On April 26 the Brazilian House of Representatives has approved a reform of the Brazilian Labor Code (“Consolidação das Leis do Trabalho”), aiming at rendering the Brazilian labor market more flexible and allowing more negotiation of rights between employers and employees.

One new provision expressly allows arbitration in employment agreements, provided that (i) the monthly compensation of the employee is higher than a certain threshold (at least twice the cap on social security pensions); and (ii) the employee suggests the arbitration clause or expressly agrees with it.

This is change of paradigm, since the prevailing case law of Brazilian Superior Labor Court (“TST”) is against the possibility to arbitrate individual labor rights. The 2015 reform of the Brazilian Arbitration Act tried to authorize arbitration of labor claims from officers and directors against the companies, but this authorization was vetoed by the President.

A arbitration is a valuable tool for dispute resolution, especially for high value claims and/or disputes involving complex matters. The requirement for validity of a minimum amount of compensation aims at ensuring that it would be worth arbitrating the claim from a cost-benefit standpoint, whilst the need of express consent attempts to avoid that the employees be driven to arbitration without weighting the possible consequences.

The Labor Reform will now be voted at the Senate and, if approved, will be subject to presidential sanction. It is one the highest priorities of the federal government and it is expected to be approved in the next couple of months.