Expert Spotlight: The Legal Reality of Using an EOR in Brazil

Welcome to Employsome Expert Spotlight, a series where we put specific legal questions to employment lawyers who advise foreign companies in key Employer of Record (EOR) markets. No marketing language, no provider spin. Just independent legal perspective from practitioners who deal with these structures every day.

For this first edition, we spoke with Neil Montgomery and Drielle Amate Matta, founding partner and labour and employment partner at Montgomery in Sao Paulo. Together, they co-authored the IBA article “Legal Implications of Engaging an Employer of Record in Brazil“, one of the only independent legal analyses examining whether Employer of Record arrangements are legally viable under Brazilian law. Their core finding: the EOR model conflicts with fundamental principles of Brazilian employment law, and the risks are structural rather than contractual.

Their answers below are direct and unedited. If you are evaluating whether to use an EOR in Brazil, this is what your legal counsel would tell you.

This interview was conducted in March 2026 and reflects the legal landscape at that time.

Neil Montgomery is the founding and managing partner of Montgomery in Sao Paulo. Dual British/Brazilian national. LLB and Master’s in International Law from USP. Only Brazilian-qualified lawyer ranked in four categories by Chambers and Partners.

Drielle Amate Matta is a partner in the Labour and Employment practice at Montgomery. Bachelor’s from PUC-SP, postgraduates in Business and Labour and Employment Law from FGV. Advises international companies on labour law, executive compensation, and litigation in Brazil.

• Brazilian law does not fully recognise the possibility of a foreign employer. A company abroad cannot formally hire an employee in Brazil without a local entity, which is why the EOR market exists despite the legal grey area.
• The fundamental risk is subordination. If the foreign company directs the employee’s daily work, Brazilian courts can reclassify the relationship as direct employment with the client, regardless of the EOR contract.
• The 2017 outsourcing reform created more room for EOR providers but did not change the subordination test. The Principle of the Reality of the Facts still overrides any written arrangement.
• The EOR setup typically becomes unsustainable when the foreign company incorporates a Brazilian entity. At that point, all members of the same corporate group become jointly liable for employment obligations.
• Due diligence of the EOR itself is non-negotiable: check for labour disputes, social security clearance, and the ability to explain the applicable collective bargaining agreement.

Most EOR provider content glosses over whether EOR arrangements even hold up under Brazilian labour law. We asked Neil and Drielle why the market keeps growing despite the legal barriers their IBA article identified.

“The disconnect relates to the resistance of Brazilian labour law and labour courts to accept different formats of work relationships and the assumption that allocating workforce under a different employer may be seen as an attempt to defraud the law.

The law currently does not fully recognise the possibility of a foreign employer. It is virtually impossible for a company established abroad with no legal entity in Brazil to formally hire a fully-fledged employee, particularly because the foreign entity would lack a local tax number for all required registrations and processes, and a bank account from which to pay salaries, taxes, and other employment-related charges.

It is in this context that the EOR, as a local entity having all necessary registrations, enrolments, licences, and permits to engage local workers as employees, can act as a liaison and is capable of satisfying all the required bureaucracy. However, from a strictly legal perspective, it is not permitted for a company to hire an employee who will be, in reality, subordinated and completely inserted into another company’s structure.

Despite the 2017 Brazilian Labour Law Reform having permitted the outsourcing of a company’s core business, there cannot be direct subordination between the employee and the contracting party.

Since the EOR structure implies that the client is actually managing the day-to-day activities, overseeing and guiding the employee’s work and routine, this reality falls outside both the traditional employment relationship and the outsourcing model.

In practice, foreign companies without a Brazilian entity do not have an alternative to engage employees locally without resorting to an EOR (unless they engage local workers as independent contractors on the foreign entity’s payroll), which is the reason why the market continues to grow.

From the clients’ perspective, there is the comfort that local staff is being engaged under the full scope of Brazilian labour rights: social security contributions, severance fund, collective bargaining agreement benefits, and so on. For the EOR, the risk remains that any labour dispute will be commenced primarily against the EOR, and the EOR will be the entity facing labour authorities and judicial awards.”

Neil Montgomery & Drielle Amate Matta, Montgomery

We asked what the single most important thing a foreign company should know before signing an EOR contract for Brazil.

