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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2019-11-11

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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2018-02-20

The General Data Protection Regulation (“GDPR”) promises to be the most significant global development in data protection laws across all European Union (“EU”) Member States since Directive 95/46/EC (“Data Protection Directive”), which was implemented in Portugal by Law 67/98, of 26 October 1998.

The GDPR will be directly applicable in all EU Member States from 25 May 2018. The new regulation will have a global scope, as businesses based outside the EU that offer goods or services to individuals in the EU may be required to comply with the GDPR.

The risk of fines up to 4% of annual worldwide turnover or €20 million is surely a strong incentive for companies to comply with the GDPR.

The new regulation is expected to be homogenously applied throughout the EU. Notwithstanding, Portuguese law will apply in cases it may impose more detailed conditions, such as those relating to the processing of sensitive data, particularly genetic data, biometric data or data concerning health. Portuguese law may also contain specific rules regarding the processing of employees' personal data, especially for the purposes of recruitment, performance and termination of the employment contract, which will apply together with the GDPR.

The combined application of the GDPR and the Portuguese law will be particularly relevant where companies collect and process data from Portuguese individuals and/or the Portuguese supervisory authority acts as lead authority due to the fact the main establishment or the single establishment of the controller or processor is located in Portugal.

Individuals, who are resident in Portugal, will have the right to lodge complaints with the Portuguese supervisory authority. For proceedings against a data controller or processor, the plaintiff will have the right to bring the action before the Portuguese courts if the data controller or processor’s business or the individuals’ residence is located in Portugal.

Although the core data protection rules remain broadly the same, there are important changes with impact on day-to-day business and for which companies should be aware of and prepare in advance.

As companies prepare for the entry into force of the GDPR, we propose a seven steps plan detailing the main aspects of the GDPR that companies need to take. This should be also used as an opportunity to improve the way the companies deal with personal data within their organization. The countdown to 2018 has started.

 

For further information about GDPR, please also see «Publicações» (only available in Portuguese)
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