Understanding the Landscape of Labor Dispute Resolution in Brazil

By Yixian Sun

The CPR Institute hosted a June 4 webinar, “Resolving Employment Disputes in Brazil: Myths, Facts, and Opportunities,” organized by CPR’s Brazil Advisory Board, CPR’s Employment Committee, and the São Paulo, Brazil-based international law firm, Mattos Filho.

It provided an overview of Brazil employment disputes and the current legal and ADR framework to resolve them. The panelists offered their views and practical insights on 2017 labor and employment reform in the country, as well as how companies could benefit from and add ADR as an alternative option to resolve employment disputes.

Daniel Vergna introduced that Brazil’s labor litigation is most well-known for the enormous amount of lawsuits filed in the court system. Three main factors, according to him, contribute to this phenomenon.

First, at least before the labor reform, plaintiffs were not worried about the potential fee-shifting risk even if they lost at the end. Second, courts in Latin America are generally friendly to the employees, and thus it is relatively easy for employees to get a favorable judgment. Third, from a cultural perspective, employees in Brazil are proactive in filing complaints in the court and tend not to see out-of-court settlement as an option.

The 2017 labor reformation was introduced against this background. As Fabio Chong de Lima noted, before this radical modification of the Brazilian Labor Code, arbitration clauses were generally banned from employment agreements.

Under the new law, parties can agree to incorporate an arbitration clause in the employment agreement, with one caveat–the employees’ remuneration must exceed around BRL 12,000, since these higher-ranking employees are seen as those with better resources to access ADR services.

Still, as de Lima commented, this marked the first time when alternative dispute resolution methods, especially arbitration, were accepted by the Brazilian authorities as a legitimate way to resolve labor disputes, thereby offering employers a tunnel to avoid litigation, especially in cases with higher stakes. Besides, as Vergna mentioned, the losing party now bears a certain portion of the defendant’s attorney’s fee, which disincentivizes at least those with a weaker case.

To some, the fact that this seemingly essential reform did not take place until 2017 shows the Brazilian court system’s mistrust of arbitration. Cleber Venditti offered his insights on why. To begin with, according to traditional wisdom, labor rights are not arbitrable by nature.

While the labor reform effectively refuted this idea, it may take a while for the court system to change its understanding.

Next, misuse of arbitration is a factor. Many employers tend to choose the “most unreliable chambers,” which only charge a minimum administration fee and makes the arbitration process look more like forced settlement than neutral dispute resolution.

Thus, Venditti said, it is important for businesses to use well-known and well-qualified chambers and arbitrators in order to obtain a trustworthy award.

Last but not least, the judiciary needs to change its mindset. Currently, many courts still see themselves as the only guardians as labor rights, and believe that delegating the dispute resolution power to private entities would threaten the traditional protection of labor rights.

The Brazilian story may sound shockingly different for those who are more familiar with United States ADR programs, which have grown prevalent since Congress’s enactment of the Federal Arbitration Act in the 1920s. As Western Digital’s Michelle Dangler noted, with arbitration’s privacy and uniquely personal approach, it is a standard practice to include an arbitration clause in employment agreements. In addition, mediation is a mandatory pre-trial proceeding for labor litigation, and the settlement agreement has binding force.

While there are criticisms–for instance, over “forced” arbitration clauses used by employers to silence sexual harassment victims–Dangler reported that ADR remains to be a primary tool for resolving U.S. labor and employment disputes.

Fortunately, despite all the difficulties, the panelists noted that ADR is growing more prominent in Brazil. In arbitration, as Venditti said, companies and higher-level employees are working together to promote the inclusion of arbitration clauses in the employment agreement, since the confidential and expeditious nature of the process is beneficial for both sides.

As for mediation, more Brazil mediation chambers have been created. For example, workers in the telecommunication industry can now submit mediation applications to the telecom unions under certain circumstances. Banco do Brasil also implemented a mediation program to resolve sexual and moral harassment complaints, and has achieved significant success, the panel reported.

The active participation of unions in mediation enhances the confidence of the court system, which proves to be essential for ADR success. In the United States, courts rarely invalidate a mediation settlement agreement. In Brazil, according to Vergna, those agreements are not shielded by the principle of finality unless they are approved by the courts.

That is why most effective mediation agreements are created in labor litigation proceedings where courts “push” the parties, usually with relatively small claims, to settle by themselves.

Moreover, the Covid-19 pandemic is bringing both opportunities and challenges to the Brazil ADR scene. De Lima reported that more than one million people have lost their jobs in Brazil in the past two months, and economists expect more jobs to disappear.

While the total number of cases filed in courts has declined due to the heightened difficulty of receiving assistance from lawyers, the number of cases involving Covid-19 has increased by 20%. De Lima provided an example on how Covid-19 could give rise to disputes in the labor context. For instance, there might be disagreement about whether the virus could be classified as an occupational disease, particularly for employees who have to work in places with a higher likelihood to get exposed to the virus, or for those who have to resume working with minimal protective measures.

Amidst the pandemic, said Fabio Chong de Lima, employers have two options. They can either react negatively, or act collectively and creatively with their employees to address disputes in an earlier stage. ADR can be a part of the toolkits for creative responses. De Lima said that they anticipated that with its flexibility and promptness, arbitration could respond better to the changing pandemic situation, and thus attract more support and use.

Pfizer Brazil, according to panelist Shirley Meschke, has explored the value of ADR service, and has promoted ADR culture in Brazil. After the labor reform, Pfizer incorporated an arbitral clause into the employment agreement for qualified employees. It has also been pursuing opportunities for settlement in court proceedings.

From the perspective of an in-house counsel, it is equally, if not more important, to prevent disputes from emerging and escalating in the first place–a philosophy that the CPR Institute has consistently endorsed. The key to this goal, according to Meschke, is to help employees build a healthy work-life balance and to maintain smooth communication between employers and employees.

For instance, the Healthy Pfizer program provides confidential support for employees to deal with their psychological health issues, and offers training on how to keep physical and mental well-being. Pfizer has also taken measures to meet with new challenges brought by the pandemic, such as helping employees resolve technical issues and resist the tendency to work beyond business hours as a result of working from home.

The panelists concluded by noting that arbitration and mediation have their own virtues when compared with litigation. Despite a presumption that arbitration is always more expensive than court proceedings, Cleber Venditti demonstrated that after adding the cost of time and fee adjustment, litigation could be much costlier than arbitration. Labor arbitration usually takes about six to eight months to complete, whereas court proceedings can take up to three to four years, and can incur costs that amount to half of the total amount in dispute.

Fabio Chong de Lima added that arbitration could offer parties a higher quality and better dispute resolution experience. He said arbitration chambers can review more types of evidence, are usually less clogged than labor courts, and thus invest more time and care to prepare for and examine the cases at hand.

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The author, a second-year Harvard Law School student, is a 2020 CPR Institute Summer Intern.

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