Celebrations of a bill that would allow companies in Brazil to outsource any of their business activities may have been premature. Bill 4330/04 was passed by Brazil’s House of Representatives in April, but it still needs to go through the Senate, whose president opposes it in its current form.

Ten years in the making, the bill may undergo changes by the Senate — which the House of Representatives would get the chance to review — before requiring presidential approval to become law. If bill 4330/04 makes it through the legislative process, it will provide a huge boost to the outsourcing sector, as it will permit companies to outsource any of their business activities, whether “core” or “non-core” activities.

Current Law

The law currently prohibits outsourcing for anything other than “non-essential” jobs, such as cleaning and transportation services. And there is huge legal uncertainty surrounding the definition of “non-essential” activities, with many legal challenges resulting in differing judgments from regional courts. Some 16,000 cases currently await a decision from the Superior Labor Court, according to a report by the Latin American Corporate Counsel Association on the progress of the bill.

Failure to comply with the law results in the presumption of an employment relationship between the worker providing outsourced services and the service user — except in the case of “temporary work” as defined by Law 6019 of Jan. 3, 1974. The proposals acknowledge that an employment relationship may still exist if there is subordination, i.e., supervision and direction, between the service user and the outsourced worker.

Under existing law, the client user of outsourced labor is also liable for all statutory payments and wages due in respect of the labor if the outsource service provider defaults on payment. The proposed law provides for the client’s liability to be subsidiary to the primary liability of the outsourcing partner, provided it conducts due diligence by observing mandatory formalities before entering into the contract to outsource part or all of its business. The law provides further protections for the contractor by requiring deduction of tax and social security contributions by the contracting business and payment at source before payment of the invoice of the service provider. If the contract is to last for more than a year, the service provider is required to deposit a bond in a blocked account, accessible only with the consent of the service user for any unpaid wages or statutory expenses.

Bill 4330/04

In its current form, the bill would provide protection for outsourced employees by giving them access to the same facilities for food, transport, medical care and training as the employees of the service user. It also ensures their safety, hygiene and health is considered while they are working at the premises of the service user, or a place designated by it. Outsourced workers would also be entitled to representation by the same union representing the employees of the service user.

Temporary Boost

In the meantime, while those companies wishing to outsource activities and service providers wait for bill 4330/04 to become law, temporary work recently received a boost with Ordinance 789 of 2014, which relaxed the rules on the legitimate use of temporary labor. Previously, the use of temporary workers was only permitted if the workers were supplied by registered “temporary work companies” and only in two situations: 1) during periods of increased production or services; or 2) when employees were absent and needed to be replaced temporarily, for reasons such as sickness, maternity or vacation.

The previous rules also limited the duration of the assignment of a temporary worker to three months, without obtaining approval from the Ministry of Labor. This requirement was burdensome in the case of maternity leave, which invariably extended beyond three months.

With Ordinance 789, the period for which a temporary worker may be assigned to a client is now nine months in the case of replacement workers where the need for a worker beyond three months is known at the outset; the assignment limit is six months in the case of excess production or service requirements. Further clarification of the meaning of “excessive services” and “replacement of regular employees” was provided by a Normative Instruction issued by the Ministry of Labor in November 2014.

It remains to be seen whether the relaxation and clarification of the rules surrounding temporary work will lead to a greater use of temporary workers in Brazil. The lack of clarity previously may have benefitted both users and providers, in that requests for renewal of three-month assignments were usually granted; whereas clearer definitions of permitted usage may lead to greater scrutiny by the Ministry in processing applications.

According to Sindeprestem, the body representing temporary work companies in Brazil, the modernization of labor laws in relation to temporary work is long overdue and represents a “historic moment” for the temporary work sector, which has sales of US$16 billion a year, and hires an average of 600,000 people a month for a variety of functions.

In reality, it may not be the slow pace of legislation holding back the temporary work and outsourcing sectors, but the economy, which has seen disappointing growth compared with the other BRIC economies, and may even be heading towards recession.