The Portuguese labour market, like most other EU markets, remains relatively rigid when compared with benchmark countries.

In 2009, a new Labour Code was approved that simplified labour legislation and paved the way to significant reforms. In the second decade of the century reforms were introduced that reduced the compensation due for collective dismissal for new workers hired after 2011, that ranges from 30 to 12 days of basic and daily pay for each year of seniority. For employment contracts entered upon before 2011 the compensation is 30 days per each year of seniority.

Other aspects of the legislation have been revised since the adoption of a new Labour Code in 2009, which adopted more employer-friendly legislation as regards the organisation of its workforce. As an example, working schedules and the transfer of the workplace may now be managed in a more flexible way.

The Labour Code of 2009, has been subject to changes improving labour standards, particularly as regards the work organisation. Working hours can be changed with a certain degree of flexibility by the employer without increasing labour costs. The Labour Code allows the employer to unilaterally change the workplace (geographical mobility), as well as the functions exercised by the worker (functional mobility).

According to data from the European Trade Union Institute, calculated as an annual average in 2018, Portugal is one of the European countries with the best results regarding developments in employment and employment rates, even though it is still behind the benchmark European countries, and when it comes to young people in the labour market, 2017 data shows that the numbers have been increasing and are expected to do so even more, considering that over the years the percentage of people that completed higher education has been increasing significantly.

In 2020, according to data published by PORDATA, the average weekly working hours in Portugal was 33,7, while in Germany the annual weekly average was 25,6 hours and in France 27 hours. The EU average is 29.7 hours.

Education in Portugal is also a factor that has been showing a notorious evolution. According to PORDATA A total of 396,909 students were enrolled in higher education schools and universities in 2020.
The average level of qualification of Portuguese employees, with a bachelor's degree, master's degree or doctorate degree has been increasing.

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

The contract duration, working hours, remuneration, leave entitlement and absences and termination of contracts are the most important matters to be agreed by the parties, albeit subject to mandatory rules set out in the Portuguese Labour Code.

In general, employment contracts do not need to be written. Only for some specific types of contracts the law requires a written document, such as fixed-term contracts, temporary contracts, part-time contracts, secondment contracts and contracts with foreign employees.

The employer has the duty to inform employees on the relevant aspects of the employment relationship, including among others:

• Place of work;
• Employee’s job position;
• Brief description of employee’s tasks;
• Effective date of the employment contract;
• Prior termination notice; and
• Collective bargaining agreements, if any.

The information above must be provided in writing by the employer and delivered to the employee within 60 days following the effective date of the employment contract, unless it was specified in the contract.

The terms of the employment relationship are also subject to collective bargaining agreements, when applicable, and to the practices between the parties.

Since 1 January 2021, the minimum monthly wage in Portugal is EUR. 665. Salaries must be paid on a regular and permanent basis and may be fixed, variable or mixed, including fixed and variable components, which may be linked to the productivity, commission based on sales or other objective and determinable factors.

In addition to the monthly salary, employees are entitled to receive a Christmas bonus equal to one-month remuneration payable until 15 December of each year; and a holiday bonus equal to one-month remuneration payable before the holiday period.

The maximum regular working period is eight hours per day and 40 hours per week. 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.

Employers and trade unions may agree to increase the work schedule up to 12 hours per day and 60 per week, provided the work schedule is reduced in other periods so that at the end of a reference period up to 12 months the average working hours is equal to 8 hours per day and 40 hours per week.

Employees are entitled to 22 business days of paid holiday per year. Employees are also entitled to 13 national public holidays. Under the collective bargaining agreements employers may be obliged to grant two optional public holidays.

The most used types of employment contracts are:

Open-ended or “permanent” contracts. The general rule is that contracts without a specified term are deemed permanent, which means that the employer may only terminate the contract in the cases allowed by law.

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 two years and are only allowed under specific legal requirements.

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 four years. They may only be used to satisfy the employer’s temporary needs; and

Temporary employment contracts. Contracts with temporary work agencies which hire the employee to subsequently second him or her to the user company. Temporary employment contracts may only be used to satisfy the employer’s temporary needs and be renewed up to a maximum of two years.

Probation periods, during which either party may unilaterally terminate the contract without prior notice and without cause, are allowed.

The maximum probation periods are:

• For open-ended contracts: (i) 240 days for employees with management or senior positions, (ii) 180 days for employees with job positions of technical complexity, high degree of responsibility or that require special qualifications, and for employees in positions that involve a higher degree of trust and confidence, as well as those seeking first employment and long-term unemployed and (iii) 90 days for other employees;
• For fixed and unfixed-term contracts: (i) 30 days for contracts with a duration equal or higher than six months and (ii) 15 days for contracts with a duration of less than six months.

