When one speaks of startups, one of the first things that comes to mind is the informality of the work environment compared to that of traditional businesses. Flexible work schedules and stripped-down offices, coupled with the possibility of rapid career advancement, are often startups’ greatest attraction in recruiting talent in the job market. However, not all informality is positive for business.

In the field of labor law, there is a hazardous informality on the part of startups related to the lack of structure in the hiring of labor, which may often expose the company to risks of recognition of an employment relationship.[1] 

Although the differences between startups and the common business model are clear, there are no relevant distinctions from a purely labor standpoint, since startups need to follow labor laws from the very beginning of their creation even before they become operational, just like any company.

Early on, entrepreneurs needs to understand the best form of hiring for their business model, considering all the positions, from the top management to the operational team.

By top management, one means executives, that is, potential partners, directors, officers, and managers. These people are essential for the success of the business and indispensable in the idealization of the project, organization/structuring of ideas, and, thereafter, in the management of the startup. Thinking about reducing labor costs, many startups eventually include all these professionals as partners. However, not all of them qualify as such, and their inclusion in the corporate framework may attract unnecessary labor liabilities and hinder the attraction of investments or a potential sale. Only those professionals who incur the risks of the startup’s business should be included as partners.

Hiring official officers to be appointed in the corporate documents may be an alternative for management professionals. The absence of labor laws in this relationship guarantees parties greater freedom in negotiating the terms of the agreement between them.

Startups may also opt for other types of hiring for both managers and operational professionals, such as self-employed persons, legal entities (PJ), and third-party contractors, always remembering that the Labor Reform allowed the outsourcing of core business activity (a company’s main activity). However, if the requirements for an employment relationship have been met, especially direct subordination, are present, the outsourced party shall be entitled to receive all labor rights applicable to an employee.

The key here is also to analyze direct subordination regardless of the form of hiring, either for positions of formal officers to be appointed in the corporate documents or outsourcing (PJs, self-employed persons, and third-party contractors).

The hiring of official officers to be appointed in the corporate documents should be limited to de facto officers, who have autonomy within their area to make decisions, thus guaranteeing some degree of independence between them and the company.

Likewise, the use of self-employed persons and PJs should be limited to one-off/partial activities, without direct management/subordination, in order to ensure that workers without an employment relationship maintain their autonomy.

The Labor Reform also brought in another hiring alternative by allowing companies to start hiring on-demand professionals, so-called intermittent employees. As intermittent employees are paid only for the work performed, in proportion to the days and hours worked, this modality has proved to be a good option to meet specific demands or peak workload.

Therefore, in order to balance informality in the workplace with legal certainty, startups should analyze how best to hire labor, therein mitigating potential risks of direct subordination to those hired outside the system established by the Consolidated Labor Laws.

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[1] There is a risk of an employment relationship when the requirements of subordination, onerousness, habituality, and personality are present in the relationship held between the parties.