⚖ For Foreign Startups Hiring in Brazil · International Clients Welcome · 40 Years of Experience
Brazilian Labor Law · For Foreign Startups

Hiring a Brazilian
"contractor" isn't
always what it looks like.

Thousands of foreign startups hire Brazilian developers and other talent as independent contractors ("PJ") to move fast and avoid local payroll complexity. Done right, that's completely legal. Done wrong, it's called pejotização, and Brazilian labor courts can retroactively reclassify the relationship as employment, exposing your company to years of back pay.

Understand the Risk Talk to Local Counsel
STF · Tema 1389 · Pending Decision
~50,000
Lawsuits currently suspended nationwide while Brazil's Supreme Court decides the legal standard for PJ/contractor arrangements.
Merits trial began, paused by a justice's review request
Attorney General's Office opinion favors PJ contracting
Final ruling still pending, no date confirmed
Companies already bear the burden of proof today
Contract wording alone does not protect you
!

A well-written contract is not, by itself, a defense

Brazilian labor law follows the primacy of reality principle: what matters legally is how the relationship actually works day to day, not what the contract is titled. A "services agreement" with a Brazilian LLC (PJ) that in practice involves a fixed schedule, exclusive dedication, direct supervision like an employee, and integration into your internal tools exactly like a staff member, can be reclassified as employment, regardless of the paperwork.

Understand the Mechanism

What is pejotização, exactly?

Pejotização (from "PJ", pessoa jurídica, Portuguese for "legal entity") is the practice of engaging a worker through their own registered Brazilian company instead of a formal CLT employment contract. It is a legal and common structure in Brazil, including for outsourcing core business functions, provided the arrangement is not used to disguise an actual employment relationship.

The legal basis for challenging a sham arrangement is art. 9º of the CLT (Brazil's Consolidated Labor Laws), which voids any act intended to circumvent labor protections. When a labor court finds fraud, it applies art. 3º of the CLT's classic four-part test: was the work personal (not delegable to someone else), ongoing, paid, and performed under subordination (schedule control, direct supervision, integration into your operational structure)? If all four are present in substance, the court recognizes an employment relationship, retroactively, from day one.

01
Retroactive employee benefits
13th salary (an extra month's pay), vacation plus a mandatory one-third bonus, and FGTS deposits (8% of pay, held in a government fund), all owed retroactively for the full working period.
02
Termination penalty
On top of unpaid FGTS deposits, a 40% penalty on the total FGTS balance is due if the relationship ends without "just cause," which is the default outcome in most contractor terminations.
03
Payroll taxes and social contributions
Employer-side social security contributions (INSS) become due on the reclassified salary, calculated on the full period, plus applicable penalties for late payment.
04
Overtime and premium pay
If the worker's actual hours exceeded standard limits, overtime premiums (typically +50%) apply retroactively, calculated from timesheets, messages, or witness testimony.
05
A five-year lookback window
Labor claims can generally reach back five years from the date filed (and up to two years after the relationship ends), so exposure accumulates well beyond a single bad year.
06
Legal costs and enforcement
Add the worker's attorney fees, court costs, and the practical difficulty of a foreign company defending itself in Brazilian labor court without local counsel already engaged.
The Current Legal Landscape

The Supreme Court hasn't ruled yet.
That doesn't mean you can wait.

Tema 1389 is exactly this question, actively before Brazil's highest court. Here's where it stands, and why the outcome matters less than you'd think for what you should do right now.

I
⚖️
Trial started, then paused
The merits trial began in the Supreme Court's plenary in late 2025. In December 2025, Justice Cármen Lúcia requested additional time to review the case, suspending the judgment nationwide.
II
📋
A favorable signal, not a ruling
In February 2026, Brazil's Attorney General's Office (PGR) issued a legal opinion favoring the constitutionality of PJ contracting. It carries weight, but it is not the Court's decision.
III
⏳
No date, no shortcut
With roughly 50,000 lawsuits suspended nationwide awaiting the outcome, there is no confirmed date for a final ruling. Structuring contracts correctly today isn't optional while you wait.
🗝️
The Decisive Point
Whichever way the Supreme Court rules, you already carry the burden of proof today
The most important practical fact isn't what the Supreme Court might decide eventually, it's what lower courts already do right now. Under current, well-established case law, once a company acknowledges that services were provided, the burden shifts to the company to prove the relationship was genuinely autonomous, not to the worker to prove it was disguised employment.

