2019-09-26
#whyportugal 

Employment laws play a particularly important role in decision-making when it comes to setting up business or working in any country. Whether as an employer or employee, Portugal’s employment regime ensures you know where you stand.

The employer-employee relationship has long been a sticking point for potential investors into any country due the rigidity of the laws as well as the obligations, constraints and fine print that come with it. Ten years ago, Portugal addressed this point with a change in the legal regime that it has been revising and adapting to strike the right balance between securing employee rights and giving employers a level of necessary flexibility.

If you look at recent data from the World Economic Forum (WEF), the European Trade Union Institute and PORDATA (the statistical database of socioeconomic subjects) you will see Portugal has a less rigid system and is at the lower end of labour dispute figures and days lost to labour disputes when compared with other EU countries.

Your go-to for everything employment is the 2009 Labour Code, with everything you need in one place including the type of contracts, duration, working hours, holidays, absences and termination. It’s employer-friendly, as it allows certain types of flexible working schedules without increasing costs to the employer, as well as having an overall flexible regime designed by the Government to make the country’s employment legal framework fairer, more balanced and increasingly investor-friendly.

Looking to hiring employees?

The mandatory rules set forth in the Labour Code, as well those part of any collective bargaining agreements with Trade Unions, set out the legal framework that you must follow when hiring an employee in Portugal. Under certain circumstances, however, you and your employees may be allowed to agree different rules, if more favourable to the latter.

You need to be aware of employees’ obligations and entitlements, working hours and holidays.

These are figures to take note of. You have a maximum 40-hour work-week and a 8-hour work-day, along with a minimum rest of 11 consecutive hours between workings days and a mandatory weekly rest day.

Employees’ are entitled to 22 working days of paid annual leave. This limit may be increased by collective bargaining agreements.  

Employees are also entitled to public holidays – a total of 13 days in the year 2019.

Working out salaries.

You need to be aware that for 2019 the minimum national wage is set at €600 per month. In addition to this you must pay two extra month’s salary known as the ‘Christmas allowance’, payable up to 15 December each year, and “holidays allowance” payable preferably before the holidays.

And what are the employees’ rights in relation to absences?

Be aware that Portugal has a rigid regime when it comes to absences. The labour code establishes an exhaustive list of justified absences, which as a general rule do not affect any rights of the employee.

As for employment contracts, what do you need to be aware of?

Contracts can be for indefinite term (permanent) or for a fixed or unfixed term, and certain types must be made in writing, i.e. those with a ‘term’, part-time contracts, contract executed with a minor. To note, ‘term’ contracts can only be used to meet temporary work needs of the employer and for specific periods, and have a maximum duration of two years, renewable up to three times and the total duration of renewals may not exceed the contract’s initial duration.

The duration of the unfixed term contract may not exceed four years.

Does the law allow for probation periods?

Yes, and the length of the probation period depends on the type of contract.

Thus, for permanent contracts, the probation period is equal to 240 days for management positions, 180 days for employees performing functions of high responsibility or high complexity, first job seekers and long-term unemployed, and 90 days for the rest of the employees.

For fixed or unfixed contracts, the probation period is equal to 30 days for contracts over six months and 15 days for contracts of less than six months.

During this period both parties are free to cut the contract short, without justification or notice period.

 

What are the key rules in relation to terminations and dismissals?

Again, the Labour Code sets out all the circumstances covered as well as the processes to follow. And you must comply with the set criteria otherwise the termination will not be considered effective.

An employee, of course, has the right to quit, terminating the contract with or without a just cause, being that in this last case notice must be given, equal to 30 days for contracts up to two years, of length, or 60 days for contracts over two years. And contracts can of course be terminated without consequence by agreement between the parties.

Can employers terminate ‘permanent’ contracts?

Permanent contracts can only be terminated with just cause, i.e., when the employee breaches his/her duties or when it becomes impossible for them to continue to perform the hired functions. Termination of permanent employees is also possible in cases of redundancy (individual redundancy or collective dismissal), when the company needs to reduce its work force due to market, structural or technological reasons.

And what about ‘term’ contracts?

‘Term’ contracts expire at the end of their ‘term’. However, the employer must give a prior notice. For fixed-term contracts, the employer must give a 15 days’ notice before the term, while the employee must give an eight days’ notice. For unfixed-term contracts, the prior notice is equal to seven days for contracts up to six months, 30 days for contracts with a duration between six-month and two years and 60 days for contracts with a duration over two years.

What is key when it comes to dismissals?

Employers may terminate a permanent employment contract only for just cause. Generally, this would be on account of the employee’s gross misconduct that leads to a fundamental breach of contract, or for objective reasons such as redundancy.

However, it is not enough for the employer to have a fair reason for dismissal: a strict pre-dismissal procedure must be followed. Otherwise, the termination will be deemed as an unfair by the Labour Court.

What are the rules for collective dismissals or redundancy?

Collective dismissal refers to the termination of several contracts either simultaneously or separately over a period of three months. A company will be before a collective dismissal if the termination includes at least two employees, if the company is small, or five employees if it is a medium or large company.

On the other hand, individual redundancy exists whenever the number of employees to be terminated fall below the above-mentioned limits.

Both forms of termination must be based on market, structural or technological reasons and subject to a very strict proceeding.

