Arbitration in employment relations

Silvia Fidalgo Lira 12/05/2021

The Brazilian Arbitration Act (BAA) allows the parties to refer a dispute to arbitration if the underlying claim can be assigned, waived or settled amicably. However, it does not expressly allow parties to refer individual employment disputes to arbitration, and labor courts – which are in general employee-protective – have historically resisted the use of arbitration in those disputes in view of the workers’ perceived weakness vis-à-vis employers.

The fact that the Federal Constitution allows the use of arbitration in the context of collective labor disputes was also commonly mentioned to support the idea that, by contrast, arbitration in individual employment disputes would have been forbidden.

The so-called “Labor Reform” that came into effect in November 2017 was innovative in this regard, and expressly allowed the inclusion of arbitration clauses in employment contracts of workers whose monthly remuneration exceeds a minimum threshold (currently BRL12,867.14, approximately USD2,400), as long as the worker expressly/specifically consents to the relevant clause or is the party who had the initiative to insert it in the agreement.

Following the Labor Reform, many arbitral institutions started administering employment disputes and the number of arbitrations in connection with those disputes has been on the rise. The several advantages of arbitration in comparison to judicial proceedings may well reinforce this trend.

These advantages may be very clear for those familiar with commercial arbitration, but are less so for corporate staff handling recruiting, talent retention and human resources at large.

Due to the high number of lawsuits processed in Brazilian labor courts, an employment claim may take six or even more years until final conclusion. Comparable arbitration proceedings usually take a year or so to conclude.

Another advantage of arbitration is that the conflict is decided by individuals chosen by the parties; the arbitrators may have technical knowledge of the relevant industry or sector and other circumstances that may have a material effect on the outcome of the dispute, particularly in cases involving matters that are uncommon in labor courts.

Confidentiality, too, is an upside of arbitration when it comes to disputes against key employees. Judicial proceedings in Brazil are public as a rule, and may only be sealed when it is necessary to protect an individual’s privacy or reasons of social interest warrant secrecy. Arbitration proceedings in turn are confidential, which is also beneficial for employees and employers that do not wish to be exposed – which is particularly the case when it comes to disputes against key employees (those who held executive roles or are privy to trade secrets, for instance).

In addition to these advantages, the good reputation of some arbitral institutions and the expected development of the culture of arbitration among practitioners of employment law may also help reduce the labor courts’ resistance to arbitration as a valid alternative to resolve individual employment disputes. This is a long process, but we now see it underway.

And maybe – hopefully – Brazil will go as far as to expressly allow workers to enter into arbitration agreements after termination of the employment contract regardless of past remuneration. There is no reason to invalidate such agreement to arbitrate under Brazilian law. After all, once the employment relationship has ended, the worker is free to assign, waive or settle the claim (i.e., it falls within the scope of the BAA) and is no longer subordinated to or directed by the employer (consent to arbitration is free).

So far, there is no statute, no precedent and little buzz among practitioners to the effect of enabling even low-income workers to refer disputes to arbitration, but four years ago the mere notion of employment arbitration was barred. It is a long way, and whether the country wants to walk it remains to be seen.


L&S Authors

Silvia Fidalgo Lira

Silvia Fidalgo Lira

Associate

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