Explainer: Brazil's Contentious Outsourcing Bill

By Rachel Glickhouse and Luisa Leme

The proposed law could spell big changes for Brazil’s labor market, allowing companies to hire third-party workers for any job. 

On April 8, Brazil’s Chamber of Deputies passed a preliminary bill in a 324-137 vote allowing companies to outsource more jobs to third-party groups, and beyond direct employment. The legislation, which has generated fierce debate in the country, now moves to the Senate, and beginning April 14, the lower house must vote on final amendments.

“It’s a great victory, because today we managed to guarantee the rights and give legal security to the approximately 12.5 million [outsourced] workers who never had a law to guarantee their rights,” said one of the bill’s proponents, Congressman Arthur Oliveira Maia of the Solidarity Party, when the initial bill passed. On the other hand, Senator Paulo Paim of the governing Worker’s Party (PT) said: “This could become the greatest setback in history for Brazilian workers and if it depends on us, we’ll do everything we can to open Congress’ eyes.”

Labor unions oppose the proposed law, while the country’s business sector supports it. Last week, labor unions organized protests in 17 states and the Federal District, and vowed to continue demonstrations as Congress considers the bill. Unions also organized a national strike for April 15 to protest the bill.

The legislation comes at a time of economic troubles and political divisions.  The country’s economy grew just 0.1 percent last year, and economists expect GDP to decline by 1.1 percent in 2015. In February, annual inflation hit its highest level in almost a decade, and unemployment rose to 7.4 percent the same month, up from 6.8 percent during the same period last year.

Plus, a corruption scandal involving the country’s state-run oil company and millions of dollars in kickbacks inspired anger among citizens. Two large, nationwide anti-government protests took place in the last two months calling for President Dilma Rousseff’s impeachment.

Context: Current Workers’ Rights Legislation in Brazil   

Brazil’s constitutional Consolidation of Workers’ Rights Law (known as the CLT) currently requires that essential workers be hired with proper government documentation. The law gives employees rights and benefits, such as paid vacation of 30 days a year, maternity leave, and the ability to organize through unions.

For employers, the CLT compels companies to fulfill certain responsibilities, including following safety measures at the workplace, adhering to obligations regarding workers’ health services, contributing to social security and the federal workers fund (depositing 7 percent of a worker’s salary every month), and following rules on firing employees and payroll.

The country’s current labor laws have been updated over the years, but garner private-sector criticism for being outdated and leading to high costs for small- and medium-sized enterprises and subsequent problems. As a result, many companies hire workers outside the legal framework or through third-party service-provider companies, generating inconsistences in implementation of labor rights and increasing the number of legal complaints and lawsuits against employers. 

What the Bill Does

Originally introduced in 2004, the bill—called Law 4330—would allow companies to outsource (or, essentially, contract out) any job, not to another country, but simply to any entity outside the organization, which can be anything from government subcontractors to freelancers to agricultural producers. Under the current law, companies can only outsource nonessential jobs, such as janitors and security guards, to third parties. The law would apply to private and public companies, agricultural producers, and freelancers. While the legislation would allow businesses to hire third-party workers for essential jobs, it still requires outsourced workers to enjoy key benefits including food and transportation vouchers, as well as health coverage. 

Currently, there are an estimated 33 million direct-hire employees in Brazil, with over 12.5 million outsourced workers. If the bill passes, opponents worry that those numbers could be reversed and potentially erode workers’ rights and job safety. Meanwhile, the legislation’s supporters believe the legislation would ultimately bolster businesses and create more employment.

What Supporters Say

The Brazilian business sector and others in favor of the bill believe it will help create jobs and increase competitiveness, as well as establishing clearer protections for outsourced workers.

The National Confederation of Industries (CNI) called the legislation “an advance for Brazilian business, for Brazilian workers, and for the Brazilian economy” in an April 9 statement. According to the CNI, 70 percent of industrial companies already use third-party services, but 60 percent say they experience legal uncertainty when they outsource. That’s because a lack of regulations can lead to lawsuits against companies that use third-party workers. The São Paulo Industry Federation says the country would gain more than 3 million jobs a year if the outsourcing legislation wins approval.

What Opponents Say

Those who oppose the bill—including many from the governing PT party—think the legislation would allow companies to cut costs and violate employee rights.

Last week, PT Congressman Alessandro Molon attempted to appeal to the Supreme Court to suspend the vote, claiming the bill is unconstitutional. “Workers were stabbed in the back in the Chamber with the removal of rights that took decades to win,” he said.

Unions and labor representatives in Brazil say that hiring outside CLT compromises working conditions by freeing employers from protecting their workers. Outsourced workers are paid on average 24 percent less than regular employees. They work an average three hours more a week, which could reduce the number of vacancies in the private sector, according to the Inter-Union Department of Statistics and Socioeconomic Studies. Outsourced workers are among the ones who suffer more workplace accidents. At Brazil’s state-run oil company Petrobras, temporary workers suffered more than 80 percent of work-related casualties between 1995 and 2013.

What the Government Says   

The Rousseff administration remains divided on the bill. On April 9, the president said outsourcing must be regulated, but that it cannot infringe on workers’ rights. Presidential spokesman Miguel Rossetto criticized the legislation, saying it’s “not good for the country.” He said that the legislation could lower salaries and reduce social security funds.

But Finance Minister Joaquim Levy supports the legislation, according to lower house President Eduardo Cunha, who spoke to him about the bill. In an April 11 interview with Brazilian daily O Estado do São Paulo, Labor Minister Manoel Dias said the bill could use tweaking, but that outsourcing is a reality that can’t be ignored.

Labor court judges also stand divided, although they lean toward the opposition. Of the 26 justices on the country’s highest labor court, 19 oppose the legislation. In the state of Rio Grande do Sul, labor judges planned a protest against the bill on April 14.

Meanwhile, Vice President Michel Temer met with Levy, legislators, and other high-ranking officials on April 14 to try to reach a compromise on the legislation.