Is there an obligation to provide severance pay?

Severance does come into play for Collective dismissal and individual redundancy.

The calculation rules regarding the amount of such severance pay have been changed following Troika’s austerity measures, which means that different regimes are applicable depending on the contract’s execution date.

How is this calculated?

For “new permanent contracts”, executed as of 1 October 2013, the compensation corresponds to 12 days of base salary and seniority allowance per each year of service

However, for “old contracts” the rules are as follows:

For contracts executed between 1 November 2011 and 30 September 2013, the compensation considers three periods:

  • period between 1 November 2011 and 30 September 2013, the compensation is equal to 20 days of base salary and seniority allowance per each year of service;
  • period between 1 October 2012 and the date on which the contact completes three years of duration, the compensation is equal to 18 days of base salary and seniority allowance per each year of service;
  • period subsequent to the first three years of duration of the contract and the date of the termination, the compensation corresponds to 12 days of base salary and seniority allowance per each year of service.

For contracts executed before 1 November 2011, the compensation considers three periods:

  • period until 31 October 2012, the compensation is equal to one month of base salary and seniority allowance per each year of service;
  • period between 1 November 2012 and 30 September 2013, the compensation is equal to 20 days of base salary and seniority allowance per each year of service; and
  • period of duration of the contract after 1 October 2013, the compensation corresponds to 12 days of base salary and seniority allowance per each year of service.

For fixed-term contracts:

  • Until 31 October 2012: contracts with a length up to six months, two days of base salary and seniority allowance per each month of service. For contracts over six months, three days of base salary and seniority allowance per each month of service;
  • As of 31 October 2012: 12 days of base salary and seniority allowance per each month of service.
  • After 1 October 2013: the New Rules apply: 18 days of base salary and seniority allowance per each year of service.

 

For a more detailed insight into this and other employment issues, do read our Guide Why Portugal 2019 and for further clarifications or a more tailor-made approach, please do get in touch.

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2019-09-25

The moral harassment (or mobbing) in the workplace has gradually been qualified as a work accident either by scholars and in court.

Mobbing is an issue that became worrisome in the last few decades, even though it exists for quite a while now. Currently, its greater expression lies on ever demanding work hours, high stress levels, competitive workplaces and non-permanent jobs.

Basically, mobbing consists of the exposure of employees to humiliating and embarrassing events, that are uncalled for, lasting and repeating, causing disturbance in the workplace and often forcing employees to quit from their jobs. It is a phenomenon that carries a great deal of consequences to employees’ physical and mental health.

ILO Convention on Violence and Harassment states “that violence and harassment in the world of work can constitute a human rights violation or abuse, and that violence and harassment is a threat to equal opportunities, is unacceptable and incompatible with decent work”.

Accordingly, the question is whether harassment may be considered as a work accident under Portuguese law.

A work accident should not be mistaken with a work injury. An accident is the event causing directly or indirectly a physical or mental occupational injury, in consequence of which it occurs a loss of working capacity. Also, a work accident is limited to the damages it causes. Finally, the work accident does not necessarily have to be caused by a physical external event, as the cause for a work accident may be non-physical.

A few academic opinions consider that for an accident to be considered as such, it must be sudden. In other words, some find that the work accident should be ascertainable in a given period of time or, at least, it should have a determined and limited duration. Those who share this understanding find it a big obstacle to the qualification of moral harassment as a work accident.

The element of suddenness has been questioned, however. Notwithstanding the identification of a work accident with the occurrence of a sudden event, gray areas are those where there is a gradual evolution, just as in the case of developing illnesses in a work context. In 21 November 2001, the Supreme Court of Justice ruled that “the element of suddenness of the event that is characteristic of the work accident should not be taken in absolute terms, constraining it to instantaneous facts and events, but it should rather be construed as a cause of an injury that occurred in a determined period of time, and that its effects may gradually evolve”. Just so, it may be considered that certain behaviors may be grouped, causing a moral harassment phenomenon that has correspondence with the concept of a work accident.

By considering the moral harassment as a single occurrence, one may possibly qualify it as a work accident.

We disagree with this position. We believe that the moral harassment is a continuous, sequential chain of events causing serious injury to the employee, and that it cannot be considered as a single occurrence. The relevant characteristic is not the consequences of it or the seriousness of the phenomenon, but rather the continuity of it.

It is also our understanding that the characterization of moral harassment as a work accident lies in the extension of the concept. In fact, we believe that given the amplitude that the concept already has at the Law this should be an adequate solution.

Often, the situations qualified as work accidents are not intimately linked with the place and time of work strictly speaking.

This means that the qualification of moral harassment as a work accident and subject to the work accident regime is justified on the employer’s risk that is inherent to the provision of work.

In a nutshell, moral harassment constitutes a type of non-physical violence exerted over the employee, that is characteristic for its repeated sequence of harming behavior towards the employee, causing psychological injury and affecting the provision of work, which ultimately may be qualified as a work accident.

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2019-09-11
#whyportugal | Why bringing your business to Portugal is easier than you think.

Whether an SME or large business, taking your first steps into the Portuguese market can take less than a day or be done online, with innovative systems offering significant costs reductions.

