Grounds for Termination
Termination of employment is governed by the constitutional principle which foresees that the employer may not terminate employment unilaterally without just cause.
Unilateral termination may only occur with cause, either objective or subjective, in the terms defined by the Labour Code and in observance of the material and procedural requirements foreseen therein:
- Objective just cause which is based on economic reasons – market, technological or structural, related to the company’s (i.e. employer’s) business activity – may trigger collective dismissal or individual dismissals due to termination/extinction of job position.
- Subjective just cause which is based on disciplinary reasons, i.e. a breach of the employee’s legal or contractual duties.
Collective Dismissals
Under Portuguese employment law, collective dismissal refers to the termination of employment contracts initiated by an employer for economic, structural, or technological reasons, affecting multiple employees. This process occurs when the company is facing market difficulties, technological changes, or structural reorganization that conduct to the need of reducing its workforce.
A collective dismissal is triggered when an employer seeks to dismiss at least two employees in companies with fewer than 50 workers, or five or more employees in companies with 50 or more workers, within a three-month period. The grounds for such dismissals must be objective, stemming from reasons such as reduced market demand, restructuring of operations, or the introduction of new technologies that render certain positions redundant.
The process is governed by strict procedural rules aimed at ensuring transparency and fairness. Employers must engage in consultations with employee representatives and the Ministry of Labour is also notified and provided with detailed information concerning the envisaged dismissals.
Failure to comply with these procedures will determine the unlawfulness of the dismissals with all the connected legal consequences.
Employees affected by collective dismissals are entitled to receive severance pay. Additionally, they may challenge the dismissal in court if they believe the employer has failed to meet the necessary legal requirements.
The termination of the employment contract must be communicated with a prior notice varying between 15 and 75 days, depending on the length of service of the employee.
Individual Dismissals
Individual termination of employment in Portugal can occur for objective reasons or disciplinary reasons. Both are strictly regulated by the Portuguese Labour Code to ensure fairness and compliance with legal standards.
Objective dismissals are generally based on economic, structural or technological grounds and may include:
- Job redundancy due to economic, market, or organizational factors.
- Worker’s inability to adapt to changes in job requirements or technological advancements (rarely implemented).
The employer must follow a strict consultation and notification process. This involves informing the affected employees in writing, providing clear reasons for the dismissal, and notifying the relevant labour authorities. Depending on the procedure and its specificities, employers may also be deemed to engage in consultations with employee representatives or unions (if applicable). Termination of employment must be communicated with a prior notice varying between 15 and 75 days, depending on the length of service of the employee.
Disciplinary dismissals arise from serious misconduct by the employee that undermines the employment relationship, making it impossible to continue. Justifiable reasons may include:
- Repeated and unjustified tardiness or absences from work
- Insubordination or failure to follow legitimate orders from superiors
- Verbal or physical offenses towards the employer, colleagues, or clients
- Breach of trust or acting in bad faith, such as dishonesty or misuse of company resources
- Deliberate reduction in performance, failing to meet agreed-upon or expected work standards
- Intoxication by alcohol or drugs affecting job performance
- Harassment based on race, religion, gender, age, disability, sexual orientation, or other protected characteristics
The employer must initiate a formal disciplinary process, which includes notifying the employee of the allegations and allowing them the opportunity to present a defence. A detailed investigation must be conducted before any decision is made.
Employers must strictly follow procedural rules for both types of dismissal, and failure to comply can render the termination unlawful, subject to challenge in court.
Is Severance Pay Required?
Employees dismissed for objective reasons are entitled to severance pay, which is typically calculated based on years of service.
Employees dismissed for disciplinary reasons are not entitled to severance pay if the dismissal is justified and lawful.
Separation Agreements
a. Is a Separation Agreement required or considered best practice?
Employer and employee are free to terminate employment by mutual agreement, in writing, at any time during their employment relationship.
b. What are the standard provisions of a Separation Agreement?
The separation agreement must always state the date on which the agreement was concluded and the effective date. In addition, the written agreement must state the legal deadline for the agreement to be revoked (except when the agreement was signed in the presence of a notary).
If compensation is agreed, it must be described in the written agreement.
It is also common to include provisions regarding documentation to be handed to the employee, such as a work certificate; and other legally required documents (e.g. when applicable, the social security form for unemployment allowance).
Post contractual obligations provisions are commonly and may also be include.
c. Does the age of the employee make a difference?
A mutual agreement may be reached between parties independent of the employee’s age.
d. Are there additional provisions to consider?
The main characteristics of this form of termination are the following:
- The parties are free to negotiate the terms of termination
- Termination may take effect immediately (no notice periods need to be observed)
- Termination is final and binding
The Labour Code does not foresee any minimum or maximum compensation amounts payable to the employee under termination by mutual agreement. Compensation is freely negotiable between the parties.
Enhanced compensatory payments (i.e. amounts that are higher than the statutory minimums) are however commonly negotiated in exchange of the employee’s waiver and settlement of any and all claims or rights under the employment relationship or due as a result of its termination, although since May 2023 waivers may be challenged under the terms of the Labour Code.
Negotiations with a view to terminate an employment relationship by mutual agreement vary according to several factors, such as:
- grounds for termination/negotiation
- length of service
- seniority / position / job function
- Timeframe
- Access to unemployment benefit (if any)
Remedies for Employee Seeking to Challenge Wrongful Termination
Under Portuguese law, employees cannot be dismissed without a valid reason (just cause) and dismissals based on political or ideological grounds are prohibited.
If an employer fails to provide a lawful justification or the mandatory legal proceeding is not dully followed, the termination is considered wrongful, and the employee may be entitled to remedies, including reinstatement or financial compensation.
Special protection is granted to certain categories of employees, such as pregnant women, women who have given birth within the past 120 days, breastfeeding mothers, and employees on paternity leave. Dismissal of these employees is illegal without a prior favourable opinion from the Commission for Equality in Labour and Employment (CITE) or a court ruling confirming a valid motive for dismissal.
Employees in these categories who are dismissed without these legal requirements being followed may seek reinstatement or compensation for wrongful termination, as well as damages for any harm caused.
Whistleblower Laws
Law no. 93/2021, which transposes Directive (EU) 2019/1937 and creates, among other things, a set of obligations for companies and other public entities regarding the protection of whistleblowers and the implementation of internal whistleblowing channels and procedures, regulates whistleblowing in Portugal and is now applicable.