Arbitration has become a well-established and effective alternative method for resolving disputes, particularly in employment contracts involving executives and highly compensated professionals. This mechanism offers speed, confidentiality, and legal certainty for companies, provided it is implemented appropriately.

However, adopting arbitration requires special attention to employment laws, as improper application may result in significant liabilities and damage the company’s reputation.

When Arbitration Is Permitted and How to Apply It Correctly

Arbitration is an alternative dispute resolution method governed by Law No. 9,307/96, which allows parties to submit disputes involving disposable property rights to the decision of one or more arbitrators, instead of relying on the state judiciary.

In the employment context, arbitration was traditionally limited to collective labor disputes (Article 114, paragraph 2, of the Federal Constitution). However, with the Labor Reform (Law No. 13,467/17), Article 507-A was added to the Brazilian Labor Laws (CLT), allowing the inclusion of an arbitration clause in individual employment contracts, provided specific requirements are met:

• Compensation: The arbitration clause may only be included in individual employment contracts of professionals whose compensation exceeds twice the maximum limit of benefits under the General Social Security Regime (RGPS). Currently, this means salaries above approximately BRL 16,300. This threshold must be updated based on twice the current INSS benefit cap.

• Employee’s Initiative or Express Consent: The arbitration clause must be included at the employee’s initiative or with their express written consent, with a specific signature for that clause. Unilateral imposition by the employer is not permitted.

• Disposable Property Rights: Only matters involving disposable property rights may be submitted to arbitration. Non-disposable rights, such as those related to subsistence or minimum labor protections, cannot be arbitrated.

• Full Legal Capacity: Only employees with full legal capacity may opt for arbitration.

These requirements aim to ensure that only professionals with greater bargaining power and understanding of arbitration’s implications may choose this route, thereby reducing the risk of abuse due to the employee’s vulnerability.

It is recommended that the arbitration clause be drafted in a separate document or highlighted in bold, with a specific signature or acknowledgment, to ensure transparency and the employee’s unequivocal consent.

Importance of the Arbitral Institution’s Credibility and Qualification

When opting for arbitration in employment contracts, it is essential that the parties select an arbitral institution with recognized credibility and qualifications. Many entities self-identify as “arbitral courts,” which is incorrect, as arbitration does not replace the Judiciary. Rather, it offers an alternative means of resolving disputes involving disposable property rights, provided legal requirements are met.

Choosing a reputable institution is crucial to ensure impartiality, adherence to the principles of adversarial proceedings and equality between the parties, and that the procedure is conducted by qualified and experienced arbitrators.

The reputation of the arbitral institution directly impacts the legal certainty of the procedure and the enforceability of the arbitral award.

Institutions lacking credibility or failing to strictly comply with the law may expose the parties to risks such as nullification of the procedure, annulment of the arbitral award, and even judicial sanctions, as recognized by the Labor Courts in cases of irregular arbitration.

Therefore, it is highly recommended that employers and employees verify the institution’s track record, transparency, arbitrators’ qualifications, and compliance with legal standards before entering into any arbitration agreement. A careful selection of the institution is essential to ensure the effectiveness, fairness, and legal security of the arbitration process in labor relations.

Advantages of the Arbitration Clause in Employment Contracts

When the legal requirements are strictly observed, including an arbitration clause in employment contracts can offer significant benefits for both employers and employees. Main advantages are:

• Speed in Dispute Resolution: Arbitration is known for providing faster resolutions to disputes arising from employment relationships compared to traditional labor court proceedings. The arbitral process tends to be less bureaucratic, allowing the parties to obtain a final decision in a shorter timeframe—especially advantageous in high-value or complex disputes.

• Arbitrators’ Expertise: The parties may select arbitrators with technical knowledge and specific experience in the subject matter, leading to more qualified decisions aligned with the realities of the sector or employment relationship. This expertise can be crucial for properly addressing sensitive issues, increasing confidence in the impartiality and quality of the arbitral decision. It also helps reduce the perception of unfairness sometimes associated with labor court rulings, particularly in cases involving senior executives and complex contractual relationships.

