On February 24, the Brazilian Superior Labor Court laid down 21 new binding theses, i.e., rules that must be followed by other courts and judges in similar cases. One of these theses establishes that default or cancellation of a purchase by a customer does not authorize the employer to reverse the sales employee's commissions earned on that sale.
The practice of deducting commissions from sales employees arises when a client cancels a sale already made, leading the employer to withhold from the salesperson’s salary or deduct from it the amount of the sales commission previously paid. This procedure is common in companies that work with variable remuneration systems based on the commercial performance of their employees.
By way of example, it is very common in Brazilian retail to sell products in monthly installments. The consumer buys a new refrigerator or a TV and elects to pay in 10 equal and successive installments, with interest. The monthly installments are calculated in a way that avoids undue adverse effect on the buyer’s income and livelihood. However, before the product is delivered, the buyer decides to cancel the purchase or after the second or third installment, he ceases to pay his monthly obligation and falls into default.
The employer then decides that the salesperson should not receive the entirety of the commission earned by that sale. Often, a provision in this regard is already set out in the employment contract. However, this practice has always been the subject of legal disputes given its harsh effect on the salesperson.
This is because, under the terms of Art. 466 of the Consolidation of Labor Laws and Articles 2 and 3 of Law 3.207/1957, the right to commission is perfected upon completion of a sales transaction and the acceptance of the deal by the buyer.
In interpreting the labor laws, a majority of Brazilian courts has ruled that the expression “the transaction is finalized” referred to the moment when the deal was made and not to the moment when the obligations arising from that legal deal are fulfilled.
Under this view, a transaction is therefore considered to have been perfected when it has been accepted by the buyer in accordance with the terms proposed to him. Any subsequent breach of contract or withdrawal from the transaction is irrelevant.
Now, with the recent decision of the Superior Labor Court, this majority position becomes a guideline and determines how regional courts and first instance judges should rule.
It is worth noting that this understanding is consistent with the principle of labor law that the risk of economic activity may not be transferred to an employee. A similar principle is set out in the Consolidation of Labor Laws, which provides that an enterprise assumes the commercial risks of its business, including losses resulting from customer defaults, market fluctuations and sales cancellations. This means that employees, especially those paid on commission, may not be penalized financially for factors beyond their control, such as customer cancellations or defaults.
Employers are now advised to review their variable remuneration practices, especially with regard to commission payments, in order to comply with the recent holding of the Superior Labor Court. This will avoid the risk of labor liabilities, which often represent significant sums and may undermine the viability of an enterprise in the medium and long term.
Author: Rafael Júlio Borges da Silva (rafaelborges@felsberg.com.br)