Background
The principal benefit of outsourcing is improved quality and productivity. Transferring certain activities, particularly subsidiary ones, to an external service provider allows companies to focus on their main activities. Moreover, service providers often offer operational expertise which companies in general do not have the time or resources to acquire.
Yet outsourcing has always been a delicate issue in Brazil, since many companies employ it fraudulently. Even though it is designed to improve a company's services through the specialization of activities, many consider it a way to reduce labour costs, in contravention of Labour Law stipulations.
Brazilian labour courts and the Labour Law are known for being protective towards employees. Employers are obliged to pay for approximately 54% of employees' salaries per month as mandatory labour charges. According to Article 3 of the Labour Code, such labour fees are due whenever personality, non-eventuality, subordination and remuneration qualify the relationship as an employment contract. It is not necessary to have a formal labour agreement in order for it to constitute an employment relationship.
Every identified individual who renders indefinite, remunerated services to an employer with subordination and on a permanent basis is considered an employee. Recognition of employment relationships based on these criteria occurs during regional labour police station and National Social Security Institution inspections, or when labour courts acknowledge such relationships through labour complaints. In such situations not only will fines be applicable, but all labour fees suitable for the duration of the service rendered by the worker when not an employee will also be owed.
Legal and Illegal Outsourcing
Outsourced workers are not usually classed as employees of the service undertaker because employment elements are not present in such a relationship. They are employees of an external service provider, which is directly responsible for the payment of all appropriate mandatory labour fees. In order to protect employees, Superior Labour Court Precedent 331 deems that service undertakers have subsidiary liability in the event of default on the payment of labour fees by the employer. This means that service undertakers should be careful when subcontracting to external service providers. They must be diligent and verify whether all mandatory labour fees are being paid to avoid ending up responsible for such payments. It is not uncommon for part of the fees due to the service provider to be held in escrow, subject to the fulfilment of certain conditions.
However, in some situations outsourced workers may be considered employees of the service undertaker when employment elements - particularly subordination - are detected by an inspection or through a labour complaint. Such outsourcing is judged illegal by the labour courts. Given the absence of a labour contract, service undertakers pay no labour fees directly, even though they are due. As regular outsourced workers are still employees, but not of the service undertaker, labour costs should be implied in the price paid for the service. Thus, any reduction in costs attributed to outsourcing is in most cases a result not of outsourcing itself, but of fraud, for mandatory labour fees are not being paid by the service provider.
In case of illegal outsourcing, service undertakers are directly responsible for the payment of all due labour fees. Companies should be careful when directing and monitoring services rendered by outsourced workers, maintaining contact only with the service provider so that there is no direct subordination between them. Further, distribution of personnel identification or company uniforms may be considered as elements that point towards the existence of an employment relationship.
To avoid such situations and to make inspections easier, Superior Labour Court Precedent 331 also confirms that the transfer of a company's main activity to an external service provider is illegal. When this happens, an employment relationship between the outsourced worker and the service undertaker is automatically formed, except in temporary work cases. As defined by Article 581(2) of the Labour Code, the company's main activity is the one identified as its corporate purpose in the corporate charter. For that reason, outsourced workers may be responsible only for accessory activities (eg, day-to-day cleaning, security and other specialized services), so that regular employees are given the means and conditions to perform the company's main activity. Nevertheless, even when performing accessory activities, outsourced workers' relationships with the service undertaker cannot be personal or directly subordinated.
New Conditions for Outsourcing
Even though Superior Labour Court Precedent 331 states rules and conditions for outsourcing, a bill is pending at the Labour Ministry which, if sent to Congress and finally approved, will significantly change the regulations applicable to outsourcing.
Firstly, the bill will eliminate any limitations on the kinds of activity that may be outsourced. Therefore, the idea of main activities and secondary activities will become irrelevant when determining whether the outsourcing is legal or illegal. Once passed, this bill will make it possible to outsource a company's main activities. Although there is a certain resistance towards this new possibility, as it may worsen employees' working conditions, this project ensures that outsourced workers will be protected by determining that the service undertaker will remain subsidiarily or jointly liable for the payment of employment benefits to the employees of service providers. Therefore, this measure simply restricts the possibility of employment relationship recognition between companies and outsourced workers, eliminating the risk of a direct employment relationship being declared as a result of the nature of the services being outsourced.
Secondly, the project imposes on companies that employ outsourced workers joint or concurrent liability for negligence regarding the payment of mandatory labour fees due to employees of the service providers. Under this proposed bill, the service undertaker will always be liable in case of failure to pay employment benefits due to the employees of the service provider. As a general rule and independent of negligence, the service undertaker will be subsidiarily liable. In case of failure to comply with the requirements of the proposed law, which are quite detailed and aim to protect workers hired by the service provider, the service undertaker will be jointly liable with the service provider for payment of any amounts due to the employee. Therefore, employees in these cases can choose which party to sue to obtain satisfaction of their rights.
Comment
This proposed law simplifies outsourcing by eliminating the discussion on whether the activity being outsourced is a company's main activity or secondary activity. Once this law is approved, companies will be free to outsource and - provided that they are careful when selecting a service provider and keep an eye on its compliance with mandatory employment laws - their liability will be subsidiary to that of the service provider. |