Starting or internationalising your business can be a cumbersome affair, not to mention costly. But thanks to Portugal’s advanced systems, from online registration at a reduced 40% cost to its ‘on-the-spot’ one-day incorporation, setting up your business has never been easier.

Is there a way to test the waters for temporary or one-off projects?

If you’re not ready to jump in with both feet and prefer to work with a Portuguese partner before setting up your own subsidiary, then the unincorporated joint venture (JV) is a way for you and your partners to come together to work on limited or temporary projects in Portugal without having to create a formal legal structure.

A JV has no legal personality and no common funds; cooperation is merely for a specific project, in the pursuit of a particular objective or in the development of an activity.

JVs can either be ‘internal’ or ‘external’. ‘Internal’ means having the freedom to determine your own obligations without any formal bodies. ‘External’ means having a leader, steering body and supervisory board. Leaders take on both internal administrative obligations, such as the organisation and implementation of cooperation among all parties, as well as external ones, namely the power to represent the UJV before third parties.

If you already have a base in Portugal, how can you collaborate with other domestic companies?

For companies that already have a foothold in Portugal, a way to collaborate is using an ‘ACE’ - an Enterprise Group. This is where two or more domestic companies collaborate creating a new legal entity with its own organisational structure to improve respective business performance and generate results.

The structure comprises three core bodies: General Meeting (deliberative), Board (management and representation) and Supervisory. An ACE can own assets in the form of member contributions and each member is personally responsible for its debts.

What’s the best business form for an EU company to cooperate with a Portuguese company?

To collaborate with businesses in other Member States you can form an EEIG (European Economic Interest Grouping), which is an ACE but at EU level. With an international legal personality, the EEIG allows parties to come together and carry out activities in the EU to improve the exercising or result of their business activities.

The main differences to note when comparing an EEIG with an ACE are that individuals can form EEIGs, something you cannot do with an ACE, and the parties to the EEIG must be located in different EU countries.

Can a business start operations in Portugal without establishing a company?

If you’re looking to take a first step into Portugal, you can take a minimalist approach without having to establish a fixed corporate structure by opening a branch. This operates merely as an extension of the parent company without legal personality, assets, corporate bodies or equity requirements. You can, of course, allocate funds to the branch for operational purposes.

A branch doesn’t need a corporate body merely an appointed legal representative to manage the business, and a simple registration is sufficient for incorporation.

What types of companies can you set up in Portugal?

To take the next step and establish a legal entity, the most common methods are private limited liability companies and public limited companies. Portugal offers the added advantage of being able to incorporate either entity online or in just one day using a system known as the ‘On-the-spot’.

What are the obligations and requirements for a private limited liability company?

With a simpler governance structure, a private limited liability company (LDA) is particularly popular with those taking their first steps into Portugal or looking for smaller or shorter-term investments. There’s no minimum compulsory share capital, shares numbers are usually equal to the number of shareholders (a minimum of two is needed), shares must be of at least €1 and registration is with the Companies Registrar.

You can incorporate a sole shareholder company, but your liability as sole shareholder is not limited as you are personally and unlimitedly liable if you do not keep your company’s assets separate from your personal assets.

An LDA can be managed by one or more managers. General meetings are used to resolve managerial issues - such as the disposal / subscription of holdings in other companies or disposal / encumbering of real estate - and decisions are taken by a simple majority.

Supervision of LDAs is by a supervisory board or external auditor, but you must set up a supervisory board if you exceed at least two set thresholds for two consecutive years, namely: your balance sheet exceeds €1.5m, turnover exceeds €3m and/or your average number of annual workers exceeds 50.

What are the obligations and requirements for a public limited company?

If you’re looking to invest in larger or longer-term investments, a public limited company (PLC) is for you. With a minimum share capital of €50,000 divided into shares at a minimum nominal value of €0.01, PLCs require at least five shareholders - domestic or foreign - and shares are free to trade privately or on the Stock Exchange, in case of listed companies, without the need to register the sale or the acquisition with the Companies Registrar. Do note, however, that it is now mandatory that the company or the bank holding the shares keep a record identifying the shareholders and the number of shares they hold.

If your PLC’s share capital doesn’t exceed €200,000 you can have just a single manager, otherwise you need a board of directors and must adhere to one of the following models:

  • A board of directors plus a supervisory board or sole supervisor. Listed companies must have a supervisory board as well as any company that exceeds two of the following thresholds: balance sheet over €20m, turnover exceeding €40m and average number of annual employees exceeds 250;
  • A board of directors plus an audit committee made up of managers and an external auditor; or
  • An executive board of directors, a general and supervisory board and an external auditor.

The board of directors manages all aspects of your company’s business and is responsible for resolving any management issues, namely: acquisition, sale and encumbering of real estate; any collateral or guarantees; management reports and financial statements; partnerships or forms of cooperation with other companies; opening or closing of important business or relevant fractions; and any major changes in the company’s organization - acquisition of other companies, reduction of its activity and preparation of mergers.

General meetings don’t touch on managerial matters unless requested by the board and are instead used for resolution of any legal matters or those specified in the articles of association, such as: changes to the articles or share capital, assessment of the administration; election of corporate body members and their remuneration; removal of directors, members of the supervisory board or of the audit committee; and, resolutions relating to mergers, spin-offs or transformations of the company.

