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Outsourcing – Supreme Federal Court – Extraordinary Appeal 958.252

31Out2016Oct31,2016
Labor, Employment and Executive Compensation
Supreme Federal Court – Extraordinary Appeal 958.252​ - The Supreme Federal Court will decide on the lawfulness of the outsourcing of core business activities

The Supreme Federal Court (Supremo Tribunal Federal – "STF") scheduled for November 9, 2016 the judgment of Extraordinary Appeal 958.252, which concerns the issue of outsourcing.

In Brazil, Precedent 331 of the Superior Labor Court (Tribunal Superior do Trabalho –"TST") prohibits a company from outsourcing its core business activities. The matter was brought to the attention of the STF two years ago, particularly because there was a huge increase in the number of labor lawsuits disputing the lawfulness of this legal precedent and the extent of the concept of core or non-core business.

At that time, STF Minister Luiz Fux, the reporting judge, ruled that a general prohibition on outsourcing, based on a judicial interpretation of what would constitute core business could violate the fundamental principle of free initiative, generating a possible breach of article 5, II, of the Brazilian Federal Constitution, pursuant to which no one is obliged to do, or not do, anything except by virtue of the law. In justifying his decision, the Minister pointed out the following:
"A general prohibition on outsourcing based on the interpretation of case law as to what would be core business could interfere with the fundamental right of free initiative, creating a possible direct violation of article 5º, II, of the Federal Constitution, which obligation is not based in law, capable of removing the freedom of the entrepreneur to organize his business activity in a licit manner and in the way he considers to be more efficient. (...) It must be highlighted that the issue under examination is extremely relevant, because it is related to the limitation of the possibilities of outsourcing labor in view of what is understood to be core business, undoubtedly a constitutional matter, from the point of view of freedom to contract (…)"
Currently, Precedent 331 (which prohibits outsourcing) is the precedent adopted by the Brazilian Labor Courts when judging cases which concern the issue of outsourcing.

With the judgement of this issue now in perspective, we recommend that companies reassess this issue in their corporate planning, as well as in the conduct of ongoing labor lawsuits.

Labor, Employment and Executive compensation Practice​
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