Global South Innovation in Group Law: Brazil’s Joint and Several Liability for Labor Obligations

By: Mariana Pargendler and Olívia Pasqualeto

 

Limited liability is one of corporate law’s most celebrated features. Yet its use to shield shareholders and parent companies from claims by vulnerable creditors—especially workers—has long raised concerns of both efficiency and fairness. These concerns are particularly acute in corporate groups, where multinational enterprises can fragment their activities across subsidiaries and invoke corporate separateness to avoid labour obligations.

 

Our article, ‘Overcoming Corporate Separateness: The Early Origins of Group Liability for Workers and Beyond’, challenges two entrenched assumptions: that group law is essentially a German invention, and that the most important innovations in this field originate in the Global North. We show instead that Brazil adopted a bold and durable regime of parent company liability for workers’ claims as early as 1937, and that developments in other Global South jurisdictions have played a leading role in eroding corporate separateness in the labour context.

 

Brazil’s 1937 Innovation

Brazilian labour law has, for nearly a century, imposed joint and several liability on parent companies for the labour obligations of their subsidiaries. A 1937 statute, later consolidated in the 1943 Consolidação das Leis do Trabalho (CLT), provided that companies forming an ‘economic group’ are jointly liable for workers’ claims. Even before this legislation, at least one decision had already treated companies within the same group as a single employer for labour purposes.

 

This was not a technical curiosity but a conscious political and economic choice. Brazilian lawmakers explicitly framed the reform as a response to foreign corporate groups that used separate entities to evade obligations to Brazilian workers. In a context where capital was often foreign and labour domestic, the 1937 law prioritised workers’ ability to enforce their claims over a rigid commitment to entity separateness.

A 2017 labour reform—primarily intended to liberalise labour markets and weaken certain protections—ultimately broadened the reach of the ‘economic group’ concept, reinforcing rather than dismantling the logic of group-based joint liability.

 

Law in Action: From Labour Courts to Elon Musk

One might assume that such a heterodox provision would remain largely symbolic. In fact, Brazilian labour courts have consistently applied and expanded the economic group doctrine, frequently holding parent companies and affiliates jointly liable for wages and employment-related claims. The concept has also migrated into other fields, underpinning doctrines that facilitate the disregard of separate juridical personality in environmental, consumer, and tax law.

 

Its continuing bite was on full display in 2024, in a high-profile confrontation between the Brazilian Supreme Court and X (formerly Twitter), controlled by Elon Musk. After X repeatedly refused to comply with court orders, the Court invoked the economic group concept to freeze the assets of Brazilian subsidiaries of Starlink—another Musk-controlled company operating in a different sector with a distinct shareholder base. Framed as a measure to protect national sovereignty and enforce judicial authority, the order ultimately pressured X into compliance. This episode illustrates how a labour-based doctrine of group liability can be repurposed as a powerful enforcement tool against foreign companies in a very different context.

 

Mapping Global Trends

To place Brazil in comparative perspective, we surveyed company and labour statutes in the 100 largest economies, and examined case law in selected jurisdictions in the Global North (France, Germany, the UK, the US) and Global South (including Argentina, Brazil, Chile, China, India, Panama, Peru, South Africa, Uruguay, and Venezuela).

 

We find a gradual but uneven trend towards eroding corporate separateness to protect workers in group settings.

 

In the Global North:

 

• All jurisdictions we examined recognise some exception to corporate separateness in the labour context. The United States and France, for example, have developed ‘joint employer’ or ‘integrated enterprise’ tests that allow courts to treat multiple group entities as a single employer under intermediate standards that are less demanding than traditional veil piercing but more limited than Brazil’s regime.
• Only Portugal has adopted a statutory regime broadly comparable to Brazil’s comprehensive joint and several liability for labour obligations, and it did so more than 70 years later, in 2009.
• The EU Corporate Sustainability Due Diligence Directive requires large companies to identify and address adverse human rights impacts, including labour abuses, in their subsidiaries and value chains. Yet parent company civil liability is conditioned on proof that the parent failed to comply with its due diligence obligations, rather than on an automatic joint-liability rule.

 

In the Global South, robust parent company liability is somewhat more common, though still rare:

 

• Beyond Brazil, Venezuela (2006) and arguably Chile (2014) have statutory regimes imposing group-level liability for labour obligations.
• Recent company laws in Cabo Verde, Angola, and Mozambique go further, providing broad parent liability for all subsidiary obligations.
• Courts in Peru and Uruguay, without explicit statutory mandates, have developed strong forms of joint liability in corporate groups grounded in constitutional values of worker protection and labour law’s ‘principle of reality’.

 

These patterns do not map neatly onto the familiar civil law–common law divide. Germany and the UK tend to preserve limited liability in the labour context; the US and France occupy intermediate positions; several jurisdictions in the Global South have gone further in holding parent companies accountable.

 

Reverse Convergence and Legal Heterodoxy

Our findings complicate standard accounts of legal transplants and legal origins, which assume a one-way diffusion of legal innovations from Global North to South. In this area, we observe instances of ‘reverse convergence’: a regime comparable to Brazil’s emerged in Portugal only several decades later, and Global South jurisdictions and former colonies have often been first movers rather than followers.

 

This pattern resonates with emerging work on legal heterodoxy in the Global South, which highlights how developing countries innovate in private law to pursue distributive and public policy goals more aggressively than many Global North systems. As historical capital importers with higher inequality and weaker enforcement institutions, Global South jurisdictions face more acute problems with limited liability vis-à-vis workers and have stronger incentives to experiment with doctrines that erode corporate separateness.

 

We do not claim that imposing group liability is a panacea or necessarily superior to alternative worker protections. A functional assessment would need to consider substitute and complementary mechanisms such as directors’ liability, insolvency priorities, public enforcement, guarantee funds, and social insurance. Our aim, instead, is to map how one of corporate law’s most foundational principles—limited liability—has actually evolved in the labour context.

 

That mapping reveals a surprising and underexplored story: in the field of group liability for workers, the Global South has often been leading, and the Global North, where it has moved at all, has sometimes followed.

 

 

Mariana Pargendler is Beneficial Professor of Law, Harvard Law School.

Olivia Pasqualeto is Professor of Law, FGV Law School in São Paulo.

 

 

This post is republished by the Ibero-American Institute for Law and Finance with the authors’ permission.

This post is based on the authors’ recent article, “Overcoming Corporate Separateness: The Early Origins of Group Liability for Workers and Beyond” available here. A version of this post appeared on the Oxford Business Law Blog, here.