The Federal Supreme Court (STF) is moving toward establishing national guidelines for hiring service providers through legal entities (PJ), a practice known as “pejotização,” in its ruling on Case No. 1,389. For companies, however, the risk has already changed and goes far beyond the labor sphere.
What’s at Stake in Topic 1.389
For years, the debate over the “Pejotização” phenomenon has centered on whether or not an employment relationship exists. Today, the situation is more complex. While the Federal Supreme Court (STF) is expected to rule, in Case No. 1,389, on issues involving the legality of contracting legal entities, the jurisdiction of the Labor Courts, and the allocation of the burden of proof, companies are simultaneously facing the effects of tax reform, increased tax and social security audits, and the strengthening of labor compliance practices.
In this context, the question is no longer “Can I hire a legal entity?” but rather “How can I structure a sustainable contractual model from a labor, tax, social security, and regulatory perspective?”
Although Case No. 1,389 is often presented as a dispute between the CLT and legal entities—that is, when debating whether hiring through a legal entity is lawful or whether it is, in fact, a disguised employment relationship—it actually has a broader scope. Among the issues submitted to the STF, the following are under discussion:
- the legality of hiring legal entities;
- limits on private autonomy;
- jurisdiction of the Labor Court;
- allocation of the burden of proof;
- criteria for identifying fraud.
Line of the Tso far
| DATE | PROGRESS |
| April 2025 | The Federal Supreme Court (STF) recognizes the general significance of the matter, giving rise to Theme 1,389 (ARE 1,532,603, Justice Gilmar Mendes presiding), and subsequently orders a nationwide stay of all proceedings addressing the legality of “pejotização.” |
| October 2025 | A public hearing at the Federal Supreme Court (STF), attended by companies, labor unions, and the government, confirmed the Court’s recognition of the economic and social impacts of the issue, which extend beyond individual employment relationships. |
| December 2025 | Once the trial on the merits began in the Plenary, the review was suspended due to a request for further review by Justice Cármen Lúcia. |
| June 2026 | Proceedings have partially resumed in the lower courts and the Regional Labor Courts (TRTs); at the Superior Labor Court (TST), they remain suspended. |
🕘 As of the time of this edition’s publication, no date has been set for the resumption of the Plenary’s hearing on the merits of the case, and Justice Cármen Lúcia’s request for further review remains pending.
As the STF has been ruling, in practice
While awaiting the final ruling, the STF has not been idle. Through constitutional complaints, it has overturned, in large numbers, decisions by the Labor Courts that recognized an employment relationship in contracts entered into through a legal entity, transferring jurisdiction to the General Courts. There were more than 400 such decisions between 2021 and 2026, according to independent surveys.
In these decisions, as a general rule, the Court does not reexamine, on a case-by-case basis, the elements characterizing an employment relationship set forth in Article 3 of the CLT (personal nature, non-temporary nature, remuneration, and subordination). The Court’s reasoning is usually based on the formal existence of a civil or commercial contract and on the broad interpretation it has been applying to Topic 725 (outsourcing).
Case No. 725 stems from the joint ruling on ADPF 324 and RE 958.252 (2018), in which the STF established the legal principle that outsourcing—or any other form of division of labor between distinct legal entities, including with respect to the core business of the contracting company—is lawful, provided that the contractor’s subsidiary liability is maintained. Originally established for outsourcing contracts between companies, this doctrine has also been invoked, by analogy, in cases of individual hiring through a legal entity, treating the service provider (an individual incorporated as a legal entity) as yet another link in this “division of labor among distinct legal entities,” which has served as a basis for denying the recognition of an employment relationship without a new examination of the requirements of Article 3 of the CLT in the specific case.
The Labor Courts, in turn, when ruling on claims for recognition of an employment relationship, traditionally apply the principle of the primacy of reality: it examines the actual dynamics of the provision of services and verifies whether, in the specific case, the requirements of Article 3 of the CLT are met, regardless of the contractual framework adopted by the parties.
