A Client Company’s Liability for the Labor Debts of Its Outsourced Contractor

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Hiring outsourced labor does not shift all of the labor-law risk to the contractor. If the outsourced company fails to pay what it owes its workers, the company that received the services is secondarily liable, as long as it took part in the case during the trial phase.

How the Client Company’s Secondary Liability Works

Outsourcing lets one company hire another to perform services, but it does not break the chain of protection that the law guarantees the worker. When the contractor fails to pay wages, severance pay, FGTS (Brazil’s Length-of-Service Guarantee Fund) deposits, or other obligations, the burden does not disappear. It falls, in second position, on the party that directly benefited from the worker’s labor.

This rule is settled in Precedent 331 of the Superior Labor Court (Tribunal Superior do Trabalho), which has governed the subject for decades and guides labor case law across the country. Item IV of the precedent is the heart of the liability rule:

The employer’s default on its labor obligations implies the secondary liability of the service recipient for those obligations, provided that it took part in the proceedings and is also named in the enforceable judgment.

The key word is secondary. The client company is not the primary debtor but a guarantor. The Labor Courts first go after the contractor’s assets. Only when that enforcement fails do they turn to the client company. It is a safety net for the worker, not an automatic punishment for the company that hired the contractor.

Why Joinder in the Trial Phase Is Indispensable

One procedural requirement decides the fate of the claim, and the person filing the lawsuit often overlooks it. The worker must name the client company as a defendant from the start, joining it with the outsourced company in the trial phase (litisconsórcio, or joinder of parties). It is not enough to remember the client company later, after enforcement against the contractor has already failed.

The reason is straightforward. Precedent 331 itself requires that the client company have taken part in the proceedings and that its name appear in the enforceable judgment, that is, the judgment of liability. A party that was never served, never had a chance to defend itself, and is not named in the judgment cannot be caught by surprise at the enforcement stage. That would violate the right to be heard and the right to a full defense, constitutional guarantees that protect every party.

In practice, leaving the client company out is fatal. If the complaint targets only the outsourced company, and that company disappears, shuts down, or has no assets, the worker’s claim may become impossible to enforce. The lawyer handling the labor claim must identify, from the very beginning, who the real recipient of the services was and bring that company into the case.

It is up to the worker’s counsel to gather evidence that the services were performed for the client company: ID badges, work orders, e-mails, time records, and witnesses. This evidence supports the request for a judgment of secondary liability and shields the enforceable judgment against later claims that the client company was the wrong defendant.

Outsourcing lets one company hire another to perform services, but it does not break the chain of protection that the law guarantees the worker.

What the Federal Supreme Court Decided About Outsourcing

For a long time, courts debated whether outsourcing could cover a company’s core business or only ancillary tasks. The Federal Supreme Court (Supremo Tribunal Federal) settled the question when it ruled on Claim of Noncompliance with a Fundamental Precept 324 and Extraordinary Appeal 958.252, in which general repercussion was recognized. The Court held that outsourcing any and all activities, including the core business, is lawful.

What matters to the client company is that this lawfulness did not eliminate secondary liability. The Court upheld the contracting model, but protection for an unpaid worker remains intact. Outsourcing core activities is now allowed, yet the company that hires the contractor is still liable if the contractor fails its employees.

The picture is different for Public Administration. In ruling on Declaratory Action of Constitutionality 16, the Court held that a government entity is not automatically liable for the default of the company it hired. Liability depends on proof of fault, especially a failure in the duty to oversee performance of the contract. This is known as culpa in vigilando (fault in supervision).

For a private client company, however, secondary liability is effectively strict in how it arises: the contractor’s default and the client company’s presence in the judgment are enough. There is no need to show that the client company acted with fault, unlike the rule for Public Administration.

Contract Safeguards That Reduce the Client Company’s Risk

Because secondary liability is practically unavoidable when work is outsourced, the client company’s strategy should be preventive. The defense begins before any dispute, when the contract is signed and throughout the life of the service agreement. Neglecting this stage means taking on a silent liability that surfaces only when the contractor goes under.

Several concrete measures reduce the hiring company’s exposure:

• Require, before hiring, the contractor’s clearance certificates for labor, social security, and FGTS obligations, along with proof of financial health.
• Keep, throughout the contract, monthly proof of payment of wages, FGTS deposits, and social security contributions for the employees assigned to the work.
• Include a contract clause authorizing the client company to withhold part of the payment until the month’s labor obligations are shown to have been paid.
• Monitor the contractor’s compliance in a documented way, recording written notices whenever an irregularity is found.
• Include a right-of-recourse clause, allowing the client company to recover from the contractor whatever it is forced to pay in court.

Active oversight serves a dual purpose. On the preventive side, it keeps the worker from going unprotected and lowers the chance of a judgment against the client company. On the procedural side, it builds a body of evidence showing the company’s diligence, which matters most when the client company is part of Public Administration and needs to rebut fault in supervision.

It is worth noting the difference between secondary and joint liability. With secondary liability, there is an order of collection: first the contractor, then the client company. With joint liability, the worker can demand the full amount from either debtor, in no particular order. The general rule for lawful outsourcing is secondary liability. Joint liability arises in specific situations, such as fraudulent outsourcing, where an employment relationship is recognized directly with the client company.

Finally, a company that adopts strict controls turns a diffuse risk into a manageable variable. The cost of requiring documents and withholding payments is small compared with the impact of paying, years later, the full amounts owed to workers who never performed services directly for the client company.

Frequently Asked Questions

Who is liable first for labor debts in outsourcing?

The outsourced company is liable first. It is the direct employer and the primary debtor. The company that received the services is pursued only in a secondary capacity, after enforcement against the contractor fails because it has no assets or has ceased operations. This order is what distinguishes secondary liability from joint liability.

Can the client company be pursued if it was not named in the lawsuit from the start?

No. Precedent 331 of the Superior Labor Court requires that the client company have taken part in the case and be named in the enforceable judgment. A company that was not served in the trial phase and does not appear in the judgment cannot be brought in only at enforcement, because that would violate the right to be heard and the right to a full defense. That is why early inclusion is decisive.

Did the Supreme Court’s decision on outsourcing end the hiring company’s liability?

Not at all. The Federal Supreme Court only recognized that it is lawful to outsource any activity, including the core business. The client company’s secondary liability for the contractor’s default remains in force. The lawfulness of the contract and the protection of the worker exist side by side, and the hiring company is still liable when the outsourced company fails its employees.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.