To note, three months after year-end, the General Assembly must approve your company's annual accounts and register them online at the Portal das Finanças by the fifteenth day of the seventh month after year-end.

What is the process to incorporate a company?

When it comes to the actual incorporation process, you can go the traditional route, online, or the speedy ‘On-the- spot’ method.

What does the traditional route of company incorporation involve?

Traditional incorporation involves more cumbersome steps, physically going to the relevant authorities, and of course a longer timeline and potential costs.

You first request a company name certificate with the National registry of Legal Entities – RNPC – either in person or online at www.portaldaempresa.pt or www.irn.mj.pt.

Next you must execute the articles of association by public deed or private document and deposit your minimum initial share capital in a bank (in the case of public liability companies).

Then follows registration with the Commercial Registry Office, publication of the articles of association and the member list of the company’s corporate bodies and finally registration with the Tax Authorities, Social Security and the Working Conditions Authority (ACT).

What benefits are there to incorporating online and how does it work?

For a 40% reduction in incorporation fees, and to avoid having to go to the relevant authorities, you can incorporate online through www.portaldocidadao.pt, with registration taking up to two working days.

You first fill in the relevant application form online, choosing from pre-approved documentation (including company name and articles of association, all available online) or submit your own. Do note that the online application must be made within 24 hours of starting your business activity.

A declaration of commencement of the activity then has to be filed with the Tax Administration within 15 days but you can choose to appoint a chartered accountant or choose one from the available list to do it for you. If share capital is involved, you must agree to deposit this within five days from the application.

The company is then registered either immediately or within two working days, depending on whether you choose pre-approved articles of association or submit your own.

To note, you cannot apply online if your company’s capital is subscribed to by contributions in kind because the transfer of assets requires an auditor’s valuation.

Be aware that to apply online the applicant must have a Portuguese ID card and a digital certificate to access the authorities online. Costs range from €180 using pre-approved articles to €380 for using your own articles, and you can even register a trademark for an additional €100.

What is ‘On the spot’ incorporation and what are the conditions to qualify?

‘On-the-spot’ is an instant way of incorporating your company at any of the many Desks around the country, with legalities and administrative issues taking as little as an hour and costing €360 if your company name is pre-approved or €435 if you request approval.

Certain conditions must be fulfilled on the day. All shareholders must be present with ID and Taxpayer info, or a relevant representative with a Power of Attorney, and certain documentation must be presented, but this is easily done with pre-approved models available online. There is a list of chartered accountants to choose from as well as articles of association etc previously approved and certified by the Companies Registry and notary services.

Again, a declaration of commencement of the activity then has to be filed with the Tax Administration within 15 days but you can choose your own chartered accountant, one from the pre-approved list or do it yourself. Share capital must be deposited within five business days following the incorporation.

Your company is registered that same day with all the relevant authorities – Tax, Social Security and ACT - and you receive the articles of association certificate, the company access code to its permanent certificate at the Commercial Registry, access to the company’s electronic card and its social security number.

To find out more about this and any other aspects of starting a business in Portugal, and how we can help, do visit our platform ‘Why Portugal’.

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2019-09-05

With the surge of tourism and real estate investment peaking in 2018, investors continue to seek opportunities in real estate, tourism, agriculture, wine production and manufacturing. The volume in international investment in Portugal continues to grow in 2019.

Still there are challenges ahead, as domestic and European economic growth slows down and political tensions in Europe and in the world have the potential to bring down investors’ interest for Portugal.

Portugal’s investment conditions remain stable. Portugal offers an easy process for setting up new businesses, reduced the time for obtaining administrative permits and improved its labour legislation.

The World Bank's «Doing Business 2018» report ranks Portugal in 13th place most attractive location to do business in the EU, ahead of many southern and eastern European countries competing with Portugal for international investment, and 34th place in the world’s 190 economies.

According to a study published in the European Central Bank’s Bulletin, Portugal is one of the three countries in Europe with less restrictions to foreign direct investment. Portugal has "virtually" no restrictions on inbound foreign investment.

For international investors looking for a place to invest in Europe, Portugal offers several advantages. Portugal is an ideal location for nearshoring industrial and services facilities because of its access to Europe’s 500 million consumers’ market. Portugal also offers access to the Portuguese-speaking countries in four continents: Europe, America, Africa and Asia. The country has good road infrastructures and telecommunications networks and has three deep-water ports.

Portugal has a proven track record of successful foreign investments across a wide range of sectors. Investors that are considering Portugal as a place to invest. Volkswagen’s Portuguese auto-plant, Autoeuropa, is one of the auto group’s most productive plants. Many other international investors have plants, shared services centres and other business facilities in Portugal, such as Nokia Siemens Networks. Microsoft, Colt, Ikea, BNP Paribas etc.

This guide reviews the main aspects to be considered by foreign investors looking at Portugal as a place to invest, such as how to set up of a business, government incentives, employment rules, tax system, intellectual property protection, investing in real estate and judicial system.

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2019-09-05

With tourism and real estate investments dominating the scenes, how attractive to investors is Portugal? In 2018, Portugal won the «Best Destination in the World» of the World Travel Awards. But other rankings tell us more about Portugal’s investment conditions.

Read our full report "How Does Portugal Compare?" in the pdf.

