Pejotização and PJ contract risk while STF Tema 1389 is pending

Pejotização is the practice of paying someone via a one-person business registered as a pessoa jurídica (PJ), for work that has the features of employment. For a foreign company it usually looks like a Brazilian professional invoicing monthly through a personal company while working full time for one client under that client’s direction.

The word comes from the letters “PJ”, pronounced “pê-jota” in Portuguese. PJ contracts are common in Brazilian technology and consulting, and many candidates will propose one themselves because the monthly figure looks higher and the deductions look lower than on a CLT payslip.

A genuine business-to-business contract is a normal commercial arrangement. The risk arises when the relationship in practice is a job: the person works personally, continuously, for pay and under someone else’s direction. Brazilian labour law looks at those facts, and the invoice format does not change them.

For companies outside Brazil the question matters more than usual in 2026, because the Supremo Tribunal Federal (STF) is reviewing the whole subject under Tema 1389 and has not yet ruled on the merits. This article sets out the current rules, the status of the case and the practical exposure for a company relying on PJ contracts.

Brazilian courts start from CLT art. 3, which defines the employee as someone who serves an employer regularly, in a position of dependence and in return for wages. Where those elements are present, the label on the contract does not decide the outcome.

In practice the courts look for four features, known by their Portuguese names:

• Pessoalidade. Only this individual performs the work; sending someone else in their place is not an option.
• Não eventualidade. The work is regular and continuing, and not a one-off task.
• Onerosidade. The work is done in exchange for payment.
• Subordinação. The company directs the person, deciding tasks, hours and priorities.

Two further provisions sharpen the test. CLT art. 2 treats as employer the party that carries the economic risk and gives direction to the service, and CLT art. 9 voids acts intended to evade or defraud the code’s protections. A PJ contract drafted to avoid CLT obligations can therefore be set aside if the working reality matches the definition.

For a foreign company the weakest point is usually subordination. A Brazilian contractor who attends daily stand-ups, follows a manager’s instructions, uses company systems and has no other clients shows most of the signs a labour court looks for. More worked examples of the test appear in PJ or CLT: the misclassification risk.

STF Tema 1389 is a case of general repercussion (ARE 1.532.603) through which the Supremo Tribunal Federal is examining whether individuals may validly be engaged via companies or as autonomous contractors, alongside the competence of the labour courts and the burden of proof. By 25 September 2026 there was still no merits ruling.

The procedural history matters for anyone with a live dispute. A 2025 order froze such cases across the country. The freeze was eased on 18 June 2026, so that first-instance labour courts (Varas do Trabalho) and the regional courts (TRTs) can proceed, while cases before the Tribunal Superior do Trabalho (TST) remain suspended.

What the court will decide is unknown. It could confirm wide freedom to contract through companies, restrict it, or shift which courts hear the disputes and who must prove what. Any of those outcomes would change how PJ arrangements are assessed, which is why planning should not assume a particular result.

The progress of the case can be followed on the STF case page for Tema 1389, and the TST published its own note on the partial lifting of the suspension. Until the merits are decided, the existing test in CLT art. 3 remains the working standard at first instance.

While the case is pending, a sensible stance is to manage PJ arrangements as if the current test will continue to apply. Companies that wait for a favourable ruling before acting take a one-sided bet: if the STF confirms a broad freedom to contract, little is lost by having tightened the arrangements, and if it does not, the claims window keeps years of past work open to challenge.

If a labour court finds a vínculo empregatício (employment relationship), the company faces claims measured against what a CLT employee would have received, plus contributions and penalties. There is no single statutory figure; the amount depends on pay, duration and the facts.

Some elements are fixed by statute. An employer found with workers missing from its register faces CLT art. 47 penalties of R$ 3.000,00 per person, cut to R$ 800,00 for micro and small companies and doubled for repeat cases. The claims window is also set by the Constitution: a worker has 2 years from the end of the relationship to sue, and the claim can reach 5 years into the past (art. 7, XXIX).

To see the scale, compare the PJ invoice with what a CLT employee on the same monthly figure would have cost. In our 2026 São Paulo example, a R$ 15.000,00 CLT salary becomes R$ 200.000,00 a year after the 13th-month pay and the leave bonus are counted, plus employer charges of 35.8% including 8% FGTS. A PJ invoice of R$ 15.000,00 a month pays R$ 180.000,00 a year and none of those items, so the gap grows with every year the arrangement runs.

A related rule catches companies that move existing staff onto PJ contracts. Lei 6.019/1974 (arts. 5-C and 5-D) imposes an 18-month gap before a dismissed employee may return to the same business as the provider of services through a company. Converting an employee into a contractor is therefore one of the riskiest steps a company can take.

The reverse move also deserves care. Ending a PJ contract and starting the same person on a CLT contract regularises the relationship from that day, but it does not wipe out the earlier period. Take advice on how the transition is documented, and keep in mind that the 2-year claims window starts running from the end of the PJ relationship.

The PJ arrangements most exposed to recharacterisation are long, exclusive and managed like a job. The more of the following signs appear together, the harder the contract is to defend under CLT art. 3.

• Exclusivity. The contractor has no other clients and depends on one company for income.
• Fixed hours and attendance. Working hours, holidays and absences are set or approved by the client.
• Line management. A manager assigns daily tasks, reviews performance and includes the person in team rituals.
• Integration. A company email address, job title, place on the organisation chart and company equipment.
• No substitution. Only that individual can do the work.
• Former employee. The person worked for the company under the CLT within the previous 18 months.

Lower-risk PJ arrangements look like genuine services: a defined deliverable, a fixed term, the contractor’s own methods and tools, and the freedom to serve other clients. Even then, the contract should be reviewed by Brazilian counsel, since the eventual STF decision may change where the line is drawn.

A quick internal audit helps. List every Brazilian contractor, how long they have worked with you, whether they have other clients and who directs their work. The answers usually sort the list into arrangements that can stay as they are and roles that should move to a CLT contract. Repeat the exercise whenever a contractor’s role changes.

Using Employer of Record Brazil places the person on a registered CLT contract and takes the role of legal employer as employer of record, so the statutory entitlements are paid as they fall due. It removes the unregistered-employee problem that sits at the centre of pejotização.

The employer of record registers the hire on eSocial before the start date, pays the 13º salário and holiday with its one-third bonus, deposits FGTS and withholds income tax. Your company funds salary, charges and benefits and pays the EOR from USD 560 monthly per employee, some R$ 2.901,24 on the ECB rate of 24 September 2026, after a set-up charge that most clients pay once.

It would be wrong to present this as risk-free. Employer of record has no statute of its own in Brazil, and Lei 6.019/1974 deals only with licensed temporary work and with outsourcing where the provider hires, pays and directs. If the client gives the daily instructions, a labour court might examine the client’s own relationship with the worker, and Tema 1389 may reshape that analysis too. Who does what is set out in our explainer on employer of record for Brazil hires.

Candidates often worry that a CLT contract will cut their take-home pay. In our worked example, a R$ 15.000,00 CLT salary produces R$ 11.067,36 net in a normal month and about R$ 147.500,68 across the year once the 13º salário and holiday bonus are included, together with FGTS deposits in the employee’s name and paid leave. Setting out that annual picture usually makes the conversation about switching from PJ easier.

For most companies with long-running, full-time Brazilian contractors, the comparison comes down to predictability: a CLT contract costs more each month, while a PJ arrangement that fails the art. 3 test can produce a larger bill years later.