Don’t want former employees, contractors or business partners to compete with your company? You’ll need a solid legal structure, and that starts with expert corporate legal advice.
A recent ruling by Brazil’s Superior Court of Justice (STJ) has brought attention to a key issue in doing business. And it is: former employees are free to compete with their previous employer unless a formal non-compete clause exists.
In the case (Special Appeal No. 2.047.758/SP), the court ruled that client poaching by ex-employees only constitutes unfair competition if it occurs while they are still formally employed. After termination, unless a non-compete provision was previously agreed upon in the employment or service contract, Brazilian law does not prohibit them from entering the same market or soliciting former clients. This ruling serves as a crucial warning for companies operating in Brazil: fairness alone is not enough, legal enforceability must be contractually secured.
In the specific case, former employees left the company and began targeting the same clients. However, because there was no contractual clause limiting their post-employment activity, the court ruled in favour of the ex-employees. And citing the Brazilian constitutional principle of free enterprise and competition. As a result, the former employer was unable to obtain either an injunction or compensation for alleged losses.
This same logic applies not only to employees but also to contractors, consultants and business partners.
It All Comes Down to the Contract
This legal development highlights a critical point: a well-drafted contract is your best protection. Both during and after the business relationship.
A legally sound and well-balanced non-compete clause can help prevent future losses, such as the defection of key clients, team members or market share. But it must be prepared within the specific requirements of Brazilian law, which places limits on how much an employer can restrict someone’s economic freedom after the contract ends.
That’s why this task should not be left to generalists or automated templates. A specialised corporate lawyer will understand how to align your business interests with Brazil’s legislation, court precedents, and real market dynamics. The goal is not to fight fires after they start (but to design agreements that prevent them from igniting).
Planning to do business in Brazil (without competition)? Start with legal structure.
If you’re considering investing in or expanding into Brazil, the legal nuances around competition, employment, and business relationships are not just important. They are strategic. Our firm helps foreign companies structure contracts that comply with Brazilian law. And we protect your long-term interests in the local market.
Let us assist you with proactive, strategic legal planning to secure your operations before risks materialise. You can count on us.