That means, regardless of how Tema 1389 is ultimately decided, a startup engaging Brazilian contractors today already needs to be able to demonstrate, with real documentation, that the relationship lacks the hallmarks of employment. Waiting for legal certainty from the Supreme Court doesn't reduce your exposure for contracts running today. Structuring correctly now is the only move that actually lowers risk.
How We Help

A four-layer approach, not a template contract

Layer 01
Initial diagnostic
A structured review of your current or intended relationship with each contractor: routine, schedule control, exclusivity, and how payment works, to map your exposure before any contract is drafted.
Layer 02
Delivery-based contracts, not templates
Each engagement gets its own scope, tied to specific deliverables rather than "ongoing services," with acceptance criteria per deliverable, non-exclusivity, the right to subcontract, and no schedule or performance-review clauses typical of employment.
Layer 03
A living evidence folder
Ongoing, not one-time: invoices tied to each contract, communications that demonstrate autonomy, proof of the contractor's other clients when relevant, and records showing the absence of schedule control. Reviewed quarterly or semi-annually.
Layer 04
Periodic conduct audits
A good contract paired with a bad day-to-day practice protects no one. We periodically check whether the real working relationship still matches what's on paper, annually or with each new contractor hired.
Is This You?

Who should get this reviewed

This matters most if your company: engages Brazilian developers, designers, or other talent as contractors on an ongoing, full-time-equivalent basis; sets their working hours or requires availability during your core hours; supervises their day-to-day work directly rather than by deliverable; has had the relationship running for a year or more without a documented independent-contractor structure; or is deciding between building a Brazil-based team as contractors versus using an Employer of Record.

None of this means you need to stop hiring in Brazil, or that you need an EOR by default. It means the difference between a lawful, well-structured engagement and an expensive retroactive liability usually comes down to details most founders never think to ask a lawyer about, until a dispute arises.

Frequently Asked Questions

Common Questions from Foreign Founders

?
Can I legally hire a Brazilian developer as a contractor?
Yes, if the relationship is genuinely autonomous. Brazilian courts have upheld pejotização as lawful, including for core business roles, as long as there is no fraud in substance.
?
What exactly is pejotização?
Engaging someone through their own Brazilian company (PJ) instead of a CLT employment contract. Legal when genuinely independent, risky when it's an employment relationship in disguise.
?
What happens if a contract gets reclassified?
Retroactive payment of 13th salary, vacation plus one-third, FGTS deposits plus a 40% penalty, overtime if applicable, and payroll taxes, generally covering up to five years, plus legal costs.
?
What is Tema 1389 and what's its status?
A Supreme Court case deciding the legal standard for PJ contracting. Trial began in late 2025, was paused in December 2025 by a justice's review request, and received a favorable opinion from the Attorney General's Office in February 2026. Still pending, no date confirmed.
?
Should I wait for the ruling before signing contracts?
No. Under current case law, your company already bears the burden of proving a contractor relationship is genuine if a dispute arises, regardless of how the Supreme Court eventually rules.
?
Is an Employer of Record my only safe option?
No. A properly structured, well-documented contractor agreement under art. 442-B of the CLT can be entirely lawful. The right structure depends on how you actually intend to work with the person.
Free Initial Consultation · No Obligation

Hire in Brazil
without the retroactive surprise.

We review your current or planned contractor arrangement at no cost: whether it holds up under Brazilian labor law, what specifically to change, and how to structure the relationship so it stays that way as the legal standard evolves.

Book a Free Consultation

Prefer email? contato@ajsadvocacia.com.br

No cost for the initial review · 40 years of legal practice · English-speaking correspondence available