Silent erosion

On Monday, the 6th, the Supreme Federal Court held a public hearing to discuss the economic and social challenges of the so-called " pejotização " (socialization of the employment system) in Brazil. In practice, the debate focused on the direction of labor law itself, based on questions raised by Justice Gilmar Mendes, reporting judge of Extraordinary Appeal with Appeal (ARE) 1,532,603. Among the topics under consideration are the legality of hiring through legal entities or as independent contractors, the jurisdiction of the Labor Court to judge possible fraud, and the distribution of the burden of proof between the parties.

To understand the contours of the debate, it is essential to revisit the premises established in the votes cast during the ADPF 324 trial , which recognized the legality of outsourcing in all business activities. In that case, then-rapporteur Justice Luís Roberto Barroso emphasized that the rights provided for in Article 7 of the Constitution impose limits on the freedom to hire, stating that "there are minimum fundamental rights of workers that will always be guaranteed" and that "these basic constitutional rights cannot be removed." Justice Gilmar Mendes himself was even more emphatic in emphasizing that flexibilization requires economic, political, and legal adjustments to ensure the rights set forth in Article 7. "This is not about an ode to informality and a requiem for labor guarantees."

The essential nature of labor rights, recognized as fundamental by the 1988 Constitution, has already been declared by the Supreme Federal Court (STF), constituting an unwavering and irrefutable precept. The result of a deliberate choice by the constituent, this protection incorporates the canons of Labor Law, based on the asymmetry of relationships in which work is the central element of the legal bond. Article 7 of the Constitution enshrines the employment relationship governed by the Consolidation of Labor Laws (CLT) and presumes it to be independent of any other alternative form of service provision.

This is not, therefore, a matter of ideology or paternalism, despite these disparaging adjectives being widely used by the Court when referring to the Labor Court and the actors in the labor protection system, including lawyers, attorneys, tax auditors, and judges. It is simply a constitutional choice, evoking social rights as a mantra and a fundamental, founding element of Brazilian society. Based on the assumption that the employment relationship is the principle governing legal transactions involving human labor, the Constitution anchored the duties of the State and society in the full protection of its citizens and the country's economic development.

Between 2022 and 2024, nearly 4.8 million laid-off employees returned to the market as legal entities.

Social Security and Social Security are supported, for the most part, by funds derived from employee payroll and contributions based on employers' profits and revenue, as provided for in Articles 195, items I and II, and 198, paragraph 3, of the Federal Constitution. The Severance Indemnity Fund (FGTS), constituted by monthly deposits based on the remuneration of employees under the CLT (Brazilian Labor Law) system, acts as a driver of economic growth and an instrument of social welfare. Its resources finance housing construction, the expansion of the water supply network, and the development of urban infrastructure in the country.

Last year alone, the FGTS allocated R$131.2 billion for hiring in the housing, sanitation, and infrastructure sectors; released R$11.5 billion in subsidies to expand access to homeownership for more families; financed more than 605,000 housing units; and authorized R$163.3 billion in withdrawals, including disaster relief in Rio Grande do Sul and other municipalities. When releasing the official data, Caixa added: "The financial performance of the FGTS also reflects the increase in revenue, which exceeded R$192 billion in 2024, a growth of over 9% compared to the previous year. This scenario is directly linked to the greater number of workers with formal employment contracts and the increase in average wages, according to data from Caged and IBGE."

Unrestricted economic freedom, supported by the hiring of service providers under various forms outside the labor market, such as freelancers or self-employed workers, is not supported by the logic of the Citizen Constitution, a landmark in guaranteeing social rights in Brazil. Therefore, it is necessary to reconcile the exercise of any economic activity with the traditional labor structure provided for in Article 7.

Until this reconciliation occurs, social justice will fade away. Between January 2022 and October 2024, nearly 4.8 million laid-off CLT workers returned to the labor market as legal entities. Of these, 3.8 million became individual microentrepreneurs (MEIs). This movement generated a social security deficit of R$61.42 billion and a loss of R$24.2 billion in FGTS (Unemployment Fund for Severance Indemnity) revenue.

Similarly, a technical paper published in September 2025 by the Center for Trade Union Studies and Labor Economics (Cesit) at Unicamp deserves special mention. According to the researchers responsible for the analysis, the results "indicate that unrestricted pejotização (employment of workers) increases unemployment, reduces wages, slows economic growth, increases economic volatility, and widens wage inequality among workers. Even in a conservative scenario, the tax benefits and cost reductions for companies do not outweigh the negative effects on aggregate demand and economic stability."

It is therefore demonstrated that pejotização – historically recognized, in the labor field, as a fraud designed to mask typical employment relationships – does not pay off. •

*President of the National Association of Labor Prosecutors (ANPT).

Published in issue no. 1384 of CartaCapital , on October 22, 2025.

This text appears in the print edition of CartaCapital under the title 'Silent erosion'