BRAZIL Law and Practice Contributed by: Rodrigo Casarotti, Alexandre David, Ricardo Melaré and Gabriela Claro, /asbz
which may conduct audits and investigations. As a result, labour and social security contingencies are a recurring focus in due diligence in Brazilian transac- tions, particularly in technology deals with large con- tractor pools or platform workforces. Employment Agreements and Collective Arrangements Employment agreements in Brazil operate against a comprehensive statutory and collective backdrop. The CLT and CBAs define most baseline rights (work- ing hours, holidays, overtime, severance, benefits, etc). Individual contracts complement this framework but cannot validly waive or restrict rights granted by law or CBAs. In many cases, relationships are lightly documented in writing; even so, the CLT applies in full. Written contracts are often used to address points of particular interest to the employer (eg, confidentiality, IP allocation, non-compete obligations and variable remuneration structures). For an acquirer, a simple “roll-out” of a model con- tract rarely suffices. It is essential to understand which CBAs apply to the workforce, how the CLT and those CBAs have been applied in practice, and whether arrangements agreed between employer and work- ers are enforceable under Brazilian rules (including the risk of recharacterisation of service contracts as employment). It is equally important to map any reli- ance on contractors or individual service providers whose agreements could be reclassified as employ- ment if the factual conditions are met. Contract Points That Require Close Review • IP and confidentiality: Provisions assigning IP rights created by employees or contractors to the company should be express, clear and consistent with Brazilian law, especially for software and other technology assets. • Non-competition and non-solicitation: Enforceabil- ity turns on narrow tailoring (eg, reasonable time, geography and scope) and is usually supported by adequate consideration; broad or open-ended clauses risk being struck down. • Compensation and benefits: Fixed and variable pay, bonuses, stock options and fringe benefits must comply with CLT rules and be consistent
with applicable CBAs, including for severance and social security calculations. • Contractor reclassification risk: Agreements with “contractors” or individual service providers may be characterised as employment where the factual indicia of employment are present, with associated liabilities. Practical Focus for Acquirers (Technology M&A) • Are employment and contractor agreements suf- ficiently protective on IP ownership, confidential- ity and assignment of inventions, code and other intangibles? • Are there key employees or founders whose arrangements need to be revisited or reinforced in connection with the transaction (eg, retention and vesting)? • Where non-competes exist, are they structured in a way that is likely to be enforceable (reasonable duration/scope and appropriate consideration)? • What is the volume and nature of labour claims (individual lawsuits, collective actions and adminis- trative proceedings)? • Have there been audits or investigations by labour or social security authorities, or commitments/set- tlements that will continue to bind the company post-closing? • Are contractor arrangements at risk of reclassifica- tion, and are any legacy issues adequately provi- sioned? • Are labour and social security risks appropriately covered by representations and warranties, spe- cific indemnities and escrows/holdbacks? • Are compensation and benefits for key employees aligned with CLT requirements and relevant CBAs (eg, working hours, overtime, annual leave, 13th salary and FGTS deposits), and what CBA provi- sions could impact post-closing integration or restructuring? Works Councils, Union Consultation and Disclosure Brazil does not have a works council system com- parable to certain jurisdictions, and there is no gen- eral mandatory requirement to consult employees or unions solely because of an M&A transaction, pro- vided employees’ individual and collective rights (eg, severance, CBAs, health and safety) are respected.
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