New Law Introduces Legally Binding Settlement Agreements

Author:Mr Roger James
Profession:Ogletree, Deakins, Nash, Smoak & Stewart

Co-authored by Márcia Alyne Yoshida of Boccuzzi Advogados Associados

Under recent amendments to Brazilian labor laws, parties may enter into legally binding settlement agreements through a new process whereby labor courts can ratify settlement agreements between employers and employees. This change will give employers a useful means of reducing the risks that can arise from a termination of employment.

The new law, No. 13.467, came into effect at the end of 2017 and is aimed at modernizing labor laws that have been in effect since 1943. The new law caused much discussion regarding some of the amendments it made to the Brazilian Consolidation of Labor Laws. One such amendment was the provision that allows employers and employees to sign out-of-court settlement agreements with respect to employment rights and then submit these agreements for ratification by labor courts.

Prior to this amendment, labor courts deemed out-of-court settlement agreements between employers and employees void under Brazilian law. This reluctance to ratify settlement agreements increased instability in labor relations and even gave way to a strategy that became known as “casadinha” (Portuguese for “little combo”). As a result, prior to the change in law, parties would arrive at an out-of-court agreement regarding labor obligations between them. The employee would then bring a lawsuit alleging frivolous claims against the employer with the sole purpose of settling the initial dispute through an in-court agreement—which would reflect the terms of the parties' out-of-court agreement. This gave the employer the peace of mind that comes with having a legally binding waiver, but it meant that a court action was commenced unnecessarily to achieve the agreement.

This new Brazilian labor reform is considered essential in order to give labor relations greater predictability...

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