“The arrangement will be viewed as a regular employment relationship between the employee and the EOR, with the employee being allocated to render services on behalf of the foreign client. If the foreign client directly manages the employee’s day-to-day, the risk is for the local employee claiming in a judicial dispute that they were actually unrecognised employees of the foreign client, and therefore entitled to that company’s salary base, benefits, working hours, career progression, union affiliation, and benefits. However, in practice, since the foreign client does not have an entity incorporated in Brazil, it is quite difficult and time-consuming for a former employee to include a foreign company as a party to an ongoing judicial labour claim.

This usually restricts any judicial dispute to the EOR, who can in turn seek redress from the client under the provisions of the service agreement. This is why it is of the utmost importance to use an EOR who is well versed in Brazilian labour and employment law and ensures that all employees receive all statutory rights and labour entitlements.

The EOR needs to inform the foreign client of all details and implications of engaging Brazilian personnel, providing a comprehensive summary of applicable rights and entitlements, benefits, union relations, health and safety regulations, and so on, while also monitoring that the day-to-day management is compliant with Brazilian law and customs.”

Neil Montgomery & Drielle Amate Matta, Montgomery

One of the most common questions we hear from companies using an EOR in Brazil is when to transition to their own entity. We asked Neil and Drielle where the tipping point typically is.

“While the foreign company does not have an entity in Brazil, even if using a separate entity within a wider corporate group, we understand that the EOR setup is sustainable, as long as all involved parties are fully aware of the scenario and potential risks, which only materialise if a former employee decides to take judicial action.

Usually, the risks become too real to ignore when: (i) the EOR fails to adequately honour employees’ labour rights; and/or (ii) the foreign company or a member of its corporate group decides to set up in Brazil and incorporate a Brazilian entity.

Once there is a Brazilian entity to litigate against (it being noted that all members of the same corporate group are considered a single employer under Brazilian law and, as such, jointly and severally liable for all Brazilian employment-related obligations), then the risk of legal action against the client seeking recognition of an employment relationship becomes likely.

It is important to mention, however, that since the employee was duly hired and registered as a fully-fledged employee of the EOR, they already received employment rights and entitlements. The exposure is therefore limited to potential differences in salary rates, benefits, and conditions between the two companies.”

Neil Montgomery & Drielle Amate Matta, Montgomery

Not every company is ready to incorporate in Brazil. We asked what options exist for those who still want to hire local talent without an EOR.

“Outsourcing is one option, although for strategic positions it would be quite challenging to achieve via outsourcing, which is usually aimed at more basic-level activities. The other alternative is contractors. Contractors are individuals engaged under service agreements for specialised activities and/or strategic positions, however, under the assumption that the contractor will act with a certain degree of autonomy and not under a regular subordinated relationship.

The topic of contractors is actually under review by the Brazilian Supreme Court, who will decide on the legality of alternative formats of work relationships, and specifically the legality of contractors and ‘pejotizacao’, assuming there is no subordination in the relationship. Whenever subordination is present, the general rule is that an employment relationship exists.”

Neil Montgomery & Drielle Amate Matta, Montgomery

Brazilian labour courts are widely known for favouring employees. We asked how this judicial environment specifically affects foreign companies using an EOR.

“Indeed, for regular employees, Brazilian labour courts tend to be employee-friendly in an attempt to protect a commonly disadvantaged portion of the population, who rarely have equal conditions to negotiate or to make demands in an employment scenario. However, there have been significant advancements when adjudicating cases involving high-level executives, such as directors and C-level executives, with a more impartial approach from the courts. The courts increasingly recognise the differentiated status of these workers (who are not always employees) and their ‘equality of arms’ (often assisted by their own lawyers) when negotiating terms and conditions for their working relationship.”

Neil Montgomery & Drielle Amate Matta, Montgomery

We closed by asking for the single most important piece of advice for someone about to commit to an EOR in Brazil.

“Conduct adequate due diligence of the EOR, checking for the existence of labour disputes, administrative assessments, social security payment clearance certificates, and so on. Expect that the EOR prepares a detailed and comprehensive onboarding of the employees selected by the client, providing a full view of Brazilian law, a summary of the applicable collective bargaining agreement, specifics in relation to fiduciary positions and hyper-sufficient employees, and guidance on day-to-day management compliant with Brazilian law and customs.”

Neil Montgomery & Drielle Amate Matta, Montgomery

This is the first edition of Employsome Expert Spotlight. We are building out employment law experts across every key EOR market. If you are an employment lawyer and want to contribute, get in touch.