify the company's core business. For instance, a company that has as its main activity the production of vehicles should be represented by the Metal Industry's union, while its employees should be represented by the Metalworkers' union. Thus, the company's core business is what defines which union represents it and which union represents its employees.

Notwithstanding the foregoing, there are some kinds of employees (professionals) that are not subject to this general rule. These professionals are called "differentiated professional categories". These are categories formed by employees subject to specific statutes and specific regulation, such as engineers, journalists, attorneys. To an engineer of a company that produces vehicles, for instance, the CBA to be observed must be the one signed between the Engineers' union and the Metal Industry's union. If the union that represents the company does not have a CBA signed with the union that represents a differentiated professional category, then the company is not obligated to observe the CBA of the differentiated professional category.

Having provided this brief overview on Brazilian union system, it is important to stress that recent past experience shows us that having a proper agreement negotiated with the correct union for relevant collective labor matters (such as during strikes and/or in case of massive termination) is highly advisable.

Due to the recent world financial crisis, in February, 2009, a large Brazilian company (also one of the largest aircraft manufacturers in the world), terminated 4,400 of its 22,000 employees without going through any union negotiation. The Metalworkers' union then filed a lawsuit before Brazilian labor court asking for the annulment of the terminations once they were abusive and concluded without previous union negotiation. The first level of the Labor Court agreed with such plea, also granting an individual compensation for the termination, as well as the maintenance of the employees' health assistance plan until one year after the terminations. The court also determined that in case of reinstatement of positions that had been eliminated, terminated employees should have preference.

This large Brazilian company and the Metalworkers' union both appealed against such decision and the Superior Labor Court then reformed it setting forth that the terminations, in this specific case, were note abusive but that the collective negotiation is, in fact, indispensable to the massive termination.

Just as a reference, in other similar cases of massive terminations conducted in the past few years, the labor courts have determined (i) the payment of a financial compensation to the terminated employees of up to R$7,000 (approximately USD3,700), (ii) the maintenance of the employees' health assistance plan during twelve months after the terminations, and (iii) that the terminated employees, during two years after termination, had preference in reinstatement of job positions.

As an alternative to the massive terminations, the Brazilian Labor Court has set forth the possibility of suspension of the employment agreements, for a period from two to five months, for the employees' participation in courses or professional qualification programs offered by the employer with duration equivalent to the labor agreement suspension. Such courses or programs must be directly related to the company's activities and guarantee pedagogic quality, compatible duration (i.e. 120 hours to labor agreements suspended during two months) and minimal attendance (75% of the classes). During the period of suspension, the employees are entitled to receive an allowance from the Government. This alternative must be set forth in a CBA and it requires (i) employees' formal consent, and (ii) union's notification with at least 15 days in advance of the suspension.

Thus, as a result of the recent world financial crisis and the collective terminations conducted here in Brazil, we can conclude that, although there are no specific laws on massive termination requiring union involvement, the Brazilian Superior Labor Court has already indicated its understanding on the matter, in the sense that union participation, to represent and protect the employees, are required in complex termination processes.

Finally, if signing a CBA with the union to deal with collective matters such as strikes, massive terminations and labor agreements suspension is not possible, then the parties (employees' union and employers' union, or employees' union and companies) can submit the matter to the Labor Court for a ruling on the terms of the work conditions during these circumstances.

Source: Baker & McKenzie - GAI

For more information or to contact Baker & McKenzie, please click here.

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