\"Pejotização\" and the Brazilian Supreme Court's Theme 1,389: the suspension lifted and how far the cases advance

Few labor topics stir employers as much as "pejotização" — hiring a worker as an independent contractor or through a legal entity (PJ) instead of as an employee. Two recent developments, one on the merits and one procedural, help clarify where the debate stands today and what changes for companies.

On the merits: pejotização is not, in itself, fraud

A recent decision by the Labor Court in São Paulo dismissed a public civil action that sought to recognize an employment relationship for professionals hired as independent contractors/PJ, with a substantial claim for collective moral damages. The conclusion: there was no fraud.

The core of the reasoning was the absence of legal subordination. There was genuine autonomy in the work — freedom in how the work was performed, no interference by the company over the result, freely negotiated fees. In activities marked by creative and technical autonomy, subjecting the professional to rigid direction would, in fact, be incompatible with the very nature of the work.

The lesson is clear: pejotização is not automatically unlawful. What the law suppresses is fraud — using the "PJ" to disguise an employment relationship that is, in reality, subordinate. What the decision upholds is the reality of the working relationship.

What is really examined: substance over form

Brazilian labor law is governed by the principle of primacy of reality: what actually happens matters, not the label on the contract. For that reason, examining the lawfulness of a PJ arrangement is always fact-specific and looks to the elements of an employment relationship (Article 3 of the Labor Code — CLT), above all subordination:

• Are there personal performance, continuity, remuneration and subordination? Then there is an employment bond, even if a PJ contract exists.
• Is there genuine autonomy — the provider organizes their own work, bears risk, is not subject to orders or working-time control? Then hiring as an independent contractor/PJ tends to hold.

It is not the name of the contract that decides. It is how the relationship was structured and actually lived out.

The procedural context: the nationwide suspension (Theme 1,389)

A constitutional controversy hangs over this topic. In April 2025, the Federal Supreme Court (Justice Gilmar Mendes, reporting judge of ARE 1532603, Theme 1,389, with general repercussion) ordered a nationwide suspension of cases discussing the lawfulness of hiring an independent contractor or legal entity. The reason: the high number of complaints against Labor Court rulings had overloaded the Court, and it was necessary to await a binding thesis.

The suspension was lifted — but only at first and second instance

In June 2026, the Supreme Court lifted the suspension — but only for the first and second instances of the Labor Justice system. The rationale was the "significant backlog" of stalled cases. At the Superior Labor Court (TST), cases on the topic remain suspended.

How far the cases can advance

Here is the point few employers track. With the suspension lifted at first and second instance:

• The cases have resumed at the Labor Courts and at all Regional Labor Courts (TRTs).
• They can advance up to judgment by the TRT (second instance).
• From that point on, the suspension applies again: the case is stayed until the Supreme Court sets the definitive thesis of Theme 1,389.

There is, therefore, a window: these cases move up to the second instance and then freeze, awaiting the Supreme Court's final word. Knowing which stage each case is in is part of the strategic reading of the defense.

What this means for the employer

The practical message is twofold:

• Lawfulness is built at the origin. What sustains a PJ arrangement when challenged is how the contract and the relationship were structured from the start — with genuine autonomy and without the typical marks of subordination. That is preventive work, not reaction.
• The final word will still come from the Supreme Court. Until Theme 1,389 is definitively decided, favorable rulings in the lower courts coexist with the uncertainty of the future binding thesis. Planning and prudence go hand in hand.

How the firm works

Structuring and reviewing service agreements, as well as defending companies in cases discussing employment bonds and pejotização, are part of the firm's corporate employment practice. Each case, however, depends on its own circumstances — the facts, the documents and the way the engagement was conducted.

Conclusion

Pejotização is not a synonym for fraud — and it is also not a blank check. What separates one from the other is the reality of the working relationship. And, procedurally, this is a particular moment: cases have resumed up to the second instance, but the merits still depend on the Supreme Court. For the company, the best position is the usual one: contract correctly from the outset and follow closely what lies ahead.

Reference basis for review

• Labor Code (CLT), Articles 2 and 3, on the elements of an employment relationship (personal performance, continuity, remuneration and subordination).
• Federal Supreme Court, ARE 1532603 (Theme 1,389, general repercussion), reporting Justice Gilmar Mendes — nationwide suspension (April 2025) and its modulation (June 2026) for the first and second instances.
• Principle of primacy of reality in Brazilian labor law.
• Brazilian Bar Association Rule (Provimento OAB No. 205/2021), to preserve the informational nature of the content.

Content of a merely informational nature. It does not constitute legal advice, an offer of services or a promise of results. Any concrete analysis depends on the facts, the documents and the context of each engagement.