Union classification is the means by the which a company defines which union will represent its employees. Currently, only one union represents the employees of one company[1]/professional category (what we call union unity), but this may change.

And why is it important to know which union represents the employees of a startup?

Because the rights of the employees of startups, as well as any traditional company, are provided for in the Brazilian Federal Constitution, the Brazilian Labor Law (Consolidação das Leis do Trabalho – CLT), and collective bargaining agreements (also known in Portuguese as dissídio).[2] It is very common for collective bargaining agreements to guarantee additional rights and benefits, such as health insurance, dental care, food assistance, and meal vouchers.

Incorrect union classification may have a number of negative consequences, in particular the risk of payment of salary and benefits differences for all employees regarding the last five years.

The definition of the union classification is a responsibility of the company and, by law, it must consider: (i) the main economic activity of the company; and (ii) the location of its establishments.

The problem is that the law does not provide an absolutely objective rule to define what the “main economic activity” is. Many companies end up conducting their union classification only on the basis of their CNAE.[3] This is a very common mistake and an important point of attention for startups.

The fact that many startups in Brazil have software as a service (SaaS)[4] as their main activity is not enough to classify these startups into unions of this economic activity, such as data processing.

In other words, even if startups often use technology tools for their businesses, they do not necessarily perform services related to technology or data processing as a main economic activity.

Another interesting example is fintechs: it is not correct to assume that only because it is a fintech that its employees will be represented by the Union of Finance or Banking Professionals. Depending on the actual business, they may have their trade union classification set as data processing, financial, banks or, even advising and consulting (which ends up happening in most cases).

Union classification should be done taking into account its main source of billing/revenues and also the number of employees involved in each activity.

The correct union classification is extremely important when planning the operations of a startup because it may directly influence the cost structure and feasibility of the project, as well as avoid potential labor liabilities arising from non-compliance with the applicable collective bargaining agreement. Therefore, the advice of a specialized attorney is fundamental at that time.

But not only that: a correct union classification guarantees a startup the possibility of negotiating conditions relevant to its structure and the peculiarities of its daily life through collective bargaining agreements with the employees' union.

Among the issues that may be negotiated directly with the employees' union, we especially highlight alternative forms of control of work hours, which guarantee greater flexibility for employees and startups, and profit-sharing programs, which may generate substantial savings related to the payment of variable compensation.

We will cover all of these topics in the next articles in this series. Stay tuned!

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[1] Except for regulated professions.

[2]The term dispute is often used as a synonym for collective agreements, even though such use is not technically correct.

[3] It is the National Economic Activity Register indicated on the company's CNPJ card.

[4] According to data from the Brazilian Association of Startups.