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2019-05-21

The low voltage grid is the part of the grid that leads directly to the consumption locations. In Portuguese mainland the low voltage grid stretches across 108.938 km above ground and 33.389 km underground. It also includes 67.063 transmitters. 

The role of the Operators of the Distribution Grid (“Operators”) consists in managing the network (delivering the necessary power to the requested places) by developing and maintaining the existing infrastructures. 

In the last decades Energias de Portugal, S.A. (“EDP”) has dominated the Portuguese medium and low voltage grids. There are currently eleven operators with unequal market shares in Portugal. In 2016 EDP Distribuição controlled the market by holding 99.5% of the market share and 6.099.905 clients. 

The other ten operators, together, hold 0.5% of the market share with 30.000 clients. They are small local communities organized as cooperatives that only operate in individual municipalities or autonomous regions (Azores and Madeira).

These concessions to operate the low voltage grids were given by contracts with twenty years of length. However, the term of the concessions is near.

The Portuguese Government has recently announced the launch of public tenders on concessions of low voltage distribution network as the existing ones are reaching their term. 

However, the rights over the distribution grid belong to the municipalities. In the Portuguese mainland the 278 municipalities must decide if they prefer a direct management of the grid or if they prefer to submit it to the tenders.

This paper aims to provide an update on the Portuguese low voltage concessions describing how the newly announced tenders are expected to be organized and the consequences they will have in the Portuguese energy market.

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2019-01-25

At the end of 2018, we visited many Portuguese Internet websites of some large and not so large businesses to check if they complied with the General Data Protection Regulation (GDPR) and the European regulation on privacy and electronic communications proposal («e-Privacy» regulation proposal).

While the GDPR is the general regulation for processing of personal data, the «e-Privacy» regulation aims to update the «e-Privacy» Directive and addresses data privacy in the electronic communications sector, including email and SMS messages and also services like WhatsApp, Facebook Messenger and Skype, along with Internet of Things (IoT) devices.

In our review, we found several examples of unlawful practices or, at least, non-recommended practices in violation of the GDPR and potentially contravening the «e-Privacy» regulation proposal.

Read our full report here.

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2018-12-04

Following the end of Portugal’s bailout programme by the European Union (EU), the International Monetary Fund (IMF) and the European Central Bank (ECB), which lasted from May 2011 until June 2014, Portugal has lived a period of steady economic growth with heavy investments in the property market. ​

From 2014 to 2017 foreign direct investment increased two times approaching pre-crisis levels, pushed by increased activity in the private sector, mergers & acquisitions and investments in residential and commercial real estate assets. ​

Investment in real estate boomed. The golden visa programme which gives foreign investors the possibility of obtaining a Portuguese visa with a minimum €350,000 investment in real estate, and the non-frequent residence tax regime, allowing for a 20% taxation on income, and the boom in short term residential leases were the main factors for attracting investment in medium-size properties, especially in the residential market. ​

Portugal is also becoming one of the preferred European touristic destinations. The afflux of tourists led to increased investments in new hotels and residential projects for short term leases.​

Still prices and yields in the current market conditions continue interesting to many investors, as local banks and corporations holding large real estate portfolios continue to dispose of their real estate assets.​

The retail and office markets are also attracting the attention of investors. The valuation of street shops in prime areas in Lisbon and Oporto have peaked. The scarcity of new office space is also leading to new investments.​

The ECB’s quantitative easing measures, the liquidity of the financial markets and banks’ openness to finance a growing demand for real estate finance are feeding investors’ appetite for real estate assets in Portugal. ​

As Portugal emerges from its worst crisis in the last thirty years, the Portuguese real estate market continues to offer interesting opportunities, still with good valuation prospects.​

This paper provides an overview of the Portuguese real estate market and main legal and regulatory issues affecting the investment in property in Portugal, including, types of property interests, lease contracts, financing real estate assets, investment structures and tax issues.​

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2018-11-12

Portugal has made several changes to its employment laws in the last few years and increased the flexibility of the legislation to attract foreign investment.

According to the ILO survey “Decent Work in Portugal 2008-18: From crisis to recovery”, Portugal stands as a solid example of successful and swift economic and labor market recovery, without compromising on workers’ rights”.

The labour reform approved in 2009 and the changes introduced after Portugal’s international bailout in 2011 have contributed to reduce the level of rigidity of employment rules. Nowadays Portugal is also better ranked in OECD´s Employment Protection Legislation Index.

Several aspects of the legislation have been revised since the adoption of the 2009 Labour Code, which adopted more employer-friendly legislation concerning the organisation of the workforce. For instance, working schedules may now be managed in a more flexible way without increasing the labour costs. The Labour Code also contains flexible rules that allow the employer to unilaterally change the place of employment and the employee’s functions.

According to the WEF Report, the changes in the labour regime has put Portugal 0.3 points behind the EU average, but ahead of larger European countries such as Spain and France.

After Portugal’s international bailout in 2011, Portugal simplified the termination procedures, reduced the severance pay, decreased the holiday leave period and suspended some public holidays.

Of course the elimination of some public holidays, rest days after overtime were not consensual, even though viewed as necessary by the Troika at the time.

After the general election of 2015, the suspension of the public holidays was removed in 2016 but no relevant changes to the labour legislation were made.

