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As China¡¯s Belt and Road Initiative aligns more deeply with Brazil¡¯s ¡°reindustrialisation¡± strategy, China has maintained its position as Brazil¡¯s largest trading partner for 16 consecutive years. With bilateral economic ties expanding, a growing number of Chinese enterprises are moving beyond trade to invest and operate locally in Brazil.

Brazil¡¯s legal environment is renowned for its complexity, with a labour law regime reflecting strong bias towards worker protection. Law No. 13467/2017, which came into effect in 2017, introduces greater flexibility in employment practices, but Brazil¡¯s labour system remains a minefield for investors accustomed to Chinese employment management norms.

Ignoring the institutional differences between the two countries can send personnel costs spiralling and expose companies to costly employment litigation.

As a guide to avoiding such pitfalls, this article examines core compliance issues under Brazil¡¯s labour law that Chinese businesses should prioritise when establishing or expanding operations in the country.

Employment relationships

Brazilian labour law adheres strictly to the principle that ¡°substance prevails over form¡± when determining the existence of an employment relationship.

Even if a company signs an agreement styled as an Independent Contractor Agreement or Labour Service Contract, the courts will look beyond the contractual label to analyse the reality of the working relationship.

If the nature of the services provided meets the statutory criteria for employment, judicial practice is highly likely to recognise it as a de facto employment relationship.

When it comes to contract duration, open ended employment contracts are the default under Brazilian law.

Fixed term contracts are permitted only in limited, legally defined circumstances ¨C such as a temporary increase in workload or during a probationary period ¨C and may not exceed two years. Any contract exceeding that limit, or concluded without meeting the requisite legal conditions, is automatically converted into an open ended agreement.

Notably, the standard probation period may last no longer than 90 days, a key difference from common practice under Chinese labour law. Employers must therefore observe strict time limits to avoid exposure to additional legal liabilities.

Working hours, overtime

Brazil¡¯s constitution provides particularly robust protection for employees¡¯ working hours. The standard schedule is eight hours per day, or 44 hours per week. Unless modified through a collective bargaining agreement, any time worked beyond this threshold must be compensated as overtime.

The law also sets a statutory minimum rate: overtime on regular working days must be paid no less than 1.5 times the standard hourly wage. For night work ¨C defined as 10 pm to 5am ¨C a special calculation applies: every 52 minutes and 30 seconds of work count as one hour, and employers must also pay at least a 20%t night shift premium.

In addition to daily limits, the law restricts continuous weekly working time. Employees are entitled to 24 consecutive hours of paid rest each week, which should normally fall on Sunday.

If business needs require Sunday work, the employer must provide compensatory rest within the same week, otherwise the employee is entitled to double pay for that day. As a rule, employees therefore cannot work more than six consecutive days without a weekly break.

The law also establishes an exemption for senior management. Directors, managers and other personnel who exercise hiring, dismissal and decision making authority, and whose remuneration, including position related allowances, exceeds that of regular employees or direct subordinates by at least 40%, are not subject to working-time controls and have no entitlement to overtime pay. The same exception applies to managers working remotely.

However, companies must clearly define managerial boundaries. If they require such personnel to clock in or attendance is monitored otherwise, the exemption may be deemed invalid.

Labour costs

Human resources expenses are notably complex. Beyond basic wages, employers are responsible for a wide range of mandatory statutory benefits.

The so called ¡°13th salary¡± (or Christmas bonus) is obligatory, entitling employees to an additional month¡¯s salary at year end, regardless of the company¡¯s performance.

Employees who complete 12 months of service are also entitled to 30 days of paid annual leave. During this period, employers must not only pay regular wages but also an additional one third of the employee¡¯s monthly salary as a statutory holiday allowance.

Additionally, pursuant to Law No. 10101/2000, employees are entitled to participate in profit sharing programmes, the structure and distribution of which are typically negotiated with labour unions.

Termination of employment

Brazilian law imposes relatively high thresholds and financial burdens on terminating employment, particularly in cases of dismissal without just cause.

When an employer terminates an employee without legitimate grounds, it must provide advance notice of 30 to 90 days, settle all outstanding contractual entitlements, and pay a 40% penalty on the balance of the employee¡¯s FGTS account, the Fundo de Garantia do Tempo de Servi?o, a mandatory severance savings fund broadly analogous to China¡¯s housing fund system. This penalty, paid directly to the employee, often represents one of the most significant direct costs associated with layoffs.

To improve labour market flexibility, the 2017 labour law reform also introduced a mechanism for mutual termination by agreement between employer and employee. Under this arrangement, payment in lieu of notice is reduced by half and the FGTS penalty drops to 20%, easing the financial burden on employers while safeguarding employees¡¯ core rights.

Key takeaways

Brazil offers considerable market potential but compliance remains the cornerstone of sustainable operations. Investing enterprises should respect local legal and cultural norms and establish compensation and compliance systems aligned with regulatory requirements.

When dealing with executive hiring, flexible employment structures or workforce restructuring, companies are advised to seek specialist legal counsel to balance compliance obligations with business objectives.

Wang Jihong is a senior counsel and Xu Yibai is a non-equity partner at Zhong Lun Law Firm