1. Introduction: history, economics and politics
The Brazilian legal environment is unfavourable to manpower export. Law 7064/82 sets up an extremely regulated and costly framework. On one end, the employer is required to grant supplementary benefits. And because the Brazilian employment agreement remains in effect, it must also pay Social Security tax and FGTS on the top of the global compensation. On the other end, the employee is taxed on a worldwide income basis.
The expatriation law and the conditions stipulated therein are mandatory as a matter of public policy, that is, not subject to waiver; which comes at no surprise to those who are already familiar the inflexible Brazilian labour legal environment.
But why is it so inflexible?
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The Labour Code, CLT, became in effect on Nov. 10, 1943, when the Brazilian workers had scarce statutory protection.
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It was clearly inspired in the continental European laws.
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But while other countries’ employment legislation evolved and gave more power to the union-company negotiations, Brazilian unions remained with very limited capacity (thus disposition) to compromise over statutory benefits. Therefore, the collective labour agreements are typically supplementary proviso to the laws.
When we look backwards into the unions’ role and agenda, we must not forget that Brazil had 20 years of military presidentialist regimen. Despite not being right-winged (actually, some of its policies were not at all, such as the expansion of public companies into different strategic segments, particularly power generation, oil, mining and telecom), the regimen was particularly concerned about left-winged movements and organizations, which included unions, of course. Such social environment forged unions with a permanent political character. It is no surprise then that former President Lula da Silva had been, first, a union leader.
On a different aspect, but with equivalent importance, throughout the XX Century, Brazil endured high inflation rates, which were only controlled in the mid 90’s by former Ministry of Finance and former President FH Cardoso. So, recouping monetary depreciation has been a top priority for all workers unions since their early age. (As matter of fact, now that inflation is under control, raising salaries became one of the unions’ top priorities.)
Other historical and economic aspects affected the expatriation law:
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Brazil had considerable immigration waves in the past two centuries;
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Emigration has been informal (unskilled workers), or scarce and independent (skilled ones);
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Brazilian investments abroad are very recent.
The Law 7064 was enacted in 1982. It was meant to regulate the temporary transfer of engineers and related manpower to civil works and the recruiting of Brazilian workers by foreign companies.
It soon got its alias after an important construction company, whose offshore business expansion made the law needed. At that time, “Mendes Júnior” had many infrastructure works in the Middle East. The law thus came as a justifiable protection to Brazilian workers, who had temporary assignments in countries having social and labour conditions much different from the Brazilian ones. This objective is clearly distinguished in certain provisions of Law Mendes Júnior, such as life insurance with indemnification equal to at least 12 times the monthly wage and health care.
In 2009, President Lula da Silva enacted Law 11962, extending the application of Law Mended Júnior to all Brazilian workers, putting an end to the dispute on whether it could apply to non-engineering workforce through analogy or not.
However, after almost 30 years, like most labour and employment regulations, Law Mendes Júnior was outdated and in serious need of improvements. Its enhanced general application now exposes such need in different important aspects.
2. Loopholes and risks
Despite regulating several aspects, Law 7064 has loopholes that pose serious difficulties to companies who wish to expatriate its Brazilian employees.
2.1. Assignment shorter than 90 days
Law 7064 does not apply to the temporary assignment shorter than 90 days. However, the Law is not clear on subsequent terms with repatriation intermissions. Hence, the question is if it would apply to employees who have more than one assignment. Let’s examine it through an extreme hypothetical situation: in one year, an employee spending three 90-day terms abroad, alternated with 30-day repatriation terms*. One could argue that the company would be pushing the limits to circumvent the law, in such a way that exemption would be null under the doctrine of abuse of rights. But if the employee does not come to the point of moving to the foreign country, he/she would not be in the typical expat situation which has statutory protection. (*Let’s ignore immigration issues for the sake of exemplification.)
2.2. Transfer allowance
According to the Law, the expatriate’s compensation must include a temporary transfer allowance. The Law, however, does not stipulate any parameter for such allowance and the parties are, in principle, free to stipulate it. But looking for the rationale of such allowance, one may draw two different but equally valid conclusions: (1) The allowance is meant to compensate the employee for a higher cost of living abroad (remember, back in 1982, the Brazilian currency was much depreciated as compared to other countries’), in which case the parties are, indeed, free to negotiate it. This conclusion makes perfect sense because the allowance is temporary and will cease upon the repatriation, while the salary must never be reduced. (2) However, one may as well argue that the Labour Code, CLT, already provides for a similar allowance (applicable to temporary transfers within the Brazilian territory), which is 25% of the employee’s salary minimum. The rationale of such allowance is to increase the wages while the employee is possibly keeping two residences: one in his/her hometown, another in the city where he/she was transferred to.
2.3. Permanent transfer
This is arguable the most significant loophole, not in the Law 7064, but in the Brazilian labour legal framework. There is no regulation on permanent transfer abroad. The CLT contemplates two possibilities of permanent transfer within the Brazilian territory: (a) the transfer of the employee from one location to another; (b) the transfer of employee from one company to another.
In the event of a permanent transfer abroad, the company would be nonetheless required to keep paying all the Brazilian employment dues, including the FGTS and Social Security (INSS) because the Brazilian contract would remain in effect. But that would put the company in an extremely fragile situation if the employee demands the application of the Law 7064. Not only the employee will have substantial chances of getting the corresponding benefits (including a transfer allowance to be arbitrated by the courts), but the employee could also demand repatriation after three years, ruining the company’s plan of a longer assignment.
Transferring the employee to a foreign company is simply not viable, as it would not be feasible to such foreign company to keep paying the FGTS and INSS.
The only solution - and yet imperfect and not entirely risk free - is to terminate the employment.
Termination is viable to implement the permanent transfer simply because it is not forbidden (strictly legal conduct). But the employee could still demand the application of the Law 7064, having greater chances to prevail if the assignment ends in three years or less. In that case, the purported permanent transfer will appear to be temporary.
3. Suspension
Suspension of the Brazilian employment is often used, but it is illegal and will represent a significant liability. The CLT stipulates few cases of suspension and the temporary expatriation is not one of them.
In special cases, the Brazilian Corporate Law (“Lei das S.A.”) could provide a constructive interpretation to suspend the Brazilian employment during expatriation. But that is for another occasion. |