In recent years, it has become increasingly common in Brazil for companies to engage professionals through their own legal entities, rather than under traditional employment contracts. This practice, widely known as pejotisation, involves hiring individuals who invoice as corporate service providers (Pessoa Jurídica, or PJ), even when the working relationship shows signs of employment such as subordination, regular hours, and exclusivity.
At first glance, pejotisation may seem to offer efficiency and cost advantages: reduced payroll taxes, simplified dismissal procedures, and more flexible agreements. These factors are naturally attractive to foreign investors entering or expanding in Brazil.
However, Brazilian labour law is based on the “primacy of reality” — the principle that the true nature of a relationship outweighs what is formally written in a contract. If courts determine that a PJ relationship hides an employment arrangement, the company may face substantial liabilities, including retroactive salaries, social contributions, fines, and reputational damage.
Recent Legal Developments
Recently, the Supreme Federal Court of Brazil (STF) suspended all court proceedings involving pejotisation until it rules on the matter’s constitutionality. This decision highlights the legal uncertainty that surrounds the practice.
The final ruling, expected in 2025, will be pivotal. If pejotisation is deemed unconstitutional, companies relying on this model may be forced to reclassify contractors as employees, incurring significant financial and operational consequences. Conversely, a favourable ruling could legitimise the practice and provide greater legal security for flexible work models in Brazil.
What Foreign Businesses Should Consider
For foreign entrepreneurs and investors, especially those aiming to scale operations in Brazil, this is a critical area for due diligence. It is vital to:
- Assess existing service relationships and contracts for legal compliance
- Implement proper corporate governance and documentation
- Stay updated on the STF’s forthcoming decision
Understanding the fine line between legitimate outsourcing and misclassified employment is essential. Working with a legal advisor who combines corporate, and contractual expertise (and who understands the regulatory, cultural, and commercial context) will be key to mitigating risk and safeguarding your business interests in Brazil.
