Brazil's Best Counsel 2023: Chapter Opening: Large-scale Labor Litigation

THE NEW WAVE OF EMPLOYMENT CLAIMS FILED IN MASS IN BRAZIL

Although Brazil’s Federal Constitution ensures that “the law will not exclude harming or threatening of rights from being analyzed by the Judiciary Branch” and that “the [Brazilian] State shall provide full legal counseling free of charge to those who prove they cannot afford to pay for it” (article 5, items XXXV and LXXIV), litigation is not free here in Brazil, because only those who “prove” they cannot afford the costs arising from a lawsuit are those who should have the right to be financially exempted. In practice, however, this is not really how it happens, especially in Labor Courts.

Every day we come across inquiries regarding the costs of litigating and losing. We have written this article to provide some conceptual clarification to those who come from abroad.

In order to maintain its structure, Brazil’s Labor Court System charges the so-called court costs, which are paid, as a rule, by the losing party in the suit, which we call “sucumbência” (loss of suit). Court costs, in employment claims, correspond to two percent (2%) of the claim amount involved/estimated. 

Besides paying the court costs, the losing party also must, as a rule, cover other occasional expenses in the suit, such as the fees of an expert who might have worked in the case, as well as the counsel fees of the prevailing party’s attorney. Counsel fees are established between ten and twenty percent (10 and 20%) of the claim amount or the award value.

Considering the total amount of a claim and the financial risk to which workers are exposed in case they lose a dispute, and if the exemption benefit is restricted to those who “prove” they lack the resources, then why have there always been thousands of employment lawsuits a year in Brazil?

Historically, the Brazilian legislation provided (or provides, as the situation has been similar again recently) that the employer, in case he/she loses the lawsuit, would only have to pay the worker’s attorney’s counsel fees if the employee were a member of the Union of his professional category, and even in this case, only if the worker earned up to two minimum monthly wages a month. As most workers resorted to private lawyers instead of unions or earned a salary that exceeded the one mentioned, employers virtually never had to cover the counsel fees of the adverse party, even when the former were the losing party in their lawsuits.

If the opposite took place and the worker were the losing party, there would be no legal provisions establishing he/she would have to cover the counsel fees of his/her winning employer’s attorney.

How would labor lawyers provide for themselves when, whether they win or lose a case, justices would not require adverse parties to pay anything in regards to counsel fees, nor would the Brazilian state cover any amounts? A custom was adopted in which lawyers charge their counsel fees directly from their clients as provided in their contracts.

In the case of the workers’ attorneys, the usual practice in the market is to charge between twenty and thirty percent (20 and 30%) of the potential award from a lawsuit. The employers’ attorneys, in turn, usually charge for the hours they work or ask for a fixed monthly amount per lawsuit (regardless of winning or losing). They also charge success fees or resort to combinations of these alternatives.

Considering that virtually there was no risk of loss of suit charges, or “sucumbência” (that is, having to pay those 2% upon the amount involved in the lawsuit, the adverse party’s expert fees, and counsel fees of up to 20%), Brazil’s Labor Court System has always received thousands and thousands of employment claims every year.

Okay. But how about the court costs of two percent (2%), which must be paid by the losing party? Considering that only those who “proved” they lacked the necessary financial resources would be exempted, wouldn’t this very fact have the power to discourage the true “industry” of employment claims in Brazil? In thesis they should; however, this is not what was observed, and this has an explanation too.

Despite Brazil’s Federal Constitution literally requiring “proof” of such alleged lack of financial resources, the ordinary legislation has created a hypothesis that assumes the poverty of all those who merely declared such condition “under penalty of law” on a sheet of paper, even in the most informal way possible. 

The absolute absence of financial risks largely accounts for why Brazil has always been listed as the world record holder in the number of labor lawsuits: there were 2,013,241 new employment claims only between January and September 2017, according to statistical data from Brazil’s Superior Labor Court itself.

The labor-law reform from 2017 (Act no. 13,467) has tried to change this framework, even succeeding to an extent, by creating, in Brazil’s Labor Court System, the possibility of ordering that the worker, when his/her claim was denied, pay court costs, expert and counsel fees even when they had free legal aid. After the concepts and rules above were altered, the first impact was major and immediate: between January and September 2018, there were 1,287,208 new claims, a steep decline of 36%.

The lawmaker intended, with these changes, to slow down absurd and abusive employment claims from being filed because, up to that point, filing a claim against an employer in Brazil was free of charge and ended up generating a highly permissive environment to all kinds of lies and falsified versions (the party itself misrepresenting the truth is not deemed perjury in Brazil. 

But that did not last long. It is unknown whether it was due to pressure from the impaired parties, but both Brazil’s Superior Labor Court and Federal Supreme Court were able to neutralize these legal changes brought about by the Labor-Law Reform of 2017.

Brazil’s Federal Supreme Court has recently deemed that the new legal provisions that made possible for the worker to use the claims he/she was granted in the same lawsuit or in another lawsuit as collateral for the payment of expert fees and the adverse party’s attorney’s counsel fees were unconstitutional, even when he/she was entitled to free legal aid.

The decision from Brazil’s Federal Supreme Court ended up encouraging the return of record numbers of employment lawsuits in Brazil, considering workers will no longer suffer financial losses in case they are the losing party in a lawsuit. The consequence of this has already been observed both by the large-sized companies and the law firms that follow up these disputes. However, thanks to decades of experience in a context of major judicialization, Brazil’s legal practitioners have developed a strategy to face this issue: the so-called ‘mass litigation’; that is, firms that became specialized in defending companies with major labor liabilities.

We, from Autuori Burmann Sociedade de Advogados, have a highly specialized team that is completely focused on our clients’ business areas, with several tools that were developed for the management of cases, the emission of reports, contingency perspectives, a settlement platform, and the management of deadline schedules to meet the mass litigation needs of companies of all sizes, always striving for the best legal solutions and the economic efficiency of our clients.