This discrepancy underscores a practical warning: legal certainty is not built solely on the “formal safeguards” of a contract, but on consistency between what is written and what actually occurs in the provision of services.
Tax Reform: A New Risk Factor
The Tax Reform also changes the context surrounding the “pejotização” phenomenon. Although its objective is not to regulate labor relations, the new tax model expands digitization, document standardization, and information sharing between taxpayers and tax authorities, increasing the transparency of operations and the ability to cross-reference data. In this scenario, contractual structures that do not adequately reflect operational reality may be more vulnerable to tax, social security, and labor-related challenges.
⚠️ Risk is no longer analyzed solely from a labor law perspective. Employment structures lacking economic substance consistent with operational reality can simultaneously give rise to labor and social security liabilities, tax disputes, allegations of fraud, reputational impacts, findings in audits and due diligence reviews, as well as concerns from investors and compliance departments. Potential liabilities are no longer exclusively legal in nature and have become part of the corporate governance agenda.
Thus, a contract that, when analyzed in isolation, appears appropriate from a particular legal perspective may raise tax or social security issues if there is a lack of consistency in the documentation and operations.
A PPrecarization remains at the center of the debate
Regardless of the outcome of Case No. 1,389 before the Federal Supreme Court, it is unlikely that institutional concerns regarding the abusive use of the “pejotização” practice will disappear.
The Labor Prosecutor’s Office, the Ministry of Labor and Employment, judges, labor unions, and some legal scholars continue to argue that certain structures can constitute forms of precarious employment when used to replace employment relationships, without effectively altering the dynamics of service provision.
This concern received recent institutional backing on August 6, 2026, when the Minister of Labor and Employment, Luiz Marinho, publicly stated that he hoped the STF would not adopt a ruling that would weaken the protections provided by the CLT. According to the Minister, the criticism is not directed at legitimate business relationships, but rather at the use of corporate contracts to circumvent labor laws, which, in his view, jeopardizes the funding of Social Security, the FGTS, and the FAT.
On the other hand, there is also a growing recognition that there are highly specialized activities and business models in which contractual arrangements between legal entities represent a legitimate option, consistent with the parties’ autonomy. The challenge lies precisely in distinguishing one situation from the other.
Five Questions Every Company Should Answer
Before hiring a business service provider, it’s worth asking:
① Is there true economic autonomy?
② Does the service provider have an effective business structure?
③ Is there a real possibility of working with other clients?
④ Does the contract reflect the operational reality?
⑤ Would the documentation provided be sufficient to demonstrate that the requirements for an employment relationship are not met?
If any of these answers make you feel uncertain, the model probably needs to be revised.
Practical Recommendations
Regardless of the outcome of Case No. 1,389, companies can significantly reduce their risks by proactively reviewing their contracting structures. Among the most recommended measures are:
- an assessment of existing corporate contracts, identifying risks and prioritizing corrective actions;
- preparation of a matrix of labor, tax, and social security risks, by employment category;
- reviewing contracts and operational workflows, bringing them into line with best legal practices;
- Establishing a governance framework for contracting service providers, with objective criteria and internal controls for determining whether to use employees under the CLT, independent contractors, business entities, or outsourcing;
- capacity building and training for HR staff and managers, particularly regarding behaviors that undermine the service provider’s autonomy;
- alignment between HR, Legal, Tax, and Procurement;
- Assessment of the tax impacts of corporate hiring in light of the Tax Reform.
None of these measures completely eliminates the risk, but they do make it a manageable risk. Rather than debating the abstract validity of the “pejotização” practice, the current situation requires companies to demonstrate that each contracting model was chosen deliberately and to prove, with facts and documents, that the actual circumstances align with the provision of services.
▧ Prevention tends to be significantly less costly than managing labor, tax, and reputational liabilities after years of using inconsistent structures.
Authors:
Ana Lúcia Pinke Ribeiro de Paiva – apinke@araujopolicastro.com.br
Alexandra Rosman Scaramel – ascaramel@araujopolicastro.com.br