Law

Overview on Commissions' Matters in Brazil

By Maurício Pepe De Lion and Amanda Cretella dos Santos, Santos Neto Advogados

Commissions are legal in Brazil as an exclusive or nonexclusive form of financial retribution (compensation) to certain kinds of professionals, such as salespeople covering a specific territory, in the context of an employment agreement entered into between the parties. According to current labor legislation, such employees might be hired as: (i) pure commission agents, category in which a fixed monthly fee will not be due, but only commission over sales performed by them1; or (ii) mixed commission agents, category in which workers will be entitled to receive a fixed monthly fee plus commission over sales.

According to Article 466, of the Brazilian Labor Code (CLT), payment of commissions is demandable after the conclusion of a transaction, with the acceptance of the proposal by both costumer and employer, as set forth by Article 3, of law No. 3.207, of July 18, 1957. Before the enforcement date of the outlined law, there were doubts regarding the meaning of the sentence “conclusion of the transaction.” However, such legislation provided that a purchase order is deemed to be accepted by the company if not refused - in writing - within 10 days of the purchase order, in the event the sale was performed in the same State. In case of different States, such term is extended for 90 days. The law also provides that only in cases of insolvency of the buyer, the employer may offset/request the return of the commission that was already paid to the employee.

In view of the above, we can conclude that the right for commissions arises from the express acceptance of the proposal, or from the tacit form, with the end of the term established by law regarding the refusal possibility by the employer.

It is important to point out that even if the costumer cancels the purchase, or the purchase is not delivered (not due to employer or employee’s will), the sales person is still entitled to receive commissions. This is due since Article 6, of the sales employees’ law, also provides that: “The termination of employment or the employer’s willful failure to not close the deal shall not hinder the employee’s right to the commissions and percentages due.”

Therefore, a receipt of cancellation notice or a client’s failure to pay does not authorize the charge back of commissions according to Brazilian labor laws. This is mainly because Article 2, of the CLT, establishes that the risk of the business activity is on the employer and, if the sale was made, employees cannot face losses for the client’s decision not to pay or to cancel an order.

As a consequence of the above, the company should be fairly certain – to the most extent possible – that the deal shall actually be closed before making the booking, because once it is made, it will only be possible to offset/charge back the commission paid to the employee in case of insolvency of the client.

According to Article 457, of the CLT, in general terms, we may say that “compensation” encompasses the employee’s base salary, bonuses, fringe benefits and any other form of compensation or advantage which the employee receives for his/her work, including commissions:

“Article 457: In addition to the salary due and directly paid by the employer as compensation for the services rendered by the employee, any gratuities that the employee may receive shall also be considered as a part of his compensation for all legal purposes.

Paragraph one: In addition to the employees fixed salary, the commissions, percentages, bonuses previously agreed upon, daily expenses while traveling and voluntary bonuses paid by the employer to the employee shall also be included in his compensation.”

Therefore, commissions, when added to the weekly paid rest, integrate the calculations regarding vacation (Article 129, of the Labor Code), prior notice (Article 487, §3, of the Labor Code), 13th month salary (Christmas Bonus - Decree no. 57.155/65) and overtime (Precedent no. 340, of Superior Labor Court). Nevertheless, for the computation of the weekly paid rest, it shall be considered the amount of commissions received during the week (according to the law), on regular working hours, divided by the days of service effectively worked. The quotient of this division will correspond to one day of rest2.

Article 4, of law No. 3207, provides that the term for payment of the commissions to the sales person is on a monthly basis, unless the parties agree otherwise. In any event, it cannot exceed three months (Article 4, sole paragraph) as of the acceptance of the sale or its billing, whichever occurs first.

We must further clarify that, if an employee starts the sale and after he/she leaves the proceeding for any reason, the commission will only be due to the employee that closed the deal in case the terms and/or conditions of the sale changed pursuant the buyer’s will. Otherwise, such commission is owed to the professional who started the negotiation.

