Monday, February 1, 2010


Time control and overtime

By Hercules Celescuekci and Luciano A. Malara
Baker & McKenzie LLP

Many U.S. multinational employers are well familiar with the challenge of properly classifying employees as exempt or nonexempt, and significant exposure stemming from “getting it wrong.” Unfortunately, they may be less familiar with similar, but often more restrictive rules outside the United States. 

Brazil is an example of an emerging and fascinating market with labor and employment rules that appear unfamiliar from a U.S. perspective.  For instance, in order to engage employees in Brazil, a local corporate presence is legally required (i.e., a U.S. company cannot simply engage an employee in Brazil), every employer in Brazil is subject to a national collective bargaining agreement, and detrimental changes to terms and conditions of employment (e.g., as part of a cost-cutting exercise) are not permissible in Brazil (even with employee consent).

When it comes to wage and hour issues, according to the Brazilian Labor Code (“CLT”), companies with more than 10 employees are obligated to register the employees’ entrance and leave time, through manual, mechanical or electronic registries.

It is the employer’s obligation to register the employees’ work time and, in case of litigation, the unjustified lack of presentation of time cards will generate the assumption that the overtime alleged by the employee has in fact been worked.  Regular working hours are limited to 8 hours per day and 44 hours per week, and hours exceeding these limits are deemed overtime.  The overtime rate is at least 50% of the employee’s regular rate.  Work on Sundays and holidays requires a permit from the Ministry of Labor, and is usually subject to a 100% overtime pay, unless the Collective Bargaining Agreement sets forth a different rate.

The CLT sets forth only very specific cases of employees that may be considered not subject to time control and, thus, are exempted from overtime:

a) Those discharging functions out of the premises of the company whose activities are not compatible with fixed working hours, such as outside sales employees.

If the employer can, however, by any method, control the employee’s work time, he/she will not be included in the exception.

b) Those performing management functions, such as managers and chiefs of department. 

These employees must have a position of trust within the company’s organization and be empowered with true managerial authority.

True managerial authority can be verified when the employee (i) has a high level of compensation (40% more than the employees who report to him/her), (ii) has the ability to formally discipline the employees who report to him/her; (iii) has a significant level of independent financial approval; (iv) has the ability to individually decide on the termination and hire of other employees; (v) has power of attorney to represent and bind the company in relevant obligations; (vi) has the authority to decide on relevant business matters; (vii) exercises more managerial activities, rather than technical ones; and/or (viii) has the authority to represent the company.

The items outlined above are just a reference of what is analyzed to confirm if the employee holds a position of trust, i.e., not all elements must be present. Each case must be analyzed by the employer and when compared to the U.S. exempt/non-exempt distinction, fewer employees are exempt from overtime requirements in Brazil than in the United States.

Like in the U.S., however, in Brazil substance prevails over form for labor matters, thus, it is not enough to grant an apparent authority or title to the employee if, in reality, he/she is not empowered to act on behalf of the employer without requested authorization.

If the company misclassifies an employee, it could be subject to: (i) a labor claim filed by the employee requesting overtime payment, and (ii) labor assessment by the Public Labor Department (“SRT”) for non-compliance with the CLT.