Hiring Service Providers in Brazil: Key Precautions To Avoid Employment Relationship Risks

By Gabriela Martins

1. Introduction

Hiring service providers through legal entities is a common and legitimate practice in several sectors of the economy. Companies seeking greater operational flexibility, access to specialized expertise, or a cost structure more aligned with their business reality frequently rely on this model.

However, there is a risk that many business owners underestimate: the existence of a service agreement or the issuance of invoices does not, by itself, prevent the recognition of an employment relationship if the actual facts of the relationship reveal the characteristic elements of employment.

Brazilian Labor Courts analyze the facts, not merely the documents. This principle, known as the principle of primacy of reality, establishes that, when the legal requirements of an employment relationship are present, the contractual form adopted by the parties gives way to what actually happens in day-to-day practice.

The purpose of this article is to explain how companies can structure the hiring of service providers in a legally safer manner, identify behaviors that increase the risk of recognition of an employment relationship, and guide business owners on the precautions that should be adopted both in the contract and in the daily management of the relationship.

2. “Pejotização”, outsourcing, and legitimate service arrangements: understanding the differences

In Brazil, the term “pejotização” is commonly used to describe a situation in which an individual creates a legal entity to personally provide services on a continuous basis, receives remuneration, and acts under the legal subordination of the hiring company.

As explained by Professor Carlos Henrique Bezerra Leite, in this scenario, the legal entity structure is used to disguise what is, in substance, a subordinate employment relationship.

This practice violates Article 9 of the Brazilian Consolidation of Labor Laws — known as the CLT — which provides that acts performed with the purpose of distorting, preventing, or defrauding the application of labor law provisions are null and void. When fraud is established, the service agreement may be disregarded and the employment relationship may be recognized, with all resulting consequences, including severance payments, social security contributions, and other labor-related charges.

It is also important to distinguish, following Bezerra Leite’s analysis, between “pejotização” and outsourcing. In outsourcing, the worker is employed by an intermediary company that makes the worker available to a third-party client. In “pejotização”, there is no such intermediary: the worker personally and directly provides the services to the hiring company, formally operating through a legal entity.

However, fraudulent “pejotização” should not be confused with entirely legitimate business arrangements. The engagement of a service provider with real autonomy, lawful outsourcing under Federal Law No. 6,019/1974, and the hiring of independent contractors are legally valid structures.

The issue is not the hiring of a legal entity. The issue arises when the service provider is treated, in practice, as an employee.

3. Legal requirements of an employment relationship and behaviors that create risk

Articles 2 and 3 of the CLT establish that an employee is an individual who provides services of a non-occasional nature to an employer, under the employer’s dependence, and in exchange for salary.

Brazilian legal doctrine and case law identify four essential elements that must be present simultaneously for an employment relationship to exist: personal provision of services, non-occasionality, remuneration, and legal subordination.

Personal provision of services means that the relationship is established in view of a specific individual, who cannot be freely replaced by another person.

Non-occasionality requires regular service provision integrated into the employer’s activities.

Remuneration presupposes payment for the work performed.

Legal subordination, which is often the most relevant element in practice, refers to the worker’s submission to the employer’s managerial, regulatory, and disciplinary powers. When the company determines not only the expected result, but also the manner, timing, and method of performing the service, this element tends to be present.

As already decided by the Regional Labor Court of the 1st Region, the absence of any one of these requirements may prevent the worker from being characterized as an employee.

It is also important to mention structural subordination, a concept incorporated into Brazilian case law. Under this concept, subordination may be identified not only through direct orders, but also through the worker’s integration into the organizational dynamics of the hiring company.

This criterion is especially relevant in long-term relationships or in cases where the service provider operates in a manner closely integrated with the core business of the hiring company.

In practice, labor risk materializes through concrete conduct. No single conduct is necessarily decisive in isolation, but the combination of several factors may create a scenario that Labor Courts tend to interpret as a disguised employment relationship.

Risk behaviors include:

• requiring compliance with fixed working hours and controlling entry, exit, and break times;
• preventing the provider from being replaced or from acting through their own team;
• including the provider in organizational charts or subjecting them to meetings, targets, and supervision typical of employees;
• granting corporate email, badges, or uniforms without an operational justification;
• paying a fixed monthly amount unrelated to deliverables or results;
• applying warnings or disciplinary sanctions;
• requiring exclusivity without a solid business justification.

4. How to structure a lower-risk engagement of a service provider

The engagement tends to be safer when the relationship genuinely corresponds to a business partnership. The provider’s autonomy cannot exist only as a contractual clause; it must be reflected in practice.

The safest model is one based on scope, project, demand, or result. The hiring company defines what it needs, and the service provider decides how to deliver it, without strict control of working hours, without instructions on the manner of execution, and without integration into the company’s hierarchical structure.

The possibility of serving other clients simultaneously reinforces the autonomous nature of the relationship. The same applies to remuneration linked to deliverables or results, which is consistent with a business relationship and incompatible with the concept of salary. Finally, the real existence of the service provider’s company, with its own structure, organized economic activity, and other clients, is also an important factor.

