Independent Contractors in Brazil: PJ Risks and Supreme Court Rulings

Hiring professionals through their own legal entities, a practice known in Brazil as pejotização, is widely used to organize the provision of services in the country. Foreign companies expanding into Brazil or engaging remote professionals should assess whether a proposed arrangement reflects genuinely independent services.

The distinction between a valid commercial relationship and employment misclassification has been the subject of extensive litigation in Brazilian courts. Understanding the differing approaches of Brazil’s Superior Labor Court (Tribunal Superior do Trabalho — TST) and Federal Supreme Court (Supremo Tribunal Federal — STF) is important for corporate governance and the assessment of employment-related liabilities.

PJ Contracting in Brazil

Contracting through a legal entity means engaging a company to provide services. PJ stands for pessoa jurídica, the Portuguese term for a legal entity. These arrangements are common among specialized professionals, including physicians, data engineers, strategic consultants and software developers.

Brazilian labor courts frequently review these arrangements. Under Articles 2 and 3 of the Consolidation of Labor Laws (Consolidação das Leis do Trabalho — CLT), a service arrangement may be reclassified as employment when the following elements are present in the actual relationship:

Legal subordination: the professional works under the hiring company’s authority and direction;
Personal service: the services must be performed by the individual, who cannot freely appoint a substitute;
Non-occasional work: the services form part of a regular, ongoing working relationship; and
Remuneration: the professional receives recurring payment for the services on a regular basis.

Distinguishing operational coordination from legal subordination requires an assessment of the relationship as a whole. Exclusivity or recurring fixed payments alone do not necessarily establish employment. Companies should obtain preventive employment-law advice based on both the contract and the parties’ actual conduct.

Different Judicial Approaches to PJ Contracting

Uncertainty in employment classification disputes arises from differences between the TST’s traditional approach (which is employee protective) and the STF’s decisions on freedom of enterprise and alternative ways of organizing work. These decisions must be assessed in light of their scope and the facts of each case.

The TST’s Traditional Approach

The TST has traditionally applied the principle of primacy of reality (primazia da realidade), a substance-over-form approach under which the actual working relationship may prevail over its contractual description.

When the statutory elements of employment are established, a civil service or consultancy agreement may be set aside, resulting in recognition of an employment relationship and liability for the corresponding labor entitlements, social security contributions and other applicable charges.

The STF’s Approach to Alternative Work Arrangements

The STF has emphasized freedom of enterprise and the ability to choose lawful ways of organizing production. ADPF 324 recognizes the constitutional validity of outsourcing, including core business activities. ADC 48 specifically concerns autonomous road freight carriers under Law No. 11,442/2007 and recognizes the commercial nature of those relationships when the statutory requirements are met.

Although these decisions inform the broader debate, their application to other PJ arrangements depends on the relevant legal framework and facts. The STF has also overturned labor-court decisions in disputes involving independent professionals.

In some cases, the STF has considered professionals’ economic independence, technical autonomy and bargaining power when reviewing PJ arrangements. These characteristics require individual assessment and do not provide automatic protection against employment claims.

References to stronger bargaining power in judicial reasoning should also be distinguished from the specific statutory category of employees with enhanced negotiating powers under Article 444 of the CLT.

STF Theme 1,389 and the Progress of Employment Claims

In April 2025, the STF recognized the general constitutional significance of Theme 1,389, a procedure through which it will establish a binding ruling.

The case addresses the legality of engaging legal entities or independent contractors, which court has jurisdiction over allegations of fraud in civil or commercial service contracts, and who bears the burden of proving the alleged fraud. As of October 7, 2026, the STF had not established the final ruling in this case.

Although proceedings were initially stayed nationwide, subsequent decisions by Justice Gilmar Mendes allowed cases within the scope of Theme 1,389 to proceed before first-instance labor courts and Regional Labor Courts (Tribunais Regionais do Trabalho — TRTs).

Proceedings must be stayed immediately after the Regional Labor Court issues its judgment, without opening a period for an appeal to the TST, pending the STF’s final ruling.

Companies should therefore continue reviewing their arrangements and preparing their defenses. Evidence may be produced and cases decided in the ordinary labor courts while the STF’s ruling remains pending. The pending case does not suspend substantive compliance obligations or justify postponing the assessment of existing contracts and working practices.

Risk Mitigation and Corporate Governance

While judicial guidance continues to develop, companies should assess the financial and reputational implications of their arrangements. Measures to consider include:

Contractual and operational review (due diligence): assessing existing agreements and the professionals’ actual working practices;
Management and communication practices: aligning contracts, operational routines and supervision with the degree of independence required by the chosen model, and considering formal employment where the actual relationship requires it; and
Tailored legal opinions: preparing risk assessments for significant engagements, including senior executives and other key positions.

Strategic Employment Law Advice

MMR – Mastrocola Marcondes Rocha Advogados advises companies on structuring and reviewing hiring arrangements, assessing employment risks, conducting internal audits and defending disputes involving PJ contracting, employment recognition and service providers.

Our preventive and dispute-resolution work helps Brazilian and foreign clients align their contracts and working practices with applicable legislation and developments in the higher courts’ case law, reducing employment risks and liabilities.