How to avoid labor lawsuits: 10 practices to protect your company

Avoiding labor lawsuits is one of the biggest concerns for business owners and human resources managers in small, medium, and large companies.

After all, poorly conducted legal action can cause significant financial losses, tarnish the brand's reputation, and destabilize the organization's internal environment.

With the increasing judicialization of labor relations in Brazil, adopting a set of best practices in labor compliance is essential for reduce legal risks and ensure safer and more efficient people management.

In this guide, we have compiled 10 key practices to prevent labor lawsuits, with clear guidelines that can be applied to your company's day-to-day operations.

What are labor lawsuits?

What are the main causes of labor lawsuits?

Before considering how to avoid lawsuits, it is important to understand what else motivates employees to resort to labor courts.

In most cases, lawsuits arise not only from legal violations, but also from communication failures, internal disorganization, and even a lack of empathy in the corporate environment.

Understanding the main causes helps companies take preventive action in a more focused and efficient manner. Below are the main reasons why employees sue their employers:

Unpaid or incorrectly calculated overtime

A irregularity in working hours control is one of the most frequent causes of labor lawsuits. This includes:

• Lack of time and attendance control
• Working days exceeding 8 hours without overtime pay
• Failure to comply with intra-day breaks
• Poorly managed time bank

Many employees file lawsuits demanding recognition and payment of accumulated overtime, with implications for vacations, 13th month salary, and FGTS.

Severance pay paid late or incompletely

Mistakes at the time of dismissal are also common. The most common ones are:

• Delay in payment of severance pay (legal deadline is 10 days)
• Incorrect calculation of proportional vacation pay and 13th month salary
• Non-payment of FGTS fines
• Failure to submit mandatory documents

These failures generate additional fine and increase the chance that the former employee will take legal action.

Accumulation or deviation of function

When the employee exercises duties that do not correspond to your original position, or begins to accumulate activities from other sectors without a proportional increase in salary, there is a risk of legal action.

This type of situation requires extra attention in multi-purpose roles or generic positions, such as assistants and aides.

Moral harassment or toxic environment

Unfortunately, many labor lawsuits involve reports of bullying, humiliation, excessive demands, or disrespectful treatment by managers or coworkers.

Companies that they do not train leaders and do not monitor organizational culture become frequent targets of lawsuits for moral damages, with amounts that can exceed R$50,000 per employee.

Lack of registration in the work card (hidden employment relationship)

Hiring as a legal entity or self-employed worker when, in practice, there is subordination, personality, habituality, and onerosity characterizes labor fraud.

In these cases, the courts recognize the employment relationship and order the company to pay all retroactive payments, in addition to fines.

10 practical tips to avoid labor lawsuits

Avoiding labor lawsuits is one of the biggest challenges facing Brazilian companies., especially in a scenario where legislation is complex and mistakes, even if unintentional, can have serious consequences.

A simple oversight in hiring an employee, paying overtime, or complying with ancillary obligations can lead to lawsuits that directly impact the organization's finances and reputation.

The good news is that there are preventive measures that can be taken to significantly reduce this risk. Below are 10 practices that your company can implement to avoid labor lawsuits.

1. Keep documentation and contracts up to date

One of the first barriers against labor lawsuits is well-organized documentation.

In practice, this begins with well-written, signed, and updated employment contracts that clearly describe the employee's position, activities, working hours, and benefits.

In addition to the main contract, it is important to keep:

• Contractual addenda whenever there are changes in job function, salary, or workplace
• Employee registration form 
• Proof of payment and vacation entitlement 
• PPE delivery terms and training 
• Time records and time bank agreements

When the company does not have documents proving its obligations, any claim made by the employee gains strength in a lawsuit.

With the correct and updated documentation, it is possible to verify that rights have been respected, drastically reducing the risk of convictions.

2. Strictly comply with labor laws

A Brazilian labor legislation is complex, but it must be strictly enforced. Many lawsuits arise from late payment of wages, incorrect overtime calculations, non-payment of additional wages, or severance pay.

Among the main points of attention, the following stand out:

• Payment of salaries by the 5th business day
• Payment of overtime, night shift differential, and hazardous or unhealthy working conditions, if applicable
• Granting of vacation within the legal period (12 months after the accrual period)
• Deposit of FGTS monthly and correct
• Full payment of severance pay within the legal deadline (up to 10 days after dismissal)

Complying with legal obligations not only avoids lawsuits, but also administrative fines and inspections by the Ministry of Labor.

3. Use transparent and reliable time tracking

One of the main reasons for labor lawsuits involves disputes over working hours.

Unrecorded overtime, suppressed breaks, and poorly managed time banks are frequent targets of lawsuits.

Therefore, adopt a time and attendance system that is:

• Reliable: Preferably electronic, with automated records
• Transparent: Accessible to employees, with the possibility of conferencing
• Regularized: In accordance with MTE Ordinance 671, which governs electronic time and attendance control models.

In addition, advise managers to comply with mandatory breaks and avoid excessive working hours, even if the employee is willing.

Failure to comply with these rights may result in convictions for overtime, moral damages, and additional compensation for suppression of breaks.

4. Train leaders in good labor practices

Many labor disputes arise not because of calculation errors or late payments, but because of management and leadership failures.

