The pressures facing Portuguese labour law – ABBC

The severe economic crisis, rising unemployment and the austerity measures resulting from the Memorandum signed between the Portuguese Government and the EC, IMF and ECB have placed great pressure upon labour legislation in Portugal. Both opinion makers and Government see the introduction of changes in labour law as a means of enhancing the competitiveness of companies and a contribution to overcome the crisis.


In spite of successive reforms and the adoption of a new Labour Code, labour law in Portugal still suffers, in many respects, from the rigidity introduced in the second half of the 1970’s.

The main discussion relates almost always to the regime of individual dismissal, flexibility of working time and to wage costs, given that, in relation to dismissals for objective reasons, Portugal shall already have one of the most flexible laws in the EU.

Some of the measures announced by the Government shall only be in force for a limited period of time; while other shall form a permanent part of the body of labour law in Portugal

Amongst the changes already in force or the ones under discussion, which implementation is expected in the short term, are the ones listed below:

Increase of the working period by 30 minutes per day

Currently under discussion is Government proposal to increase the normal daily working period for 30 minutes, without necessarily requiring the agreement of workers and with no commensurate increase in salary. This measure would imply an increase of 2.5hours work per week.

This measure shall be legally in force for a limited period corresponding with the duration of the financial assistance program currently in effect for Portugal – until 2013 – and is part of the Government’s aim to extend to private sector workers the sacrifices, which have already been asked of by public sector workers – notably the reduction of holiday entitlement and Christmas allowances.

This includes the elimination of four public holidays during the course of 2012, two civil and two religious, and attaching the holidays that remain on weekends to avoid the so-called extended holiday bridging.

Reduction of compensation for termination of employment contracts

Recent legislative amendments are already in force establishing a reduction of compensation for termination of employment contracts for objective reasons, from 30 days to 20 days of monthly wage per each year of seniority, with a maximum ceiling equal to 12 times the base monthly wage.

This amendment only applies to contracts beginning after November 1, 2011.

However, also currently under discussion is an extension of the said regime also to older employment contracts, although probably with some adjustments.

Also foreseen is the constitution of a Labour Compensation Fund (LCF) intended to bear part of the compensation payable on termination of employment contracts.

Whist the LCF’s regime is not regulated, the payment of compensation is the sole responsibility of the employer. After the regulation of the LCF, compensation will be paid by the employer and the LCF.

According to the Government, the LCF model will be similar to that of Retirement Savings Plans, with each worked assigned an individual account in the LCF offering the worker entitlement to the balance of his account as of the termination of the employment contract.

It is anticipated that the value of the contribution payable by the employer will correspond to a percentage (up to 1 percent) of the worker’s monthly wage.

Extraordinary renewal of fixed-term employment contracts

Currently under discussion before Parliament is a further proposal aimed at allowing an extraordinary renewal of fixed-term employment contracts.

Currently, fixed-term employment contracts may be renewed up to three times and its duration cannot exceed three years. This is intended to allow employers to renew the contract above this limit, increasing it by up to 18 more months.

Commitment to Growth, Competitiveness and Employment

A review of labour law is currently underway by the Standing Committee for Social Dialogue, highlighting the following changes:

(i) Broadening of the concept of dismissal for lack of adaptation to the job position;

(ii) Elimination of the legal criteria for 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;

(iii) Elimination of the obligation to place workers in a compatible role in the event of dismissal due to termination of the job position and due to a lack of adaptation to the job position;

(iv) Providing greater flexibility relating to the organisation of working time, particularly permission for “accounts of hours” by agreement with the workers involved – currently this system can only be implemented if it is already provided for through a collective labour agreement;

(v) Establishing greater rigour in the regulation of aspects concerning the reduction of the working period / suspension of employment for reasons of business crisis;

(vi) Reduction of overtime compensation – currently overtime work is compensated with time off and an additional retribution (up to 75 percent for a regular business day and 100 percent on rest days or public holidays); the objective is to eliminate time off and reduce the current increases in pay to half;

(vii) Extension of the negotiating powers of workers councils, allowing them to negotiate general company agreements on some matters – currently collective bargaining is reserved only to unions.

The majority of these announced changes are foreseen in the Memorandum of Agreement signed with the European Commission / IMF / ECB.

As expected, however, these changes are triggering strong opposition from labour unions. Nevertheless, it is anticipated that the Government shall consider that it has sufficient authority to approve them, notwithstanding the opposition.


The real efficacy of all of the changes enunciated shall depend also, in large part, on the imperative nature that is given to the new laws. In fact, currently many of these issues, such as compensation for overtime work, are regulated by collective labour agreements that establish regimes far superior to those in the law, and in some cases are such that they are of a concerning nature taking into account the competitiveness of the companies and the reality of the country.

In fact, one of the interesting aspects in the current environment is the form by which this will be coordinated, including on one side, the right of the unions to collective bargaining – which tends to give priority or to safeguard the individual interest – and, on the other side, the collective interest of the workers in general, the companies and of the unemployed.

In our opinion, the traditional matrix of Labour Law – the favor laboratoris – is in crisis.

The trend is primarily to safeguard the interest not of the individual worker, but the interest of the employees of the company viewed as a whole, aiming to ultimately ensure the survival of jobs. And here another approach is inter-related: should Labour Law be immune to a situation of rising unemployment and to the reduction of Social Security benefits? That is, shouldn’t the right to employment for all citizens also be safeguarded against the right to fair compensation of those who have jobs? In other words: shouldn’t the sacrifices be shared by all citizens?

The question is: why should we allocate salaries and benefits that, although fair from an ethical or social point of view, in the end lead to a situation of lack of competitiveness and profitability of the company and lead to its closure with elimination of all the jobs?

This shall be, in our view, the greatest challenge facing Labour Law in Portugal, to reinvent itself to be not only the Law of those who work, but also the Law of those who currently do not.

Benjamim Mendes is a Labour and Employment specialist and the Senior Partner of ABBC in Lisbon. He can be reached via

Vitor Madeiras Rodrigues is a Senior Associate at ABBC. He can be reached via