Portugal believes that the system now strikes the right balance between securing employees’ acquired rights and benefits and the level of flexibility required by employers.

According to Pordata, a national database of socioeconomic data, the average number of working days lost through industrial action by employee in 2016 was 11.8 days in 1,000, which is significantly lower than in several other European countries such as Spain where 21.2 days were lost in the same year.

 

Hiring employees

Hiring in Portugal is subject to the mandatory rules and statutory limits on several matters, such as remuneration, working hours, holiday rights or duration of contracts.

Employment contracts. In general, employment contracts do not need to be in writing. Only for some types of contracts the law requires a written document, including, but not limited to, fixed-term contracts, part-time contracts, contracts with foreign employees, and secondment contracts.

Regardless of the type of contract, the employer must inform in writing the employee on working conditions, including, workplace, job position, term and relevant grounds, employee’s pay, collective bargaining instrument (if any), employer’s accident insurance policy and employee’s compensation fund, and within 60 days from the effective date of the contract.

Salary. Employees are entitled to a minimum monthly salary set out by the Portuguese Government. In addition, employees are entitled to receive Christmas bonus and holiday bonus.

Working hours. The maximum regular working period is of forty hours per week, eight hours per day.

Employees are entitled to a minimum rest period of eleven consecutive hours between two successive daily work periods, as well as to one day of rest per week. An additional half or full day of rest (in all or in certain weeks of the year) may be also given other than the rest day required by law.

Holidays. Employees are entitled to twenty two working days of paid holiday per year, and to national public holidays.

Under collective bargaining agreements, employers may be obliged to grant two optional public holidays: Carnival/Shrove Tuesday and the local municipal holiday.

Health and safety. The employer must ensure employees health and safety conditions at work and hence comply with a set of general principles and duties aiming at the prevention of work accidents and professional illnesses.

Employers are obliged to ensure: (i) technical work accident preventive measures; (ii) employee training, information and consultation on workplace safety; (iii) internal or external health and safety services. The employer must also contract an insurance to cover work accidents risks for each employee.

Social Security. The Social Security contribution is a tax levied on the labour income, which is charged to employers and employees at the rates of 23.75% and 11% respectively.

 

Types of employment contracts

Fixed-term contracts. Contracts that are in force for a pre-established period set according to employer’s temporary needs, which must be specified in the contract, and expire at the end of the agreed term, unless they are renewed; fixed-term contracts cannot be renewed for more than three times and have a maximum duration of three years.

Term employment contracts must contain a detailed description of the relevant grounds and there must be a clear connection between the relevant grounds and the term. Otherwise, the employer may be subject to fines and the term contract could be legally converted into an open-ended employment contract.

Unfixed-term contracts. Contracts that are not subject to a pre-established period, but expire after the completion of the employer’s project or when the reason for which the employee was hired ceases to exist; unfixed-term contracts have a maximum duration of six years.

Open-ended contracts. In case the parties do not agree a term (fixed or unfixed), the employment contract is deemed to be entered into for a permanent period of time, which means that the contract can only cease upon termination by one of or both parties under the law, namely in case of just cause for dismissal.

Probation period. The probation period is the period during which either party may unilaterally terminate the contract without prior notice and without cause, during which no compensation required.

The maximum probationary period is:

For open-ended contracts:

  • 240 days for employees with management or senior positions;
  • 180 days for employees with job positions of technical complexity, high degree of responsibility or which require special qualifications, and for employees who perform duties of confidence; and
  • 90 days for other employees;

For fixed and unfixed-term contracts:

  • 30 days for contracts with a duration equal or higher than six months; and
  • 15 days for contracts with a duration of less than six months.

 

Salary

Employees are entitled to a minimum salary, which is set by the Portuguese Government and updated annually based on the cost of living, national productivity and the government’s prices and incomes policy.

Portugal's minimum salary is calculated based on a flat monthly rate. The national minimum salary in Portugal in 2018 is €580 per month (based on 14 payments a year). For certain jobs and professions, the minimum salary may be agreed by collective bargaining agreements, which could not however provide for an amount fewer than the minimum salary legally set out by the Government.

The salary must be paid on a regular and permanent basis and may be fixed, variable or mixed (comprising fixed and variable components).

In addition to the salary, employees are entitled to:

  • Christmas bonus: equal to one month salary payable until 15 December of each year; and
  • Holiday bonus: equal to one month salary payable before the holiday leave period.

Employers may not offset credits held over employees against any salary or make any discounts or deductions from employees’ salary during the period the employment contract is in force.

There are however exceptions (and up to certain limits), including:

  • Deductions in favor of the State, Social Security or other entities ordered by law, court decision or mediation settlement, provided that such decision or settlement has been notified to the employer;
  • Compensation determined by a court decision or a mediation settlement;
  • Monetary penalties resulting from a disciplinary procedure;
  • Repayment of capital and payment of interest on loans granted by the employer to the employee;
  • Prices of meals at the work place, use of telephones, supply of assets, petrol or materials, when requested by the employee, as well as other costs incurred by and with the employer’s consent on behalf of the employee; and
  • Subsidies or payments made in advance and on account of the employee’s salary.

