A common question among companies operating in Brazil is whether all employees are entitled to a salary increase every year and whether companies are required to adjust salaries according to inflation.
To answer these questions, it is important to understand some key concepts under Brazilian labor rules, particularly the annual collective bargaining date (“data-base”), the Collective Bargaining Convention (CCT), the Collective Bargaining Agreement (ACT), and the collective labor dispute (“dissídio coletivo”).
What is the “data-base”?
The data-base is the annual reference period for negotiating the employment conditions applicable to a particular professional category.
Article 10 of Law No. 10,192/2001 establishes that salaries and other employment conditions are determined and reviewed on the respective annual data-base through free collective bargaining.
During this period, unions and employers may negotiate matters such as:
- salary adjustments;
- new minimum salary levels for the category;
- meal allowances;
- food allowances;
- additional compensation;
- benefits; and
- other employment conditions.
Are companies required to increase salaries every year?
The existence of an annual data-base does not mean that Brazilian law automatically guarantees a specific salary increase percentage to every employee each year.
There is also no general rule requiring companies simply to apply inflation indexes such as the IPCA or INPC to employees’ salaries.
In fact, Law No. 10,192/2001 prohibits clauses providing for automatic salary adjustments or corrections linked to a price index.
The applicable percentage and conditions will depend on the outcome of the collective bargaining process and the instrument governing the respective professional category or company.
Therefore, companies need to review the applicable Collective Bargaining Convention, Collective Bargaining Agreement or, when applicable, the decision resulting from a collective labor dispute.
Collective Bargaining Convention vs. Collective Bargaining Agreement
Although the names may sound similar, they are different instruments.
A Collective Bargaining Convention (Convenção Coletiva de Trabalho – CCT) is generally entered into between the workers’ union and the employers’ union. It establishes employment conditions for the professional and economic categories covered by the collective bargaining process.
A Collective Bargaining Agreement (Acordo Coletivo de Trabalho – ACT), on the other hand, is entered into between the workers’ union and one or more specific companies.
As a result, an ACT has a more specific scope: its rules apply to the companies that participated in the agreement and to the employees covered by it.
Brazil’s Consolidation of Labor Laws (CLT) makes this distinction in Article 611.
What is a “dissídio coletivo”?
In everyday language in Brazil, the word “dissídio” is often informally used as a synonym for the annual salary adjustment. Technically, however, they are not the same thing.
The first step is to seek a solution through collective bargaining.
If workers and employers reach an agreement, the result may be formalized through a Collective Bargaining Convention or a Collective Bargaining Agreement.
If negotiations fail, a collective labor dispute proceeding (“dissídio coletivo”) may be filed, subject to the applicable legal requirements. The collective dispute is then submitted to the Brazilian Labor Courts and may result in a decision establishing employment conditions for the professional category.
In simplified terms:
Collective Bargaining Convention: Workers’ Union + Employers’ Union.
Collective Bargaining Agreement: Workers’ Union + one or more companies.
Collective Labor Dispute: a collective conflict submitted to the Brazilian Labor Courts when negotiations do not reach a solution, subject to the applicable legal requirements.
What happens if negotiations are delayed?
This is a common situation in Brazil.
For example, imagine that the data-base for a professional category is May 1, but the Collective Bargaining Convention is only executed and published in July.
The company must then review the collective bargaining instrument, particularly its effective date and the rules governing the salary adjustment.
If the negotiated salary adjustment takes effect retroactively from the data-base, the company may need to recalculate salaries from that period and pay the corresponding retroactive differences.
For example:
Previous salary: BRL 3,000
Negotiated adjustment: 5%
New salary: BRL 3,150
Monthly difference: BRL 150
If the collective bargaining instrument establishes that the adjustment is effective from May, but the May and June payrolls have already been processed using the previous salary, retroactive salary differences may arise for those months.
The salary adjustment may also affect other payments calculated based on the employee’s compensation, depending on the circumstances.
Therefore, companies should not focus only on the adjustment percentage. The effective date and all other applicable provisions of the collective bargaining instrument must also be reviewed.
What about employees terminated during the negotiation period?
This is another important issue.
An employee may still be employed on the data-base but have their employment terminated while collective bargaining negotiations are ongoing.
If a collective bargaining instrument is subsequently published establishing a retroactive salary adjustment that applies to that former employee, the company must determine whether amounts due up to the termination date need to be recalculated and, when applicable, whether termination payments affected by the new salary must also be supplemented.
Companies should therefore also determine whether former employees are covered by the effects of a newly published collective bargaining instrument.
Special attention to terminations close to the data-base
There is another important rule for companies to monitor.
In addition to the salary adjustment applicable to the professional category, a termination without cause occurring within the 30-day period preceding the data-base may result in an additional severance payment equivalent to one monthly salary, under the circumstances provided for in Law No. 7,238/1984.
This rule is separate from the annual salary adjustment, but it further highlights the importance of correctly identifying the data-base applicable to each professional category.
What should companies monitor?
Companies should monitor annually:
- the data-base applicable to each professional category;
- ongoing collective bargaining negotiations; and
- the publication of collective bargaining instruments applicable to their employees.
Proper monitoring helps prevent accumulated salary differences, payroll errors, and potential labor liabilities.
ORGATEC can assist your company with these matters and other issues related to doing business in Brazil.
ORGATEC specializes in accounting services for Japanese companies in Brazil.