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Labour law reforms in Portugal - background summary

The economic and financial crisis led Portugal to request financial assistance from the EU institutions, the European Central Bank and the International Monetary Fund (‘Troika’) in May 2011. The two main documents that were signed between these institutions and the Portuguese Government (MoU and MEEP) noted that strict labour market regulations were one of the sources of low competitiveness.

  • As a consequence, the ‘bailout’ was conditional on the Portuguese Government’s commitment to implementing a detailed plan of structural reforms, which included amendments to labour law, employment policy, social security law and collective bargaining. Under Troika intervention, the Portuguese centre-right coalition introduced not only the measures foreseen in the MoU, but decided to ‘go beyond the Troika’ while implementing the austerity measures.
  • In this scenario, a central role was played by the Portuguese Constitutional Court, which declared unconstitutional many of the government measures for infringement of the principles of equality, proportionality, protection of trust, collective bargaining or local administration autonomy.
  • Recent studies show a huge social impact of the adjustment programme in terms of equality and poverty in Portugal, and support the decisions of the new left-wing government to reverse some of the reforms, although these measures are not endorsed by the EU.
  • As a consequence of all these reforms, to 2016, 11 direct amendments were made to the 2009 Labour Code, with a clear retreat from labour law standards to the end of 2015 and some degree of corrections (‘reversals’) since then.

Public sector

  • Nominal wages were frozen.
  • For four years (2011-2014) nominal wages above € 500 were cut,according to progressive rates, from 3.5 % to 10 %.
  • In 2011, Christmas bonuses (equivalent to one month’s salary) were cut by 50 %.
  • In 2012, Christmas and holiday bonuses (equivalent to two months’ salary) were reduced or suspendeddepending on the salary.
  • Further intended cuts were considered unconstitutional and consequently stopped (e.g.Decisions 353/2012, 187/2013 and 413/2014), although the Constitutional Court allowed some of the unconstitutional measures to be applied in that year, only stopping them for future years (e.g.Decisions 353/2012 and 413/2014).  
  • In 2013, the government increased the weekly working hours from 35 to 40 hours with no wage increase (Law 68/2013).
  • In 2014 and 2015, the government blocked some 500 collective agreements signed in local administrations concerning a return to the weekly working time of 35 hours. In October 2015, the Constitutional Court declared unconstitutional the government’s interference in collective bargaining in local administrations (Decision 494/2015).

Wage setting

  • The mandatory minimum wage (€ 485) was frozen from 2011 to 2014 and increased to € 505 in October 2014 (before the elections). 

Working time

  • Time bank schemes,which before could only be implemented by collective agreement, can now be agreed individually: if an employer proposes such an agreement in writing to an employee, the latter is presumed to have accepted if he/she does not refuse it within 14 days (Law 23/2012).This time bank scheme may even be applied to workers who have refused it as long as the proposal was accepted by 75 % of the team, economic unit or section. This time bank scheme allows for two more hours of work per day – up to 50 hours per week and 150 hours per year – which will not be considered overtime.
  • Overtime payment was reduced by half and the compensatory time off equal to 25 % of overtime hours (in regular working days) was abolished (Law 23/2012). In order to ‘neutralise’ more favourable regimes regulated by collective agreements or employment contracts, these conventional clauses, where they existed, were considered null and void (compensatory time off) or suspended for two years (overtime payment increases higher than those established by the Labour Code). The first regulation relating to compensatory time off was considered unconstitutional (Decision 602/2013).
  • Reduction of holidays by three days and reduction of four public holidays, in both private (Law 23/2012) and public sector (Law 35/2014). Once again more favourable regimes regulated by collective agreements or employment contracts, where they existed, were considered null and void, which was considered unconstitutional (Decision 602/2013).
  • Additional pay for regular work on public holidays was reduced by half,as well as the alternative compensatory time (Law 23/2012).
  • Employers can shut down their company when a public holiday is on a Monday or a Thursday, which will count as a holiday or will be compensated by employees with further work on other work days (Law 23/2012).

Termination of employment contract

  • Almost all severance payments were reduced (in the case of termination of a fixed-term contract, collective dismissal, redundancy, dismissal for unsuitability, etc.): initially, in 2011/2012, from 30 to 20 days salary per year of service, with a cap of 12 months and the elimination of the minimum of three months of pay (Law 53/2011 and Law 23/2012) and after 2013 to 12 days salary per year of service (Act 69/2013). Once again more favourable regimes regulated by collective agreements or employment contracts, where they existed, were considered null and void, which was considered unconstitutional (Decision 602/2013).
  • Dismissals due to redundancy or unsuitability were facilitated (Law 23/2012): 1/ In the first case, seniority does not necessarily determine the order in which people will leave the company if more than one worker is assigned to identical functions, allowing the employer to choose alternative criteria as long as they are relevant and non-discriminatory. 2/ The second justification can be used even when there were no changes in the workplace. 3/ In both cases, the obligation to transfer the employee to another suitable position, if possible, was eliminated.
  • Nevertheless, the Constitutional Court considered some of these rules to be unconstitutional (Decision 602/2013), which led to a new reform defining new criteria to be used by employer in order to choose which specific position(s) would be terminated in the case of redundancy and reinstated the employer’s obligation to check if there were any other jobs available that the employee could do (Law 27/2014).

Collective bargaining

  • Collective bargaining was severely affected by direct and indirect reforms:
    • allowing the employment contract to regulate in pejus issues that previously could only be regulated by collective agreement (e.g., time bank referred to above);
    • declaring null and void or suspending collective agreement clauses that established a more favourable regime for employees than the new reformed law (see above);
    • reducing the threshold company size, above which non-union workers’ representatives could conclude collective agreements (by delegation of unions), favouring decentralisation (Law 23/2012);
    • reducing all periods concerning the expiry and ‘after-effect’ of collective agreements: the first period was reduced from 5 to 3 years, the survival period was reduced from 18 to 12 months (Law 55/2014);
    • Law 55/2014 also established the possibility of suspending temporarily collective agreements with companies in crisis;
    • severely limiting the administrative extension of collective agreements. The extension was blocked and new rules came into force introducing strict conditions whereby extension was only possible if employers’ organisations employed more than 50 % of all employees in the industry concerned (Resolution 90/2012). In the last quarter of 2014, under pressure from trade unions and employers’ confederations, the government decided to introduce less strict rules on the extension of collective agreements: on the basis of less strict criteria for the representativeness of employers’ associations, i.e. as an alternative to the 50 % share of employees in the sector, an extension became possible, if at least 30 % of the employers' association members were SMEs (Resolution 43/2014).
  • As a consequence, the number of published collective agreements was severely reduced, as was employees’ coverage by new collective agreements (see above).

The new political cycle

On 26 November 2015, a Socialist Party Government came into power, supported by other left-wing parties. This was the result of an unprecedented alliance to ‘turn the page’ on austerity.

The measures announced and already implemented include:

  • a gradual reversing of nominal cuts in public sector wages, to be completed by the end of 2016;
  • a return to a 35-hour week in the public sector;
  • a gradual increase in the mandatory minimum wage, which now stands at € 530;
    • Extinction of the IRS surcharge (personal income tax)
    • re-establishment of the previously abolished public holidays.
  • Elimination of the ‘extraordinary solidarity contribution’