 

Holiday rights

Employees are entitled to 22 working days of paid holiday per year. The holiday right is mandatory, which means that holiday entitlement may not be replaced by any compensation, financial or otherwise, even if upon employee’s approval. Employees may however waive the part of their holiday rights exceeding 20 working days.

In the same working year, the holiday leave period cannot exceed 30 working days, save as otherwise established by collective bargaining agreement or other instrument.

The holiday right becomes due on January 1 of the following year, except:

  • In the hiring year and after six months of work, the employee is entitled to two working days of holiday per each complete month of work up to the maximum of 20 working days. If the end of the year is reached before this period or before the employee takes his/her holiday, the employee may enjoy the holiday leave period until June 30 of the following year;
  • In case of employment contracts up to six months, the employee is entitled to two working days of holiday per each complete month of work;
  • In case of employment contracts up to 12 months or ending in the year subsequent to the hiring year, employee is entitled to a holiday leave period pro rata to the duration of the employment contract.

As a rule, the holiday leave period should be taken in the year it becomes due. In exceptional cases, employees may take the holiday leave period afterwards insofar this takes place until April 30 of the subsequent year and upon employer’s agreement.

The schedule of the holiday leave period should be agreed between the employer and the employee. In case this agreement fails, the employer must schedule the holiday leave period and give the employee the right to take the holiday between May 1 and October 31.

Regardless of agreement between the employee and the employer, employees are entitled to, at least, take 10 consecutive working days of holiday leave period.

Employer’s failure to comply with the holiday’s schedule constitutes a serious administrative offence and may entail which vary according to the employer’s turnover.

In addition, employees are entitled to take the day off in public holidays. Presently, the public holidays in Portugal are: January 1, Easter, Good Friday, April 25, May 1, Corpus Christi, June 10, August 15, October 5, November 1, December 1, 8 and 25.

 

Parental protection rights

Portuguese employment law establishes several statutory rights to puerperal, pregnant and nursing women, as well to parents.

Pregnant employees’ rights. In case employees’ work duties entail clinical risks to a pregnant employee or to her unborn child, the employer will either:

  • Provide the pregnant employee with alternative working conditions;
  • Replace the employee to a workplace compatible with her pregnant condition; or
  • Avoid pregnant employee’s exposure to risks for as long as necessary.

Pregnant employees are exempt from performing night shifts, working overtime or in hour banks or in concentrated working schedules. They are also entitled to a work leave to attend prenatal medical appointments and, after the birth, to breastfeed the baby.

Initial parental leave. Employees (mothers or fathers) are entitled to an initial parental paid leave of 120 or 150 consecutive days and corresponding to 100% or 80% of the salary, respectively.

If both parents share the initial parental leave, the leave period may be increased by 30 days. In this case, and after the mandatory six-week period to be taken by the mother after childbirth, both parents must take 30 consecutive days or two periods of 15 consecutive days.

Mother’s parental leave. All female employees must take a six-week period leave immediately after childbirth and may take 30 days before birth, in which case the employer must be informed within at least 10 days in advance (or as soon as possible, in case of a medical emergency) and receive a doctor's statement with the expected due date.

Father’s parental leave. An employee who becomes a father is entitled to take a paid leave of up to 20 working days, as follows:

  • 10 mandatory working days, five of which must be consecutive and taken immediately after childbirth and the remaining five days in the following 25 days; and
  • The remaining 10 working days are not mandatory and may be taken successively or alternately after the mandatory period above and along with the mother’s initial parental leave.

The termination of an employment contract of a puerperal, pregnant or nursing woman requires a prior legal opinion of the Commission for Employment Equality (Comissão para a Igualdade no Trabalho e no Emprego).

Failure to comply with parental protection rights is deemed a very serious offense which may lead to fines.

 

Restrictive covenants

As a general rule, restrictive covenants during employment or after its severance are void. However, it is possible to include non-compete and non-termination covenants in certain conditions.

Exclusivity and non-compete covenants. Exclusivity clauses (during employment) and non-compete agreements (after termination) are allowed if the following requirements are met:

  • The non-compete covenant is agreed in writing (for instance, under the employment contract);
  • The performance of a competing activity by the employee is likely to cause harm to the employer;
  • Compensation amount is agreed and payable to the employee; and
  • The non-competition covenant may not exceed two years after termination of the contract or, in some exceptional cases, up to three years if the activity performed entails a special relationship of trust or access to sensitive information.

Except for these cases, restrictive covenants agreed in employment contracts or those settled in collective bargaining agreements could be considered null and void insofar they limit employees’ freedom of work.

Non-termination covenant. In order to compensate the employer for high expenses incurred with the employee’s professional training, employees may also agree non-termination covenants, whereby the employee undertakes not to terminate the contract during a period of no more than three years.

The employee may in any case anticipate the end of this period by reimbursing the employer for the relevant expenses incurred.

To enforce restrictive covenants after termination of the employment contract, the agreement must state either the compensation amount payable to the employee or its calculation criteria. This compensation could be paid in instalments during the term of the agreement or all at once. The parties may also agree on contractual penalties applicable in case of breach of restrictive covenants.

Garden leave. In the context of pending disciplinary proceedings, garden leaves are permitted under law, particularly after the accusation note has been served to the employee. In turn, when resigning or when having been served a prior notice for dismissal (e.g. collective dismissal), employers could not impose the employee to cease performing his/her work role until the prior notice period is completed. In this scenario, the best option is the employer to instruct employees to use any unused holiday leave period.

