The possibility of working from wherever employees want, without limiting themselves to a home base, is currently one of the most desired benefits by employees.
According to research conducted by MBO Partners,[1] the number of North American professionals who adopted work-from-anywhere grew 50% in the first year of the pandemic. The Conference Board estimated that only 8% of jobs were primarily remote in the US before the coronavirus. After that, estimates range from 20% to 50% of jobs.[2]
This change did not happen exclusively in the US. It is a global trend. Various companies have adopted strategies to improve remote working to make it more attractive, healthy, and productive, benefiting both employees and employers. More and more people are rethinking the need to continue living in large cities and working only from one place.
According to Vagas, a Brazilian HR tech recruitment company, the technology, finance, consulting and business management, insurance, telecommunications, and education sectors are the ones that most offer remote work positions in Brazil.
The work-from-anywhere model has allowed a major change in Brazil, as the number of foreign companies, without local subsidiaries/entities in Brazil, engaging Brazilians citizens to work remotely from Brazil has substantially increased over the last three years.
It is becoming common, especially in the tech industry, to have Brazilian individuals engaged directly by foreign companies, receiving in USD, EUR or even in bitcoins, abroad.
But what are the labor and employment risks/issues foreign companies should consider before engaging individuals in Brazil? Do they have to comply with local employment laws?
Firstly, it is important to have in mind that, according to Brazilian laws as well as case law, labor relationships (which include independent contractor relationships) and employment relationships with the provisions of services in Brazil are both subject to Brazilian labor and employment laws and, also, to the jurisdiction of Brazilian labor courts.
The parties cannot agree otherwise and, even if they do so by, for example, agreeing to an arbitration clause or to the application of US law, such contract would be deemed null and void. This is because, according to the Brazilian Federal Constitution, whenever there is a dispute involving the existence of a potential employment relationship between two contracting parties, Brazilian labor courts have jurisdiction to rule the dispute and such ruling must be made in accordance with Brazilian labor and employment laws.
In this context, it is important to have in mind that, although there is no statute prohibiting foreign companies from hiring Brazilian citizens, it is not possible, from a practical perspective, for a foreign company to engage an individual, in Brazil, under an employment relationship, without having a local subsidiary incorporated in Brazil. This is because there are certain obligations that employers must comply with vis-à-vis the Brazilian Government that require the existence of a Brazilian entity.
Due to this, foreign companies hiring individuals in Brazil usually engage them as independent contractors only, without an employment relationship.
In Brazil, independent contractors may be engaged (a) as individual independent contractors or (b) through legal entities incorporated by them (so called “PJs”).
Independent contractors are not entitled to labor and employment benefits (annual vacations and vacation bonus, Christmas Bonus, deposits into the Guarantee Fund for Length of Service (FGTS), benefits established by the applicable collective bargaining agreement, etc.), but solely the remuneration package agreed upon between the parties.
Payments made to independent contractors by foreign companies are also not subject to social security charges in Brazil, as the paying source is not a Brazilian entity.
This is why foreign companies are able to offer remuneration packages much more attractive to Brazilian individuals when compares to Brazilian companies. Not only they usually pay abroad, in USD or EUR, but also they do not collect charges in Brazil.
However, Brazilian laws do not avoid the pronouncement of a direct employment between independent contractors and the contracting company in the event the legal requirements for an employment relationship are found to have been met.
On the contrary: if the independent contractor renders services (i) on a personal basis, (ii) on a regular basis, and (iii) under the subordination/direction of the contracting company’s employees/representatives abroad, an employment relationship must be declared directly between the individual rendering services and the contracting company.
This is based on the general principle of “substance over form”, according to which an employment relationship shall exist directly between the contracting parties, regardless of any agreement entered into between them if all the legal requirements for an employment relationship described above are found to have been met in the case.
In this case, if the independent contractor files a labor lawsuit against the contracting company, it may be required to pay all labor and employment benefits described above, in accordance with Brazilian law. This risk exists regardless of the nature of the contract.
It is true that if the foreign entity does not have a Brazilian legal entity, the chances of materialization of the risks are lower, but they still exist. As there is no Brazilian entity, the independent contractors would have to sue the foreign company, which is time consuming and depends on how long the courts take to rule the case, etc. Even though the risk exists, it would be more difficult to enforce a decision against a foreign company.
The risks increase, however, if the foreign entity decides to incorporate a local entity in Brazil, as it will become liable for all potential past labor and employment liabilities. This is especially relevant for foreign companies plaining to set foot in the Brazilian territory.
Bearing this in mind, foreign companies should map potential risks and address them before engaging individuals in Brazil.
[1] https://s29814.pcdn.co/wp-content/uploads/2020/10/MBO-Digital-Nomad-Report-2020-Revised.pdf, accessed on August 30, 2022.
[2] https://vocesa.abril.com.br/sociedade/o-futuro-do-anywhere-office/, accessed on August 30, 2022.
