Brazil's lower house approves outsourcing bill, but Senate likely to limit its eventual scope

On 22 April, Brazil's lower house of Congress approved the outsourcing bill (PL 4330), sponsored by the president of the lower house, Eduardo Cunha, which will give Brazilian companies freedom to contract out workers for most of their business operations. Outsourcing has so far been limited to ancillary activities such as catering, cleaning, and security. Under the new law, employers will be able to contract out core activities across most activities. Companies will be able to hire services from specialised businesses for any of their activities. This will apply for any employer, be it a local Brazilian company or a multinational, with the exception of state-owned or mixed-ownership companies.

The controversial bill, which is strongly opposed by labour unions and the leftist ruling party Workers' Party (Partido dos Trabalhadores: PT), will now go to the Senate for approval. Once the Senate approves the bill, it will go to President Dilma Rousseff for sanction. Labour unions and sectors of the PT are calling on Rousseff to veto the bill on the grounds that it threatens workers' rights.

The outsourcing bill was first tabled in 2004, but put on hold for more than a decade owing to strong labour union resistance. Unions and left-wing organisations claim it would be detrimental to workers, suggesting it undermines wages, job security, safety, and overall labour rights. Business associations, however, argue that the bill will make the Brazilian economy more efficient, reducing production costs and creating conditions to generate more jobs.

Brazil's labour laws – known as the Consolidation of Labour Laws (Consolidação das Leis do Trabalho: CLT) – have not changed much since they were introduced in 1943 by populist president Getúlio Vargas. Brazil's highly regulated labour market has made hiring and firing very inflexible, adding to already high production costs. Currently, companies operating in high value-added sectors face major constraints to contract skilled workers on a temporary basis, which has constrained the development of specialisation.

The need to make the labour market more flexible has become a pressing issue given Brazil's low productivity. A recent study by the National Confederation of Industry (Confederação Nacional da Indústria: CNI) showed that productivity in Brazil grew by only 0.6% each year between 2002 and 2012, the worst performance in a group of 11 countries researched. The strongest performer, South Korea, grew its productivity by 6.7% per year, while US productivity grew 4.4%, while Spain's was up by 3.1%. As a result, Brazil recorded the highest labour cost increases within the 11 countries – a rise of 9% annually.

Strong private sector lobby

Support for the new law proved particularly strong in the lower house, where its newly elected president Eduardo Cunha (from the government-allied Brazilian Democratic Movement Party (Partido do Movimento Democrático Brasileiro: PMDB) embraced it, garnering the necessary support for its approval by 230 votes to 203. Private sector lobbying has been led by the powerful Sao Paulo Federation of Industries (Federação das Indústrias do Estado de São Paulo: Fiesp). The CNI and the São Paulo Retail Association (Associação Comercial de São Paulo: ACSP) also endorsed the bill, which gained editorial support from mainstream newspapers Folha de S.Paulo and O Globo. Their editorials argued that the bill would not inflict any losses on employees and that workers' basic rights to annual leave and to unionise remain unaffected.

Left vows to derail outsourcing bill

In the first half of April, left-wing movements, such as labour federation, the Central Única dos Trabalhadores (CUT), and the landless movement Movimento dos Trabalhadores Rurais Sem Terra (MST), launched a wave of street protests against outsourcing. They contend that outsourced workers will have weaker bargaining power, resulting in depressed wages.

From the ruling PT, the strongest opposition came from former president Luiz Inácio Lula da Silva, who called on President Rousseff to veto the bill as a matter of "honour". The inability of the ruling party to block the bill in the lower house indicates how the corruption allegations engulfing the government and state oil company Petrobras have weakened the PT and the political left in Brazil.

The Rousseff government has avoided the outsourcing issue as much as possible. Supporting it openly would deepen the government's unpopularity and political isolation. The government's leader in the lower house, Deputy José Guimarães, tried to amend the bill, but without much success. The government also did not line up its strongest representatives for this process. With Vice-President Michel Temer abroad, the government's representatives in the final negotiations with party leaders were Minister of Finance Joaquim Levy, Minister for Aviation Eliseu Padilha from the PMDB, and only one member of the PT, Minister of Communications Ricardo Berzoini.

Outlook and implications

The lower house approval of the outsourcing bill shows that the ruling PT is losing its grip in Congress; prior to the October 2014 elections (which Rousseff won by the narrowest of margins), the PT was generally in control of the Congress agenda. It also shows that Cunha, a conservative figure in Brazilian politics, is consolidating his position as a key power broker. However, the bill will face strong resistance in the Senate, even from within the PMDB. The President of the Senate, Renan Calheiros, also from the PMDB, has said that the bill in its present form threatens workers' rights. He has already agreed to meet the leaders of Brazil's labour federations, which suggests amendments are highly likely.

Rousseff has said she sees some merit in the outsourcing law, but that at the same time the reform should avoid infringing the rights of workers. She has hinted that she might veto parts of the new law. That would be a very popular move within her party and the many leftist organisations that have been protesting against the bill, but could imply a serious confrontation with Congress and the business sector at a time when Brazil needs to regain investor confidence.

The CUT and the MST have promised to carry on with their protests, while potential labour strikes will put pressure on Congress – oil workers have been vocal about that possibility. If the protest and industrial action escalates, it could give Rousseff more justification to veto the new law; this would help reverse her declining popularity, which is currently at record lows (13%).