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Is Brazil Blazing a Trail on Employment Arbitration?

Adding an arbitration provision to an employment contract has been a familiar practice for many HR professionals in the United States. That’s unlikely to change, particularly since the U.S. Supreme Court recently upheld employment arbitration agreements barring class actions, see Epic Systems Corp. v. Lewis. But what about the rest of the world? Although arbitration of commercial claims is mainstream on the global stage, that’s not the case when it comes to employment disputes. A recent development in Brazilian law could perhaps start a new trend.

Brazil recently enacted new legislation permitting the use of arbitration to resolve employment disputes. To enforce an arbitration provision under Brazilian law, there must be clear consent to arbitration by the employee and the employee must be earning more than a specified salary. Although it is limited in scope and unclear how long it will take to become widely adopted, it is an important development. As is the case in many countries, Brazil has in the past been reluctant to embrace arbitration in the employment context out of a concern that it could undermine an employee’s fundamental rights. A private arbitration process is often viewed with suspicion, particularly given the unequal power balance between employees and employers. Brazil’s new law represents a cautious embrace of arbitration in limited circumstances.

In the UK, despite there being a growing interest in arbitration of employment disputes, there remains a widespread concern that arbitration clauses are unenforceable with respect to statutory employment rights. As a result, such provisions are very rare in UK agreements. That might change over time, particularly if there is statutory reform similar to what has taken place in Brazil. Although not on the immediate horizon in the UK — we have plenty of other things to worry about with Brexit! — it will be interesting to follow the law’s development and to see if other jurisdictions follow Brazil’s lead.

U.S. employers with international offices should continue to think carefully about including arbitration provisions in agreements with employees based in foreign jurisdictions. In some cases, they might not work at all. In other cases, they might only work if certain requirements are satisfied. Arbitration can be an attractive option — particularly the confidentiality of the arbitration process — but unless a particular jurisdiction has a well-established acceptance of arbitration of employment disputes or a statutory framework that supports it, the litigation around the arbitration provision itself might be more hassle than its worth.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.