Brazilian Labor Reform Disappoints American Investors

10/05/2017 - 12h38

Brazil isn't really a capitalist country, at least not in the way that American investors had hoped after the labor reform cobbled together by the Planalto Palace in Michel Temer's government.

Business executives, investors, lawyers, consultants and representatives from the banking sector left a Brazilian-American Chamber of Commerce meeting in New York last week with this sense of frustration, some of them with more questions than answers remaining in their minds.

"So, you mean to tell me that we still can't reduce salaries? This is the most anti-capitalist thing that exists", complained Terry Boyland, from CPQI, a company that offers technology services to banks in Latin America. "And what if we lose money? Will we be able to share the losses as well?"

Isabel Bueno, partner of Mattos Filho, the law firm that organized the event, agreed with those in the packed room. "It isn't capitalist."

Businessmen, for example, had imagined that they would now be able to sub-contract employees as they wished, reducing salaries and avoiding labor lawsuits, but saw that the scenario hadn't turned into the "bed of roses" that they had imagined from the "most significant reform of the sector in 50 years", as a guest declared.

One of the main reasons, in fact, for their disappointment, is the real difficulty in third-party re-contracting of employees. Many, in fact, had been planning to fire and then re-hire the same employees as independent contractors, but weren't pleased to discover that the law imposes a quarantine of one and one-half years.

In effect, this means that an employee who has been fired can only be re-hired by the same company as a contract employee after waiting out this time-period, making this non-viable as a strategy for reducing payroll taxes and expenses.

"This is a critical point that failed", says Gustavo Salgado, from the Japanese bank Sumitomo Mitsui, which has operations in São Paulo. "It is a really critical point because it could make companies more competitive."

Translated by LLOYD HARDER

Read the article in the original language