The attempt to reach growth and flexibility in the Labour Market

The third amendment to the Portuguese Labour Code, under the Memorandum of Understanding (MoU) with the Troika, is intended to lead to a new labour system that allows greater flexibility and growth.

  The new rules are seen by Government, Social Partners and opinion makers as contributing to enhancing the competitiveness of Portuguese companies and key to overcoming the crisis.

On the other side, the CGTP (General Confederation of Portuguese Workers) states that the new labour rules will only increase unemployment, which is running at more than 15 percent.

The main labour changes implemented by the new Labour Code in line with the MoU for growth, competitiveness and employment are as follows.

Accounts of hours
The new rules allow the establishment of ‘accounts of hours’ by agreement between the employer and workers up to a maximum increase of two hours per day, 50 hours per week and 150 hours per year. Where agreement is reached with a majority of 75 percent of the workers of a company, section or team, implementation of the ‘accounts of hours’ regime can be extended to cover all the workers of the company, section or team.

If the regime is foreseen in a collective labour agreement, the employer may, by agreement with 60 percent of the workers of a company, section or team, apply it to all workers. In this case, the normal working period may be extended up to a maximum of four hours per day, 60 hours per week and 200 hours per year.

Compensation of the work rendered in excess under this regime may be made through the increase of the vacation period, alternatively, or together with, the already existing possibilities of equal reduction of the working period and/or respective payment.

Elimination of public holidays
As of 2013, November 1^st, Corpus Christi, October 5^th and 1^st of December will be eliminated as mandatory public holidays.

Overtime
The new regime reduces the overtime pay to half (up to 37.5 percent for a regular business day and 50 percent on rest days or public holidays).
Time off is also eliminated, except for overtime that hinders the daily rest and overtime rendered in mandatory rest days.
For a period of two years (up to July 31^st, 2014) the clauses of collective bargaining agreements or employment contracts that provided for higher overtime pay than statutory pay are suspended.

Vacation days
The new rules eliminate the three additional vacation days related to the workers’ absenteeism implemented by the Labour Code in 2003. Therefore, with effect as of 2013, workers will only be entitled to 22 vacation days.

Absences
Unjustified absences from work immediately before or after rest days or public holidays entitle the withdrawal of remuneration corresponding to said rest days or public holidays.

Works councils
The new rules extend negotiating powers of works councils, allowing them to negotiate company agreements in case of companies with at least 150 workers ─ a power which is currently reserved only for trade unions.

Dismissals
In line with former legislative amendments in force establishing a reduction of compensation for termination of employment contracts beginning after November 1^st, 2011, the new rules set forth the following:

Employment contracts for indefinite period of time entered into before November 1, 2011: regarding the period until October 31^st, 2012 ─ one months salary per each year of work;
after October 31^st, 2012 ─ 20 days salary per each year of work (in case the compensation regarding the period until October 31^st, 2012 exceeds the legal limits of 12 monthly wages or 240 times the national minimum wage the severance will be set in that amount); the compensation may not be inferior to three months salary.

Employment contracts with fixed term and temporary contracts entered into before November 1^st, 2011: regarding the period until October 31^st, 2012 (or until the date of the extraordinary renewal if previous) ─ two or three days per each month depending if the total duration of the contract does not exceed or is higher than six months; after October 31^st, 2012 ─ 20 days salary per each year of work.

Employment contracts entered after November 1^st, 2011:  20 days salary per each year of work with the following maximum limits:  the salary to calculate compensation may not be higher than 20 times the national minimum wage (currently € 485.00 x 20 = € 9,700.00);  the global amount of compensation may not be higher than 12 times the monthly salary or 240 times the national minimum wage (€ 116,400.00) for workers that receive a salary higher than 20 times the national minimum wage.

The Labour Compensation Fund supporting part of the compensation due to termination of employment contracts is still waiting for specific ruling.

The new Labour Code also foresees changes in the concept of dismissal for the lack of adaptation to the job position and the elimination of the legal criteria for the selection of workers in the case of dismissal due to termination of a job position, leaving the employer to set such criteria ─ as already happens in collective redundancies.

The elimination of the obligation to place workers in a compatible role is also foreseen in the event of dismissal due to termination of the job position.

Despite the changes in the dismissal for lack of adaptation to the job position, including situations of substantial change of the work performance without changes in the job position, it still remains a very complex legal mechanism that will continue without any practical implementation.

Synopsis
The new rules in the Portuguese Labour Code will have a great impact on the labour relations and market, however they are totally in line with the measures anticipated by the Portuguese Government.

In our opinion, the reforms could have gone further in relation to the concept of dismissals, as aside from severance payments in broad terms they maintain the same flexibility and mechanisms that most likely will never be used (dismissal due to lack of adaptation to the job position).

Portugal requires an improved business environment and a more flexible market in order to attempt to overcome the current crisis.

The Labour Code now establishes rules without precedent in the history of democracy in Portugal and its Government has already anticipated that it may bring further changes in areas such as severance pay in order to align the ruling with the EU average ─ between eight and twelve days pay per each year of work.

The former strict and restrictive protection granted to the individual employee is now being replaced by the mindset of collective interest of employees in general and the sustainability of companies.

The practical implementation of the new labour ruling will be crucial especially for coping with greater demands of labour relations, social protection and the Portuguese economy itself.

There is a thin line between the intention to create a higher competitiveness of companies and economic growth and the result of social conflict and rising unemployment.

Within the current economic context, with the unemployment rate rising to more than 15 percent and the changes in the social protection system under discussion, the challenge is ─ will the new measures be enough to boost the labour market and overcome the crisis?

João Guedes is a Partner and Catarina Santos Ferreira an Associate at ABBC. They can be contacted at j.guedes@abbc.pt and cs.ferreira@abbc.pt