Moral harassment, public humiliation, abusive targets, or dismissals without dialogue are common triggers for lawsuits.

Therefore, it is essential that the company invests in:

• Periodic training for managers and coordinators
• Training on how to give constructive feedback 
• Guidance on how to handle warnings, suspensions, and dismissals with respect 
• Awareness about moral and sexual harassment and discrimination

Skilled leadership reduces conflicts, improves the organizational climate, and hinders allegations of abuse on the part of the company.

5. Have clear internal regulations and a code of conduct

Clear rules help prevent problems. One well-structured internal regulations and widely communicated to all employees establishes expectations, avoids misunderstandings, and serves as evidence in case of proceedings.

This document should address topics such as:

• Overtime and time bank policy
• Rules for the use of uniforms, cell phones, and computers
• Standards of conduct, ethics, and respect
• Disciplinary procedures (warnings, suspensions)
• Mandatory use of PPE in hazardous environments

In addition to the regulation, the code of conduct reinforces the company's values and commitment to respect and legality.

Both must be signed by all employees upon admission and updated as necessary.

6. Invest in workplace safety

Workplace accidents, occupational illnesses, and leave due to unhealthy working conditions are recurring causes of lawsuits against employers.

That's why Workplace safety must be a priority, both as a legal obligation and to protect staff.

Some essential practices include:

• Keep LTCAT, PPRA, and Occupational Health Medical Examination Program updated
• Implement CIPA when required by law
• Provide appropriate PPE and monitor its use
• Conduct regular safety training sessions
• Monitor unhealthy or hazardous environments

In addition to preventing accidents, these actions reduce labor liabilities and protect the company from compensation claims which can be millions, especially in cases of permanent sequelae.

7. Conduct dismissals ethically, professionally, and respectfully

Many labor lawsuits arise at the time of dismissal. This occurs mainly when the termination is done abruptly, without adequate explanations, or with errors in the payment of severance pay.

To avoid this type of situation, follow a structured shutdown protocol:

• Communicate the termination with empathy and respect
• Explain the reasons clearly, especially in cases of just cause.
• Document the process with termination terms and document delivery.
• Schedule and comply correctly with approval when required
• Pay severance pay within the deadline (up to 10 days).

In addition, always analyze whether just cause is properly characterized. Dismissals for just cause must have legal basis, evidence, and proportionality, as they are the ones that most often result in court reversals and compensation for moral damages.

8. Create secure channels for internal reporting

A key factor in preventing labor disputes is offering employees internal resolution methods before he takes legal action. To do this, it is essential to have reliable and accessible listening and reporting channels.

These channels should:

• Be discreet and allow anonymous reports
• Be managed by impartial areas (such as compliance or auditing)
• Have defined verification and response flows
• Rely on internal records and reports for auditing purposes

With these channels, many problems can be solved internally, quickly and with less legal impact, as well as helping the company to identify abusive practices before they become disputes.

9. Get specialized legal and accounting support

Companies that rely on a specialized legal and accounting advice in labor legislation are ahead in risk prevention.

These professionals work preventively, identifying weak points in the operation and proposing adjustments before they become liabilities.

With technical support, the company can:

• Draft contracts and amendments with legal backing
• Validate calculations for severance pay, vacation pay, and overtime pay
• Review internal policies and regulations in light of the CLT (Consolidated Labor Laws)
• Monitor inspections and respond to notices of violation
• Prepare the company for legal action, if necessary

More than just reacting to processes, preventive support is what effectively reduces the number of lawsuits, improves compliance, and protects corporate assets.

10. Conduct regular preventive labor audits

Finally, an essential practice for companies that want to protect themselves against lawsuits is to preventive labor audit.

This in-depth analysis verifies whether the company's processes comply with legislation and identifies hidden risks.

The audit usually reviews:

• Contractual documentation and registration forms
• Payroll and charges
• Time and attendance tracking and time bank
• Work safety reports and policies
• Benefits and perks policy

With this diagnosis in hand, the company can take corrective action before a problem turns into a lawsuit. Labor Justice.

Companies that perform this type of review annually or structural changes (such as mergers, rapid growth, or changes in management) drastically minimize hidden labor liabilities.

In a country like Brazil, with millions of labor lawsuits filed every year, the The best strategy for entrepreneurs is prevention..

It is not enough to simply pay salaries on time: you need to have processes, policies, and practices that are in line with legislation and employee rights.

Companies that invest in labor compliance, training, legal support, and periodic audits build a solid foundation for secure growth, avoiding unpleasant surprises and losses that could be prevented with organization.

More than a legal obligation, taking good care of your relationship with your employees is a business intelligence act, and the difference between thriving or constantly dealing with liabilities that drain time, energy, and resources.

Count on CLM Controller to protect your company from labor risks

A CLM Controller is an expert in preventive labor consulting, helping companies structure their operations safely, efficiently, and in full legal compliance. Our multidisciplinary team works with:

• Preventive labor audits 
• Strategic management of payroll and charges 
• Training for managers and leaders 
• Preparation of documents, internal policies, and regulations 
• Legal assistance and support for administrative proceedings

Avoid unpleasant surprises. Ensure peace of mind for yourself and security for your company.

👉 Request personalized labor consulting with CLM Controller