In case of termination of the employment contract during the probation period, employees are not entitled to any compensation unless otherwise is agreed in writing by the parties.

The maximum regular working period is 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 also be given in addition to the rest day required by law.

Insofar as the statutory rules above are not contravened, collective bargaining agreements may provide alternative working time regimes.

Work exceeding the limits above is deemed overtime. Overtime gives the employee the right to additional pay and, in certain circumstances, to an additional rest period. Employees’ overtime is subject to certain limits imposed by the Portuguese Labour Code.

Vacation

Employees are entitled to 22 business days of paid holiday per year. Employees are also entitled to 13 national public holidays: 1 January, Good Friday, Easter Sunday, 25 April, 1 May, 10 June, 15 August, 5 October, 1 November, 1 December, 8 December and 25 December.

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

Time off for illness or injury 

Employees are entitled to time off from work due to illness or injury. In cases of illness or injury, employees are entitled to receive sick pay from the Social Security. For this purpose, employees must file a specific form and submit a statement from a hospital, health centre or doctor giving evidence of their illness or injury to the Social Security.

Sick pay is calculated based on the employee's reference remuneration under the social security criteria and could range between 55% and 75% of the employee’s remuneration depending on the length of the illness or injury.

Employees are also entitled to time off in case of illness of a child or dependent or to provide care for family members in a hospital located outside their area of residence. In some cases, the absence entails a loss of remuneration for the employee.

In case of absences not foreseeable, the employee must inform the employer of the time off as soon as possible. If absences are foreseeable, the employee must notify the employer 5 days in advance stating the reasons for the absence.

Collective bargaining agreements may also establish specific rules on employee’s time off days.

 Employees are entitled to a parental leave for a child’s birth, which may be shared between both parents after the birth of the child. In case of share of the parental leave, the parents are entitled to a total of 120 or 150 consecutive days, which are paid by the Social Security, as follows:

• For 120 days off: 100% of the employee's reference pay; and
• For 150 days off: 80% of the employee's reference pay. In cases of multiple births, the leave period will be increased by 30 days for each born child after the first child, in which case 83% of the employee’s reference pay will be paid.

The initial parental leave may be increased by 30 days if one parent takes exclusively 30 consecutive days, or two periods of 15 consecutive days, after the mother's compulsory six weeks' leave following childbirth.

In case of share of parental leave, employees must also inform their employers of the start and end dates of each of their leave periods, through a joint written statement, up to seven days after the child’s birth.

If the leave is taken exclusively by one of the parents, the mother or father can choose to enjoy either 120 or 150 consecutive days, which are also paid by the Social Security, as follows:

• For 120 days off: 100% of the employee’s reference pay; and
• For 150 days off: 80% of the employee's reference pay.

Notwithstanding the rules above, female employees are always entitled to: (i) an initial exclusive parental leave of 30 days, which can be enjoyed before the child’s birth, and (ii) six weeks of leave after the child’s birth, which may not be waived by the employee.

The father must take mandatory parental leave of 20 working days (consecutive or not) within six weeks after the birth of the child, five of which must be taken consecutively immediately after the birth. Fathers are also entitled to an additional and optional period of five business days (consecutive days or not), provided that this leave period is enjoyed at the same time of the mother’s leave period.

Employees are entitled to a minimum monthly salary set by law each year. Collective bargaining agreements may also determine a minimum remuneration for different jobs and professions, which can never be less than the minimum monthly remuneration set by the Portuguese Government.

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

In each year, employees are entitled to receive twelve monthly remunerations. In addition, employees are also entitled to receive:

• A Christmas bonus equal to one-month remuneration payable until 15 December of each year; and
• A holiday bonus equal to one-month remuneration payable before the holiday period.

The amount of both Christmas and holiday bonuses is proportional to the time of service rendered by the employee in that calendar year (i) in the year of hiring of the employee, (ii) in the year of termination of the contract of employment and (iii) in the event of suspension of the contract of employment, unless the suspension is due and determined by employer’s reasons.

In the event of a transfer of business, all of the employer’s rights and obligations under the employment contracts are automatically transferred to the new employer. During the year following the transfer, the former employer will remain liable, jointly and severally with the new employer, for all the obligations that became due before the date of the transfer of business. The transfer of an undertaking cannot itself be a reason for the dismissal of employees.

The termination of employment contracts can only happen under the terms and conditions set forth in the Labour Code, and dismissals without just cause are prohibited. Employment contracts may only be terminated in the following cases:

• Expiration of term contracts;
• Unilateral termination during the probationary period;
• Collective dismissal;
• Redundancy;
• Dismissal for ineptitude; and
• Dismissal due to a fact attributable to the employee.

