Brazil’s Federal Supreme Court (STF) will soon decide a key issue for the labor market: the legality of hiring professionals as independent contractors through their own legal entities—a widespread practice known locally as “pejotização.” Under this arrangement, workers provide services as legal entities (PJs), issuing invoices instead of holding formal employment governed by the Consolidation of Labor Laws (CLT).

The case falls under Topic 1,389, designated as having general repercussion. The Court’s decision will be binding and must be followed by all trial and appellate courts in similar cases. Until then, related lawsuits remain suspended nationwide, all ongoing cases addressing this matter remain temporarily suspended nationwide.

The independent contractor model has gained traction in sectors like technology, communications, and healthcare, offering companies greater flexibility in managing contracts and workforce organization. Critics, however, argue that it is often used to conceal formal employment relationships, denying professionals rights guaranteed under the CLT—such as paid vacation, year-end bonuses, social security contributions, and other labor benefits.

The Supreme Court’s ruling is highly anticipated and expected to bring legal certainty to both employers and workers. Beyond clarifying the line between legitimate contracting and employment misclassification, the decision could reshape labor relations in Brazil, affecting both existing contracts and future hiring models.

This topic will remain in focus over the coming weeks, with developments closely monitored by companies, professionals, and labor law specialists.

Glossary

Federal Supreme Court (STF): Brazil’s highest court for constitutional matters, equivalent to a constitutional supreme court.

Pejotização: A Brazilian labor market practice where professionals are hired as independent contractors through their own legal entities (PJs), instead of as formal employees.

Legal Entity (PJ): Abbreviation for Pessoa Jurídica in Portuguese, meaning a company or corporate entity as opposed to an individual.

Consolidation of Labor Laws (CLT): Brazil’s primary legislation governing labor relations, similar to labor codes in other jurisdictions.

General Repercussion (Topic 1,389): A procedural mechanism in Brazil’s legal system where the Supreme Court’s decision has binding effect on all lower courts in similar cases.

Trial and Appellate Courts: Refers to first-degree and second-degree courts in Brazil’s judicial system, responsible for initial trials and appeals.

Employment Misclassification: The practice of wrongly categorizing employees as independent contractors to avoid labor obligations.

Social Security Contributions: Mandatory payments employers must make to Brazil’s social security system on behalf of employees.