Ask any corporate law scholar about the origins of corporate group law, and you’ll likely hear about Germany. The German Konzernrecht, codified in 1965, is celebrated as the pioneering framework for regulating parent-subsidiary relationships and is often read as confirming that limited liability remains the governing norm even in complex corporate groups. This narrative has achieved near-canonical status in comparative corporate law, shaping how we understand the evolution of legal responses to corporate groups. But what if the conventional story is wrong?
In our recent article, Olivia Pasqualeto and I document a forgotten history: Brazil imposed joint and several liability on parent companies for their subsidiaries’ labor obligations in 1937—nearly three decades before Germany’s celebrated reform—by adopting a bold regime that remains virtually nonexistent in the Global North. Brazil’s pioneering role, along with its systematic erasure from comparative law scholarship, reveals much about the political economy of legal knowledge, the distributive stakes of limited liability, and the relationship between the Global North and South in the production and circulation of legal ideas.
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Limited liability is the most celebrated feature of the corporate form, but also one of the most troublesome. Even traditional law-and-economics scholarship recognizes that the efficiency case for limited liability vis-à-vis workers is weak at best, and even weaker in the context of corporate groups. Human rights advocates have long argued for imposing liability on parent companies for harms to vulnerable stakeholders. Yet conventional wisdom maintains that exceptions to limited liability in corporate groups remain invariably narrow and inadequate.
This conventional wisdom, it turns out, is geographically bounded. In 1937, Brazil enacted legislation imposing joint and several liability on parent companies for their subsidiaries’ labor obligations. The 1943 Consolidation of Labor Laws (CLT) incorporated a similar rule, establishing what would become the durable framework for Brazilian labor law.
This wasn’t a paper reform. Brazilian labor courts have consistently applied and expanded the scope of group liability over nearly nine decades. A 2017 labor law reform—primarily intended to reduce worker protections—ironically served to further expand parent company liability in various respects. The doctrine has also influenced other areas of Brazilian law, from environmental protection to consumer law to tax and financial regulation. As recently as 2024, the Brazilian Supreme Court invoked the economic group doctrine when it froze assets of Starlink’s Brazilian subsidiaries to enforce court orders against X (formerly Twitter), both controlled by Elon Musk—illustrating the doctrine’s continued vitality and contemporary relevance.
What drove Brazil’s pioneering adoption of parent company liability in 1937? Brazilian lawmakers explicitly justified the reform by highlighting how foreign corporate groups operating in Brazil were using separate legal entities to evade labor protections for Brazilian workers. Foreign parents could extract profits while subsidiaries that directly employed workers remained thinly capitalized. When things went wrong, workers were left with worthless claims while capital remained safely sheltered in foreign-located parent companies. The 1937 reform thus represented a distributive choice: prioritizing Brazilian workers’ ability to enforce their rights over foreign capital’s interest in minimizing costs through corporate structuring. It was also an assertion of sovereignty over how foreign corporations could operate in Brazilian territory in a context marked by nationalist rhetoric.
To assess whether Brazil’s approach was exceptional or part of a broader pattern, we surveyed corporate, company, and labor statutes in the 100 largest economies worldwide, supplemented by qualitative analysis of caselaw in key jurisdictions across the Global North and South. The findings reveal unexpected patterns.
In the Global North, all jurisdictions we examined have developed some exceptions to corporate separateness for workers’ benefit, but these typically remain narrower than Brazil’s comprehensive regime. The United States and France occupy an intermediate position, with doctrines of “joint employer” or “integrated enterprise” that permit courts to look through corporate form when certain factors, like control over working conditions or operational integration, are present. This approach is more flexible than the traditional veil piercing requirements, but less automatic than Brazilian group liability. Notably, Germany and the United Kingdom do not have special doctrines for restricting limited liability vis-à-vis workers.
Only Portugal has adopted a statutory approach comparable to Brazil’s breadth—but not until 2007, some 70 years after Brazil’s innovation. This represents a striking instance of “reverse convergence,” where a Global North jurisdiction follows rather than precedes legal development in the Global South.
In the Global South, strong regimes of parent company liability for labor obligations appear somewhat more common. Beyond Brazil, Venezuela (2006) and likely Chile (2014) have adopted comprehensive statutory regimes. Recent company law statutes in Cabo Verde, Angola, and Mozambique have gone even further, imposing parent company liability for all subsidiary obligations. Other Latin American jurisdictions have developed robust group liability through caselaw despite the absence of statutory authorization. In Peru and Uruguay, courts have grounded parent company liability in constitutional principles of worker protection and the “principle of reality” in labor law—the idea that legal relationships should be determined by economic substance rather than formal arrangements.
The overall picture reveals a gradual, contested trend toward eroding corporate separateness for workers’ benefit—a trend that appears earlier and stronger in the Global South than in the Global North, and that is obfuscated by conventional narratives that do not differentiate between the strength of limited liability in different settings.
Most fundamentally, the erasure of Brazil’s pioneering role from comparative corporate law scholarship raises questions about the political economy of legal knowledge production. Global South jurisdictions are typically viewed as importers and adapters of legal solutions developed in the Global North, not as innovators in their own right. By centering analysis on Global North jurisdictions and assuming they lead legal innovation, comparative law scholarship has systematically missed developments elsewhere.
Why have Global South jurisdictions shown earlier and relatively stronger enthusiasm for eroding corporate separateness to protect workers? Several factors likely contribute. The geography of capital and labor affects the distributive stakes: as capital importers, many Global South jurisdictions host foreign-controlled groups where the ultimate parent is located abroad, making limited liability’s distributional implications more stark. Sensitivity to inequality also shapes legal evolution: labor law in much of Latin America is grounded in constitutional principles recognizing workers’ structural vulnerability. And different complementary institutions matter: many Global North jurisdictions have wage guarantee funds, strong social safety nets, and robust public enforcement that partially substitute for parent company liability.
None of this suggests that parent company liability is a panacea. In recovering this history, our goal is to denaturalize limited liability by showing that alternative institutional arrangements have existed and operated for decades, and to illuminate the distributive and geopolitical stakes that shape divergent legal trajectories.
These historical and comparative insights have contemporary relevance. Debates about parent company liability continue in multiple domains—from supply chain accountability to environmental harm to human rights abuses. The EU’s Corporate Sustainability Due Diligence Directive, for instance, requires parent companies to identify and address adverse human rights impacts in their subsidiaries and supply chains. These developments are often framed as novel extensions of corporate accountability. But our research reveals that stricter schemes of parent company liability for labor obligations have existed in Brazil and other jurisdictions for decades.
The 2024 Brazilian Supreme Court decision freezing Starlink assets to enforce orders against X illustrates both the continued vitality and the contested nature of these doctrines. International observers expressed shock at the Court’s willingness to disregard corporate separateness between distinct Musk-controlled entities. But from a Brazilian perspective, the Court was applying longstanding principles developed to address concerns about national sovereignty and resist foreign corporate power.
The history of parent company liability for workers teaches us that limited liability is neither natural nor universal, that legal innovation doesn’t flow only from North to South, and that seemingly technical corporate law doctrines are deeply entangled with questions of distribution, power, and sovereignty. If comparative corporate law is to adequately understand how and why corporate law evolves, it must move beyond the parochial assumptions about how legal knowledge is produced and take seriously the full global landscape of corporate law innovation. The surprising history of Brazil’s pioneering role in parent company liability for workers offers a starting point for that reorientation.