From a contractual standpoint, a well-drafted service agreement should include:

• a clear description of the scope of services;
• technical autonomy of the provider;
• absence of legal subordination;
• possibility of serving other clients;
• remuneration linked to the service, project, or delivery;
• a fixed term or term linked to the project;
• possibility of replacement, where applicable;
• responsibility of the provider for charges relating to its own team;
• obligation to issue invoices;
• confidentiality and intellectual property clauses, where relevant;
• objective termination criteria;
• an express statement that there is no employment relationship and no entitlement to benefits typical of employees.

These elements do not guarantee the validity of the arrangement if daily practice contradicts them. However, their absence may further weaken the company’s position in a potential labor dispute.

In day-to-day management, the company should avoid controlling the provider’s working hours through time records or access systems; exercising direct hierarchical subordination; applying disciplinary sanctions; requiring formal authorization for absences; and including the provider in internal policies intended for employees.

On the other hand, the company should properly document deliverables, projects, and payments; periodically review contracts with recurring service providers; and train managers to deal correctly with this type of engagement.

5. The debate before the higher courts and the risks that still remain

In the judgment of ADPF 324, the Brazilian Federal Supreme Court recognized the constitutional validity of different forms of division of labor and the freedom of productive organization. This decision paved the way for more flexible contractual arrangements, which was later reinforced by the amendments introduced by Federal Law No. 13,429/2017, allowing the outsourcing of any company activity, including core business activities.

This permission, however, is not unrestricted. The Brazilian Superior Labor Court maintains that the lawfulness of hiring service providers through legal entities depends on the absence of fraud, and the Federal Supreme Court has not yet definitively settled the debate.

In April 2025, the Plenary of the Federal Supreme Court recognized the general repercussion of Theme 1,389, in ARE 1,532,603, reported by Justice Gilmar Mendes. The case will define, with binding effect, the jurisdiction of Labor Courts to adjudicate allegations of fraud in civil service agreements, the lawfulness of hiring independent contractors or legal entities in light of ADPF 324, and the burden of proof in such cases.

Until the final judgment, proceedings on this issue are suspended nationwide.

Regardless of the outcome of this debate, Labor Courts continue to analyze the factual reality of the relationship. Recognition of an employment relationship may generate significant consequences, including payment of all labor amounts due for the relevant period, late social security contributions, and administrative penalties.

Preventive legal analysis of the engagement is therefore always more advantageous than defending a company after a labor claim has already been filed.

6. Conclusion

Hiring service providers through legal entities is not prohibited in Brazil. In many contexts, it is a legitimate and legally valid way to organize business activity.

What the law does not tolerate is a contradiction between form and reality: using a service agreement to conceal a relationship that, in practice, operates as employment.

The greatest risk does not lie in the existence of a legal entity. It lies in the gap between what the contract says and what happens every day within the company.

A safer engagement of service providers requires preventive legal analysis, a contract aligned with reality, daily management consistent with the provider’s autonomy, and periodic review of the relationship, especially when it becomes continuous, strategic, or involves individuals who work closely with the company’s internal routine.

7. Legal assistance for companies that hire service providers

If your company hires service providers, representatives, consultants, or professionals through legal entities in Brazil, a preventive review of contracts and operational routines may reduce labor risks and help avoid future liabilities.

Botti Mendes Advogados advises companies on the structuring and review of business service agreements, focusing on legal certainty and the prevention of labor claims.

Specialized legal assistance is not limited to resolving disputes that have already arisen. It also helps ensure that contractual relationships are legally sound, with lower exposure to future challenges.

References

Doctrinal references

CARRION, Valentin. CLT – Comentários à Consolidação das Leis Trabalhistas. 50th ed. Rio de Janeiro: SRV, 2026. E-book. p. 71. ISBN 9786551771446. Available at: https://integrada.minhabiblioteca.com.br/reader/books/9786551771446/. Accessed on: June 22, 2026.

LEITE, Carlos Henrique B. Curso de Direito do Trabalho. 17th ed. Rio de Janeiro: SRV, 2025. E-book. p. IV. ISBN 9788553625963. Available at: https://integrada.minhabiblioteca.com.br/reader/books/9788553625963/. Accessed on: June 22, 2026.

Legislative references

BRAZIL. Decree-Law No. 5,452, of May 1, 1943. Approves the Consolidation of Labor Laws. Official Gazette of the Union, Brasília, DF, August 9, 1943. Available at: https://www.planalto.gov.br/ccivil_03/decreto-lei/del5452.htm. Accessed on: June 30, 2026.

Case law references

TRT-1. Ordinary Appeal No. 0100713-37.2020.5.01.003. Reporting Judge: Jorge Orlando Sereno Ramos. Judgment date: June 1, 2022. Fifth Panel. Publication date: DEJT, July 7, 2022.

TRT-2. Ordinary Appeal No. 1000192-51.2020.5.02.0383. Reporting Judge: Valdir Florindo. Judgment date: July 14, 2022. Judicial Vice-Presidency.

ADPF 324. Reporting Justice: Roberto Barroso. Full Court. Judgment date: August 30, 2018. Electronic case record. DJe No. 194, released on September 5, 2019, published on September 6, 2019.

ARE 1,532,603 RG. Reporting Justice: Gilmar Mendes. Full Court. Judgment date: April 11, 2025. Electronic case record. DJe No. 130, released on April 23, 2025, published on April 24, 2025.