• Confidentiality: Unlike judicial proceedings, which are generally public, arbitration allows the parties to maintain confidentiality regarding the dispute, the terms of the agreement, and the final decision. This is especially important for companies and professionals seeking to protect their image, business strategies, and sensitive information.

• Party Autonomy: Arbitration values the parties’ autonomy, allowing them to jointly define procedural rules, the arbitration venue, language, and even the arbitrators’ profile. This flexibility fosters a more cooperative environment, and solutions better aligned with both parties’ interests.

• Award with Enforceable Effect: The arbitral award has the same enforceability as a judicial decision, meaning it can be directly enforced, ensuring the decision’s effectiveness and reducing the risk of prolonged litigation.

• Reduction of Liabilities and Legal Uncertainty: When used properly and in compliance with the law, arbitration can help reduce labor liabilities and improve predictability regarding the costs and risks of potential disputes, supporting strategic human resources management and business sustainability.

Thus, when used within legal boundaries, arbitration can be a valuable tool for the efficient and qualified resolution of labor disputes in individual employment contracts.

What Happens When Arbitration Is Improperly Applied?

Recent decisions by labor courts show that adopting arbitration without due caution can lead to undesirable consequences for companies.

Disregarding legal requirements may result in companies being ordered to pay collective moral damages and prohibited from using arbitration, in addition to the risk of arbitration clauses being declared null and void.

The prevailing understanding in the Labor Courts is that arbitration is only valid when all legal requirements are strictly observed; otherwise, it is considered a fraud against labor law and a violation of the right to access justice.

These precedents demonstrate that attempting to apply arbitration indiscriminately — especially in contracts with employees who do not meet the legal criteria — can generate significant labor liabilities and even harm the company’s reputation.

The basis for these decisions lies in protecting the worker — generally the weaker party in the employment relationship — and ensuring access to the judiciary (Article 5, XXXV, of the Federal Constitution).

Attempts to remove the jurisdiction of the Labor Courts through compulsory arbitration are considered fraudulent and contrary to the principle of inalienability of jurisdiction.

Furthermore, the Arbitration Law provides that an arbitral award is only valid if it respects the principles of adversarial proceedings, party equality, arbitrator impartiality, and free will. Otherwise, the award may be annulled by the courts (paragraph 2 of Article 21 and Article 32 of Law No. 9,307/96).

The Importance of a Well-Drafted Employment Contract

Careful drafting of the employment contract is the first step to ensuring the company’s legal security. A well-structured contract with clear clauses in compliance with the law not only prevents disputes but also maximizes the benefits of arbitration.

For companies intending to adopt this mechanism, it is essential to rely on specialized legal counsel capable of analyzing the professionals’ profiles, drafting customized clauses, and advising on appropriate procedures.

Additionally, legal counsel may suggest safe alternatives for situations where arbitration is not advisable, such as court-approved out-of-court settlements. This option also provides legal certainty and full settlement of the contract, provided all legal requirements are strictly followed.

By considering these strategies, the company not only protects itself from potential liabilities but also prepares to explore effective and advantageous solutions.

Conclusion

Implementing arbitration in employment contracts is a strategic decision that can bring significant advantages to companies but requires technical knowledge and attention to detail. Errors in drafting the clause or in selecting the appropriate professional profile can turn an opportunity into a major issue.

Therefore, a proper understanding and application of arbitration mechanisms are essential for legal compliance, good faith in labor relations, and the creation of a safer business environment. Investing in specialized legal counsel and practices aligned with the law is the path to avoiding labor liabilities and strengthening the company’s reputation in the market.

[1] The INSS (National Institute of Social Security) benefit cap in effect as of July 1, 2025, is BRL 8,157.41.

[2] TST – RR: 1000046-21.2021.5.02.0271, Reporting Justice: José Roberto Freire Pimenta; judgment date: April 30, 2025; 3rd Panel; publication date: May 13, 2025.

TST – RRAg: 1000849-64.2015.5.02.0610, Reporting Justice: Augusto César Leite de Carvalho; judgment date: May 8, 2024; 6th Panel; publication date: May 10, 2024.

TRT-3 – RO: 0010029-33.2020.5.03.0024 (MG); Reporting Judge: Paula Oliveira Cantelli; judgment date: September 8, 2021; 4th Panel; publication date: September 10, 2021.