Terminating an Employee in Brazil: Notice, Severance and the FGTS Penalty

Brazil has no at-will employment. An employer can end an employment contract without giving a reason, but the law fixes how much the employee receives, the notice period, the deadline to pay and the documents to deliver. Some employees cannot be dismissed at all for a period of time. For a foreign company, terminations are where the cost of the CLT becomes most visible, and where most labor claims begin. This guide explains the types of termination, what each one costs and how to run the process correctly.

The four main types of termination

The notice period follows Law 12,506/2011. The 40% penalty on the FGTS balance is set by Law 8,036/1990, article 18. Termination by mutual agreement was created by the 2017 labor reform (CLT, article 484-A). Dismissal for cause requires one of the serious faults listed in article 482 of the CLT, such as dishonesty or serious misconduct, and the burden of proving it is on the employer.

What the employee receives

In a dismissal without cause, the final settlement usually includes:

• salary for the days worked in the last month;
• notice pay, if the notice is not worked;
• accrued and proportional vacation, each plus the one-third bonus;
• proportional 13th salary;
• the FGTS deposit for the month and the 40% penalty on the FGTS balance;
• any amounts due under the collective agreement or the employment contract.

The notice period, even when indemnified, counts as time of service and increases the proportional vacation and 13th salary. For a long-tenured employee, the total is a significant multiple of the monthly salary. Our guide to the real cost of an employee in Brazil shows how these costs build up during employment.

Deadlines and documents

The final settlement must be paid, and the termination documents delivered, within 10 days of the end of the contract (CLT, article 477, paragraph 6). Missing the deadline triggers a penalty equal to one month’s salary (paragraph 8). The termination is also reported to eSocial, which feeds the FGTS release and the unemployment insurance request. A dismissal medical exam is required under regulatory standard NR-7, unless a recent exam is still valid.

Employees who cannot be dismissed without cause

Brazilian law gives temporary job protection to several groups. Dismissing them without cause during the protected period usually leads to reinstatement or compensation:

• Pregnant employees, from confirmation of pregnancy until five months after birth (ADCT, article 10).
• Employees who had a work accident, for 12 months after returning from accident leave (Law 8,213/1991, article 118).
• Union leaders and elected members of the internal accident prevention committee (CIPA), during and after their term.
• Fathers on paternity leave, from 2027, during the leave and for one month after it (Law 15,371/2026).
• Others set by the collective agreement, such as employees close to retirement.

Collective dismissals

In 2022, the Supreme Court decided that prior dialogue with the union is required before mass dismissals (Theme 638). It does not require the union’s approval, but it does require the employer to open the conversation first. Restructurings with many dismissals should plan this step from the start.

Running a termination correctly

1. Check whether the employee has any job protection, including under the collective agreement.
2. Decide the type of termination and whether the notice will be worked or indemnified.
3. Calculate the settlement, including collective agreement items, and have it reviewed.
4. Communicate the decision in writing and schedule the dismissal medical exam.
5. Report the termination to eSocial and pay the settlement and the FGTS penalty within 10 days.
6. Deliver the documents and keep the signed records.
7. Review company assets, system access and any non-compete or confidentiality obligations.

Where foreign employers go wrong

• Applying the headquarters process and timeline, which may miss the 10-day deadline.
• Using “for cause” without evidence, which is reversed in court and costs more than a dismissal without cause.
• Forgetting overtime, bonuses or commissions that should have been part of the salary, which then become the core of a labor claim.
• Agreeing on severance packages abroad without reflecting them in the Brazilian settlement.

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil. Our Payroll and HR Administration team calculates and processes terminations, reports them to eSocial, pays the settlement within the legal deadline and keeps headquarters informed of the cost before the decision is made. See our payroll service or talk to our consultants.