Decision[1] A recent ruling by the Superior Labor Court (TST) has sent an important signal to the business environment by rejecting the automatic liability of directors of privately held corporations in labor lawsuits. The position reaffirms that the mere non-payment by the company does not, in itself, authorize the redirection of the execution to the directors, which represents a significant advance for the legal security of directors. This issue deserves special attention from companies and leaders, especially in a scenario of increasing labor litigation.

In practice, the decision reinforces that the personal liability of directors requires concrete proof of irregular conduct, whereas the Corporations Law (Law No. 6,404/76) expressly states that a director is not personally liable for obligations incurred on behalf of the company and by virtue of a regular act of management; however, they are civilly liable for damages caused when they act: (i) within their duties or powers, with negligence or intent; (ii) in violation of the law or the company's bylaws.[2]. The Superior Labor Court (TST) rejected the logic of automatic imputation, requiring proof of abuse, misuse of purpose, or commingling of assets for liability to be established. This prevents managers from being included in enforcement proceedings solely because of their position, protecting legitimate and diligent actions in business administration.

The Superior Labor Court (TST) rejected the logic of automatic imputation, requiring proof of intentional misconduct or negligence on the part of the directors, which was not demonstrated. This prevents managers from being included in enforcement proceedings solely because of their position, protecting legitimate and diligent conduct in business administration.

This understanding is directly related to the so-called theories of piercing the corporate veil. Among them is the so-called minor theory, provided for in the Consumer Protection Code.[3], The first theory allows for the disregard of corporate personality, regardless of proof of abuse, provided it is found that the legal entity does not have sufficient assets to satisfy the labor claim. The second theory, however, adopted as the rule in the Brazilian legal system and reaffirmed by the Superior Labor Court (TST) in this context, requires proof of abuse of corporate personality, fraud, or commingling of assets.

The impact of this decision is significant for corporate governance. Managers will have greater predictability regarding the personal risks arising from their professional activities. On the other hand, the decision does not completely eliminate the possibility of liability, but conditions its application on the effective proof of illicit or abusive conduct, preserving the balance between protection of labor claims and legal certainty.

For companies, the decision also serves as a warning. The absence of automatic liability does not mean immunity. Practices such as commingling personal and business assets, acts of reckless management, or using the legal entity to defraud creditors remain valid grounds for disregarding the legal entity, under applicable law. Thus, good governance and formal management remain essential.

From a preventative standpoint, it is recommended that companies strengthen their corporate governance mechanisms, with a clear definition of responsibilities, rigorous asset segregation, and adequate documentation of administrative decisions. Minutes, internal policies, and compliance records are fundamental elements for demonstrating the regularity of administrators' actions in any potential legal dispute.

It is equally important that directors understand the limits of their actions and always act in accordance with the law, the company's bylaws, and best market practices. Alignment between the legal, financial, and compliance areas significantly reduces the risk of future challenges and strengthens the company's defensive position.

In summary, the TST's decision represents progress in rationalizing the accountability of administrators, clearly highlighting that, in the case of a privately held corporation, the lesser theory provided for in Article 28, §5, of the Consumer Protection Code does not apply, considering the existence of special regulations to the contrary in the Corporations Law, which provides for liability for administrators only when negligence or intent is proven. For companies, the message is clear: responsible management, transparency, and internal organization are the main instruments of protection against labor and asset risks.

Our firm has a team specializing in corporate law, corporate governance, labor law, and strategic litigation, prepared to advise companies and administrators on risk prevention, structuring compliance practices, and defending against labor lawsuits.

We act in a technical and preventative manner to avoid legal problems and protect the legitimate actions of managers and organizations. Contact us for strategic and reliable advice.

[1] TST, RR-1001885-49.2021.5.02.0605, 7th Chamber (judgment).

[2] Article 158. The administrator is not personally liable for obligations incurred on behalf of the company and by virtue of a regular act of management; however, he is civilly liable for damages caused when he acts:

I – within their duties or powers, with negligence or intent;

II – in violation of the law or statute.

• 1. The administrator is not responsible for the illegal acts of other administrators, unless he is complicit with them, neglects to discover them, or, having knowledge of them, fails to act to prevent their commission. He is exempt from liability.The dissenting administrator must record their dissent in the minutes of the administrative body's meeting or, if this is not possible, immediately notify the administrative body, the supervisory board (if in operation), or the general assembly in writing.andia-general.
• 2. The directors are jointly and severally liable for damages caused by failure to comply with the duties imposed by law to ensure the normal operation of the company, even if, according to the bylaws, such duties do not fall to all of them.
• 3. In publicly traded companies, the liability referred to in paragraph 2 shall be restricted, except as provided in paragraph 4, to directors who, by provision of the bylaws, have the specific responsibility of fulfilling those duties.
• 4. The administrator who, having knowledge of the non-compliance with these duties by his predecessor, or by the administrator responsible under paragraph 3, fails to communicate the fact to the assembly.andia-geral, will become jointly liable for it.
• 5. Anyone who, with the aim of obtaining an advantage for themselves or for another, contributes to the commission of an act in violation of the law or the bylaws, shall be jointly liable with the administrator.

[3]      Article 28. The judge may disregard the legal personality of the company when, to the detriment of the consumer, there is abuse of rights, excess of Power, violation of the law, illicit act or fact, or violation of the bylaws or articles of incorporation. Disregard will also be applied when there is bankruptcy, insolvency, closure, or inactivity of the legal entity caused by mismanagement.    
[…]
§ 5. The legal entity may also be disregarded whenever its legal personality is, in any way, an obstacle to the compensation of damages caused to consumers.