 

Termination of employment contracts

Expiration of term employment contracts. Term employment contracts expire at the end of their initial or renewal term, provided that serves a termination notice to the employee as follows:

  • In fixed-term contracts, 15 days prior to the term of the contract; and
  • In unfixed-term contracts, seven, 30 or 60 days prior to the relevant date if the employment contract has lasted for less than six months, from six months to two years, or more than two years, respectively.

Collective dismissal. A collective dismissal is possible if the employer intends to dismiss a minimum of two employees (in companies with less than 50 employees) or five (in companies with 50 or more employees) within a three month period. Collective dismissal must have one of the following grounds:

  • Market structure reasons;
  • Organization-related and economic reasons; and/or
  • Technological reasons.

Mutual agreement. Employee and employer may freely agree in writing to terminate the employment contract. The termination agreement may be revoked by the employee within seven days from the effective date, except if the agreement is executed towards a public notary.

Redundancy. In case the number of employees involved does not allow a collective dismissal, termination on the ground of redundancy could be an alternative. Redundancy must be justified on the same grounds as collective dismissal and meet the following requirements:

  • The reasons for the termination do not relate to an intentional behaviour of the parties; and
  • The same tasks are not being executed by employees hired under a term employment contract.

Employee’s ineptitude. The employer may terminate the employment contract when the employee demonstrates ineptitude or inability to perform the assigned tasks, provided that such ineptitude occurs in the course of the performance of the functions.

Breach. The employer may terminate the employment contract under disciplinary grounds following by a disciplinary procedure carried out towards the employee.

In case of failure to comply with specific termination rules and formal procedures required by law, the termination could be deemed as unlawful and the employee entitled to (i) compensation for damages; (ii) the employee’s salary (including holiday and Christmas bonuses) from the dismissal date until the court’s final decision; and (iii) choose between reinstatement or compensation to be ruled by the court.

 

Severance compensation

Employees subject to collective dismissal, redundancy or employee’s ineptitude are entitled to severance compensation, which varies depending on the employee’s seniority period and execution date of the employment contract.

For open-ended contracts entered into before 1 November 2011, the severance compensation will be calculated as follows:

  • Until 31 October 2012: one monthly base salary and seniority per each year of employment;
  • Between 31 October 2012 and 30 September 2013: 20 days of monthly base salary and seniority per each year of employment; the amount of the monthly base salary and seniority may not be higher than 20 times the minimum monthly salary;
  • After 1 October 2013: 18 days of monthly base salary and seniority per each year of employment in the first three years of the contract, and 12 days of monthly base salary and seniority per each year of employment in the following years (the New Rules).

If the compensation calculated for the period until 31 October 2012 is equal or higher than 12 monthly base salaries and seniority or 240 of minimum monthly wage (Relevant Threshold), the period after 31 October 2012 will not be taken into account; if that compensation is less than the Relevant Threshold, the total compensation may not exceed the Relevant Threshold. The minimum compensation is three monthly base salaries and seniority.

For term contracts entered into before 1 November 2011, the severance compensation will be as follows:

  • Until 31 October 2012: three or two days of base salary and seniority per each month of employment, if the term of the employment is lesser or higher than six months, respectively, with a minimum of three monthly base salaries;
  • After 31 October 2012 and until 30 September 2013: 20 days of monthly base salary and seniority per each year of employment; the amount of the monthly base salary and seniority may not be higher than 20 times the minimum monthly salary;
  • After 1 October 2013: it is applicable the New Rules; and
  • Minimum compensation is three monthly base salaries and seniority.

For employment contracts entered into on or after 1 November 2011, the severance compensation will be calculated in accordance with the New Rules and the severance compensation may not exceed the Relevant Threshold. No minimum severance compensation amount is imposed by law.

In addition to the severance compensation, employees are entitled to all other existing labour credits, including outstanding amounts owed prior to the termination date (e.g. overtime work) and the proportional amounts of Christmas bonus and of the holiday leave period.

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2018-10-15

NPL rates fall as banks unload their NPL backlogs. Several large transactions involving non-performing mortgages are expected for 2018/2019. Sill non-performing corporate loans still weight on banks’ balance sheets.

Presently, seven years after the beginning of the bailout program and four years after its end, the amount of Portuguese NPLs remains high despite the reorganisation of the banking sector and the steps taken to deleverage the economy.

In the wake of the European bank crisis fuelled by the Greek, Irish, Portuguese and Cyprus bailouts, the European banking authorities imposed more stringent stress tests on banks, ordered the strengthening of banks’ own funds and the contribution of shareholders and creditors for the recapitalisation of distressed banks.

However, the European bank resolution mechanisms do not respond to the apparently less critical situations where imbalances result from the difficulties in disposing of non-performing loans, which can become more serious when they reduce the liquidity of banking institutions and undermine the confidence of depositors.

As a result, public and private indebtedness in Portugal and in other European countries remains high and non-performing loans still weigh heavily on banks’ balance sheets.

In this briefing we review the main NPL market indicators and the steps given by the Portuguese authorities to reduce Portugal's NPL backlog. 

Read our full report here

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