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Estado de S. Paulo | Understanding Outsourcing


The Estado explains a major labor bill currently awaiting amendments in the Brazilian Chamber of Deputies, in a handy blog called “O Descomplicador” — a didactic background briefing  on the headlines of the day.

The topic today is the pending labor bill, voted up by the pro-business benches and the unanimous ayes of the PSDB.

What I find a bit difficult is the difference between “outsourcing” and “subcontracting” as a translation of terceirização. It appears that “subcontracting” is the term reflecting the exchange of formal employees for what is now still regarded as “informal” employment.

The Estado:

Bill 4330/2004 is a proposal to regulate the outsourcing, or subcontracting, of workers in Brazilian companies. A contentious issue, it was placed on the docket of the Chamber of Deputies in 2004 and has been further debated and modified since then.

One of the controversial points of the bill is that it would allow outsourced workers (or subcontractors) to function as full time workers in the company’s main line of business. Until now, companies could only outsource services not central to its main business activity.

For example: a company that produces furniture could outsource its cleaning service and employee kitchen, but not the fabrication of furniture.

Business owners say it is difficult to discern the former from the latter, and that it is impossible to modernize economic activity without subcontracting.

On the other hand, the unions argue that subcontracting “undermines the conditions of labor contracts,” opening up the possibility of hiring subcontractors to provide services without the protections of the Consolidated Labor Laws (CLT).

The bill as currently drafted leaves untouched the principal aim of the bill, defended by practically all Brazilian business federations: if approved, it would allow the hiring of subcontracted workers for “core activities” and not only for offshoots of that activity.

The unions have won an important victory as well. Article 8 of the bill provides that subcontracted (outsourced) workers that are reassigned to core activities be represented by the union representing that category of worker. Business interests are not pleased, preferring the previous order of things.

Edu Guimarães has this take on the bill:

In practice, allowing companies to hire subcontractors means that higher paid employees will lose employment rights and benefits.

For those who do not understand what this means, the “principal activity” is that which constitutes the company’s reason for being. If that company produces computer programs, providers of programming services could now be “subcontracted.”

In practice, this employee can then be dismissed and rehired as an employee of a “front” company that pays a much lower salary and continues to supply the original company with the same service.

I remember an episode of The Simpsons in which Homer, involved in a strike at the nuclear plant, is beside himself with joy when “Old man Burns fired us all and then re-hired us as temps.”