In this sense, the fact the employment relationship has terminated (dismissal or resignation request, for instance) does not release the employer from the obligation to pay the sales commissions over the deals that the former employee performed. Article 6, of law is clear in this sense:

“Article 6: The termination of the employment relationship or the employer’s willful failure not to close the deal shall not hinder the employee’s right to the commissions and percentages due.”

Finally, it is important to point out that Article 468, of the Labor Code, establishes that any change in the employee's compensation or in his/her employment conditions shall require the employee's express consent - in writing - and must not cause any loss (financial or otherwise) to him or her. Therefore, in case a company decides to elaborate a sales commission plan3, we may say that such employer is not free to perform changes at its sole discretion, as well as in any other plan or agreement that directly affects its employees. In case changes made result in an evident loss to the employee, such act will be declared null, void and unenforceable by Brazilian Labor Courts, even if the employee expressly agreed with them.

CONCLUSION
Please find outlined below the most important guidelines regarding commissions as set forth by Brazilian labor law:Salespeople might be hired as pure or mixed commission agents;

  • As a general rule, the employee who perform the sale has the right to commissions over it;
  • The sales person has the right to commissions from the moment of the deal’s acceptance;
  • It is not possible to offset/charge back commissions, except in cases of costumer’s insolvency;
  • Commissions are considered as salary, and, in consequence, integrate the base of computations for vacation, 13th month salary, severance fund (FGTS), overtime, weekly paid rest and severance payment, among other labor rights;
  • Commissions cannot be paid later than three months as of the acceptance of the deal;
  • Even in the event of employment relationship termination, employers are not released from the obligation to pay sales commissions; and
  • Any change in the employees’ compensation or in their employment conditions shall require the employees’ express consent - in writing - and must not cause any loss to them.

------------------------------
1 Please note that the payment of minimum wage is mandatory in the event an employee fails to reach his/her targets on a determined period. In other words, in case the minimum wage amount is not achieved, employers must pay the difference between the commission result and the referred wage.
2 Certain Collective Bargaining Agreements might establish that the computation for weekly paid rest shall be based over the commissions received through the whole month. In view of this, and aiming to mitigate the risks involved in the event of a labor claim, a previous and complete review of such document is strongly recommendable.
3 Please note that, in Brazil, it is not mandatory to have a written contract. Brazilian law recognizes the validity of an oral contract, since it represents the parties’ will. Nevertheless, our experience shows that, when it comes to burden of proof, it is always recommendable to have a formal agreement between parties in lieu of just oral evidences. In view of the foregoing, the draft of a Commissions Plan is strongly recommendable, as long as it does not cause loss to any right previously held by the employees, since commissions are considered as salary and Brazilian law forbids any change in the employee’s employment agreement to cause any loss (Article 468, of the Labor Code).


Maurício Pepe De Lion, Partner
Santos Neto Advogados, São Paulo Rua Fidêncio Ramos, 195, 11º andar, 04551-010, São Paulo, SP, Brasil
www.santosneto.com.br

Specialized in strategic planning, consultancy and labor litigation, advises and defends Brazilian and multinational companies in complex litigation involving executives and/or expatriates, as well as drafts internal codes of conduct, remuneration policies, profit sharing and stock option plans. Solid experience in M&A transactions, judicial recovery and bankruptcy cases, conduction of investigations, civil class actions, negotiations and collective bargaining. Speaker and lecturer, author of specialized book and legal articles, Maurício is also Effective Member of the Committee for the Study of Labor Relations of the Health Sector – OAB/SP (Brazilian Bar Association – São Paulo Chapter).

Amanda Cretella dos Santos, Associate
Santos Neto Advogados, São Paulo Rua Fidêncio Ramos, 195, 11º andar, 04551-010, São Paulo, SP, Brasil
www.santosneto.com.br

Solid experience in consultancy and litigation, having worked in nationals and international full service law firms.

Santos Neto Advogados (founded in 1992) with head offices in São Paulo, Brazil and branch offices in New York City, USA. SNA offer a new concept of lawyering called “lean full service”, where each lawyer offers specialty services in two or three areas of law. The aim is to streamline legal teams, ensuring they are lean and efficient.


published: October 2015

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