Employers and employees are also free to terminate the employment contract by mutual agreement at any time.

Expiration of term contracts

The employment contracts expire when it expires, upon prior notice to the worker, which must be sent:

• In fixed-term contracts, 15 or eight days before the contract expires, if the contract has been renewed or not, respectively;
• In unfixed-term contracts, seven, 30 or 60 days before the contract expires, as the contract lasted for up to six months, from six months to two years or for a longer period.

Upon the termination of the employment contract, the employee is entitled to receive the outstanding credits, if any, and the compensation.

Termination of the permanent employment contract for impossibility 

Permanent employment contracts terminate due to the supervening, absolute and definitive impossibility of the employee providing his or her work or of the employer receiving, or renewing the employee, due to old age or disability.

Revocation by agreement 

The employer and the employee can terminate the employment contract by agreement setting out the terms and conditions of the termination. The revocation does not include any severance compensation.

Termination by the employee

The employee can terminate the contract with just cause, in the cases specified in the law, in which case he/she will be entitled to receive compensation.

Regardless of the existence of just cause, the employee can terminate the employment contract, with prior notice of 30 or 60 days, depending on whether the contract lasted for less than or two years, respectively.

Collective dismissal 

Collective dismissal is possible when the employer intends to dismiss a minimum of two employees (in companies with less than 50 employees) or five employees (in companies with 50 or more employees). A collective dismissal procedure does not necessarily imply the full and permanent closing of a department or a division of a company and may only involve a reduction of the work force allocated to specific areas.

The collective dismissal must be based on the following grounds:

• Market structure reasons (e.g., the reduction of the company’s business activity arising from a predictable decrease on the demand of goods or services);
• Organization-related and economic reasons (e.g., the existence of economic and/or financial operational deficits, (ii) changes to the activity or (iii) restructuring of the company’s productive organization); and/or
• Technological reasons.

The collective dismissal procedure must:

• Serve an initial notice of dismissal to the work council, if any, or to each of the employees;
• Appoint an employee committee by the employees within 5 business days after initial notice is served (optional);
• Set a consultation meeting between the employer and the relevant employees (or the employees’ committee, if any) with the purpose of reaching an agreement on the proposed collective dismissal and to decide whether or not any measures should be applied to minimise the dismissal effects; a representative of the Ministry of Economy and Labour will also attend the consultation meetings; and
• Serve a notice, in writing, to each employee about the final decision of dismissal, once the parties reach an agreement or 15 days after the delivery of the initial notice of dismissal.

Upon the termination of the employment, the employee is entitled to receive the outstanding credits and a severance compensation.

Redundancy

In case the number of employees is not enough for a collective dismissal, termination due to the extinction of the job post could be an alternative. However, the dismissal must be based on the same justifications legally required for collective dismissal and it must meet the following requirements:

• The economic, structural or technological reasons for the termination of the employment agreement do not relate to an intentional behaviour of the employee or the employer; and
• The tasks included in the position to be extinct are not being executed by employees hired by the employer under a term employment agreement.

If more than one employee faced the same justification for dismissal, the employer must comply with specific criteria in the following order:

• Lower seniority in the position;
• Lower seniority in the professional group;
• Lower ranking professional group; and
• Lower seniority in the company.

The dismissal due to extinction of the job position must follow the following steps:

• The employer must notify, in writing, the relevant employees (and the work council, if applicable) of the dismissal grounds;
• The employee and the work council may challenge the grounds within 10 business days;
• Within three business days as from the reception of the termination notice, the employee may request the intervention of the Ministry for Economy and Labour, for the purposes of verifying the compliance with the statutory requirements; and
• Within five days as of the period to challenge the dismissal, the employer may issue a final decision of termination of the employment agreement.

With the termination of the employment, the employee is entitled to receive the outstanding credits and a severance compensation.

The reasons for the termination cannot be related to the intentional behaviour of the parties and the employer cannot hire another employee to perform the same functions as the dismissed employee.

Dismissal for ineptitude

The employer may terminate the employment contract when the employee is no longer suited to perform the duties assigned to him/her, for not being able to adapt to technical changes.

Employment ineptitude may be caused by several reasons, such as:

• Continued reduction of productivity or work quality;
• Repeated breakdowns in the means assigned to the workstation; and
• Risk to the health and safety of the employee, other employees or third parties.

Ineptitude can also occur when an employee assigned to a position of technical complexity or management does not meet the goals previously agreed upon in writing as a result of the way in which the employee performs his/ her duties and it is practically impossible for the employment relationship to persist.

Employers seldom use ineptitude as a dismissal ground because its requirements are difficult to prove.

Upon termination of the employment, the employee is entitled to a severance compensation, which takes in to account the time of the employment.

