The debate over companies hiring self-employed workers, known as pejotization, has reached a significant new stage in Brazilian law.
Minister Gilmar Mendes from the Supreme Court (STF) has ordered the nationwide halt of all cases related to the legality of pejotization.
The measure aims to standardize the interpretation of this kind of contractual relationship and, simultaneously, decrease the burden of cases reaching the Supreme Court due to conflicting decisions in Labor Justice.
This article outlines the reasons behind the decision, the current STF discussions, the practical implications of the suspension, and the potential impact on companies and professionals in this contractual setup.
What does pejotization involve?
Pejotization happens when an individual, rather than being employed under the CLT system, is contracted as a legal entity (PJ) to offer services to a company. This is a widespread practice in various sectors.
- Partner
- Commercial representation services
- Real estate market adjustment
- Healthcare providers
- Information technology refers to the use of computers and software to store, retrieve, transmit, and manipulate data for various purposes.
- Arts and cultural creation
- Crafts and bikes
Pejotization can obscure an employment relationship, particularly when there is subordination, regularity, and personal characteristics, which are criteria for employment according to CLT, despite its benefits in terms of flexibility and taxes.
Why were the proceedings halted by the Supreme Court?
Minister Gilmar Mendes made a decision in the case of the Extraordinary Appeal with Agravo (ARE) 1.532.603, which was recognized as having general significance (Theme 1389).
This implies that the agreement approved by the Supreme Court will be obligatory for all courts nationwide.
Gilmar Mendes pointed out that the Labor Justice has consistently overturned prior Supreme Court rulings, leading to a situation of legal uncertainty and a rise in cases brought before the Supreme Court.
The minister stated that this situation not only burdens the Court but also creates confusion among the parties, which impacts the stability of the legal system.
What is the decision of the Supreme Court?
The Court will examine three main aspects.
- Legal entities’ contracts for service provision are legally valid.
- The Labor Court’s authority to preside over cases involving suspected fraud in such agreements;
- Who is responsible for proving compliance or fraud – the employee or the employer.
All comparable procedures across the nation are halted, regardless of the action’s merit.
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Concrete example: what led to this debate?
The case that led to the issue revolved around an insurance broker who wanted acknowledgment of an employment relationship with the company. Despite being initially hired as a legal entity, the broker argued that there was a sense of subordination and personal attachment in the arrangement.
The 9th Region TRT in Curitiba acknowledged the connection, but the TST’s 4th Class overturned this decision and reinstated the original ruling that rejected the connection. The appeal challenging the TST decision is currently being reviewed by the Supreme Court.
Gilmar Mendes emphasized that the conversation should not be limited to franchise agreements but should include all types of civil and commercial contracts.
What can be anticipated from this point forward?
The STF Plenary judges the merit of the extraordinary resource to establish a general rule applicable to all Brazilian courts.
Until that time.
- Companies and professionals providing services through a legal entity should carefully follow the trial.
- Courts and labor judges should postpone making similar judgments until the Supreme Court issues a decision.
- Law firms and legal departments need to develop backup plans for clients who are affected.
Check out our article on: Reviewing the Feature Worker: Deadlines, Wiring, and Idea.
What does pejotization refer to?
Hiring a worker as a legal entity (PJ) instead of an employee under CLT regulations is a common practice in many fields. While it is legal in certain situations, it can lead to fraudulent activities if used to conceal an employment relationship.
What was the reason for halting the proceedings?
The Supreme Court aims to calm the issue and reduce the influx of cases that could be handled at lower court levels, due to the multitude of different processes and decisions at the Labour Court.
What issues will the Supreme Court examine?
The Supreme Federal Court will determine the validity of PJ contracts, whether the Labor Court can handle fraud cases related to these contracts, and the burden of proof regarding the employment relationship.
What is the definition of “general repercussion”?
The Supreme Court decision in this case will set a precedent for similar cases nationwide, establishing a binding rule for all levels of the judiciary.
Are the processes on hold indefinitely?
The suspension remains in effect until the Supreme Court issues a final decision, to prevent conflicting rulings while the Court clarifies its stance.
