In a recent decision, the 5th Chamber of the Rio de Janeiro Labour Court of Appeals (TRT1) ruled that in employment law claims, an unsuccessful defendant who challenges the enforcement phase of the case by applying for a stay of enforcement (embargos à execução)will be liable to pay the claimant’s legal fees, if the challenge was filed after the enactment of the 2017 Brazilian Labour Reform (Law # 13,467/17). This decision to apply the ‘loser pays’ rule results from the fact that the embargos à execuçãois considered to be a separate legal action from the main case, meaning that even if the main case was filed before the Labour Reform took effect, this liability will still arise.

In this case, the plaintiff claimed for the payment of legal fees resulting from the rejection of an embargos à execução. In a unanimous decision, the Court ordered the defendant to pay 5% of the plaintiff’s legal fees.

This decision will potentially have the same effect that the introduction of the ‘loser pays’ rule had on the filing of new labour claims following the 2017 Labour Reform: the number of new labour claims filed dropped 40% in one year. The end result will probably be a more limited and cautious use of embargos à execução.

Independently of that, it is relevant to note that this ruling means that there is a concrete possibility that companies will have to increase their accounting provision for liability arising from labour claims. According to article 791-A of the Brazilian Labour Code, the increase in the value of the award relating to legal fees can vary between 5% and 15%, resulting in a significant impact on companies’ accounting provisions.