Dismissal due to a breach of contract attribuable to the employee

The employer may dismiss the employee with “just cause”, following a disciplinary process, in case of breach of his/her legal or contractual duties, without the obligation to pay any compensation.

The employer may terminate the employment with just cause. The following, among others, constitute just cause for dismissal:

• Failure to comply with superior’s orders;
• Infringement of other employees’ rights and guarantees;
• Conduct causing serious damages to the company;
• Justification of absences with false reasons;
• Unjustified absences (five consecutive or ten intermittent days off); or
• Intentional failure to comply with safety, health and hygiene labour rules.

Dismissal with just cause may only take place after conducting a disciplinary procedure against the employee, which must be initiated within 60 days after the employer becomes aware of the actions that, in his/her view, constitute a breach of the employee’s duties. The proceedings are conducted by a senior person at the company, usually at the human resources department or legal department.

The proceeding starts with a written notice specifying the reasons for the procedure and informing the employee of the employer’s intention to dismiss the employee. After receiving this notice, the employee has 10 days to submit his/her defence and request probationary actions (e.g., to inquire witnesses) he/she deems necessary.

Upon completion of the procedure, the employer will receive the report of the inquirer describing the evidence gathered and suggesting the dismissal or another disciplinary sanction, if any. The employer has 30 days to issue a final decision of dismissal, which must be notified to the employee. The employee may challenge the dismissal decision within 60 days and request suspension of the dismissal within five business days after receiving the dismissal decision.

The termination of the contract by any of the mentioned conditions must comply with the required legal formalities, otherwise it will have no effect.

The employees dismissed with just cause are not entitled to receive any severance compensation.

The compensation paid for redundancy due to a fact that cannot be attributed to the employee varies according to several factors, such as the type of contract (with or without term) and the date of execution of the contract.

For permanent employment contracts executed before 1/11/2011, the severance pay is calculated as follows:

• Until 31 October 2012: one monthly base salary and seniority allowance per each year of employment;
• Between 1 November 2012 and 30 September 2013: 20 days of monthly base salary and seniority allowance per each year of employment; the amount of the monthly base salary and seniority allowance may not be higher than 20 times the minimum monthly salary (presently EUR. 11,600);
• After 1 October 2013: 18 days of monthly base salary and seniority allowance 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 allowance or 240 of minimum salary (Relevant Threshold), the period after 31 October 2012 will not be considered. 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 allowance.

The total amount of the compensation may not be less than three months of remuneration and seniority payments.

For fixed-term employment contracts entered before 1 November 2011, severance pay is calculated as follows:

• Until 31 October 2012: three or two days of base salary and seniority allowance per each month of employment, if the term of the employment is lesser or higher than six months, respectively;
• 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 allowance may not be higher than 20 times the minimum monthly salary (presently EUR. 12,700);
• After 1 October 2013: the compensation amounts set out in the New Rules.

The minimum compensation is three monthly base salaries and seniority allowance.

The same limits on the Relevant Threshold that apply to permanent employment contracts apply to the fixed-term contract.

The severance compensation is 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.

The termination of employment contracts by the employer (collective dismissal, redundancy, ineptitude or expiration) grants the employee, without any costs to the employer, the right to receive unemployment benefits from the Social Security.

In case of termination by mutual agreement, the employment benefits may be granted to the employee, without any additional costs to the employer, if the following requirements are met:

• The termination of the employment contract is justified by reasons that would allow the termination under a collective dismissal procedure or dismissal due to job extinction; and
• No more than three employees or 25% of the company’s work force (for companies with up to 250 employees) and no more of 62 employees if the company has more than 250 employees.

If those requirements are not met, the employer will be obligated to reimburse the Social Security of all the amounts paid to the employee as unemployment benefits, but the employee will not lose the right to the employment benefits that he/she received.

Relevant legislation

Labour Code [Portuguese] [English]

Contract templates

Fixed Term Employment Contract [Portuguese] [English]

Open-Ended Employment Contract [Portuguese] [English]

Macedo Vitorino's briefings

"What you need to know to avoid employment issues in Portugal" (2021)

“Guide to Portuguese Employment Law” (2021)

Other reports

Ministry of Labour: «Green Paper on the Future of Employment» (2021) [Portuguese Only]

Important notice

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We are used to working on all aspects employment law. We have acted for employers or employees on several large collective bargainings and industrial actions, as well as in the negociation of individual employment agreements and disputes.

We can assist you on employment law issues in Portugal:

• Negotiating employment agreements on behalf of employers or employees
• Negotiating collective agreements and employment disputes
• Compliance with employment law and social security requirments
• Restructurings and reorganisations

If you have any question or wish us to provide a budget, please contact us to: whyportugal@macedovitorino.com

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