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07. Termination of Employment Contracts

Grounds for Termination

According to Portuguese law, the termination of an employment contract depends on very strict rules that demand the gathering of grounds and several formal procedures. The contract may terminate in the following situations:

  • expiry;
  • mutually agreed termination;
  • dismissal for disciplinary grounds subject to prior internal dismissal disciplinary procedure;
  • collective dismissal (for economical, structural or technological reasons), subject to an internal procedure and prior notice periods which depend on the seniority of the employees affected by dismissal;
  • dismissal for extinction of labour position subject to an internal procedure and prior notice periods in which the notice period will also vary according to the seniority of the employee;
  • dismissal for employee’s failure to adapt to a working position, also subject to internal formalities and prior notice periods.

The contract expires in one of these situations: i) once its term elapses; ii) supervening impossibility, absolute and definitive, of the employee rendering work of the employer receiving such work; and iii) with the employee`s retirement for age or disability.

Collective Dismissals

The closing down of a company or of one or more of its departments and the reduction of personnel based on market, structural, or technological grounds allows for a collective employee dismissal to take place, provided the grounds affect at least two or five employees, depending on whether the company has less than 50 employees or more than that. Employees subject to collective dismissal are entitled to compensation (the calculation basis varies).

The procedure for collective dismissal begins with a written communication addressed to the Works Council or, if there is no such council, to the company union or inter-union representative structure in the company. If none of these structures exist, the affected employees will be informed, in writing, of the intention to perform a collective dismissal and employees will be invited to nominate, within five working days of receiving the notice, a Representative Committee (of up to three or five members, depending on whether the dismissal concerns up to five or more workers) that will act as a representative structure for that purpose.

In the above-referenced communication, the employee representative structures will be provided with the following information:

  • description of the legal grounds for dismissal;
  • the list of the company’s personnel, organised by sectors of activity;
  • the criteria that will determine the selection of employees to be dismissed;
  • the number of employees to be dismissed and their professional categories;
  • period during which the collective dismissal will take place; and
  • criteria for any possible general compensation to be granted to the involved employees besides the specific compensation set forth by law or collective agreement.

At the same time, a copy of the communication and the annexed documents shall be sent to the competent department of the Portuguese Ministry of Employment.

Within a 5-day period following the initial communication, a phase of information and negotiation between the company and the employees’ representatives must be initiated in order to try to reach an agreement on the dimension and effects of the measures taken, as well as to decide on possible alternative  measures that could reduce the number of dismissed employees, namely: i) suspension of work, ii) reduction of normal working periods, iii) professional reconversion and reclassification and iv) early retirement or pre-retirement.

After a minimum of 15 days after the initial communication, or as soon as an agreement has been reached, the employer may send a written communication to each one of the dismissed employees, containing the dismissal decision, expressly indicating the motives and date of the dismissal, the amounts of the compensation and the labour credits, as well as the manner, moment and place of their payments.

On the date on which the decision is sent to the employees, the employer shall send to the competent department of the Portuguese Ministry of Employment (i) the minutes of the negotiation meetings, or, failing that, information on the justification for such a failure, the reasons for the agreement and the parties’ final positions, as well as (ii) a list containing the name of each employee, address, date of birth and of admission to the company, social security situation, profession, category and salary, as well as the individual measure applied and the date foreseen for its implementation. On the same date, a copy of such list is addressed to the employee’s representatives.

Until the termination date, the employer must pay the dismissed employee the compensation that is due by law as well as all other existing labour credits. The termination of the employment contract must be communicated with the following prior notice:

  • 15-day prior notice period, for employees whose seniority is less than 1 year;
  • 30-day prior notice period, for employees whose seniority is of between 1 year and less than 5 years;
  • 60-day prior notice period, for employees whose seniority is of between 5 years and less than 10 years;
  • 75-day prior notice period, for an employee whose seniority is equal to or exceeds 10 years.

Individual Dismissals

Extinction of a labour position is applicable only when the company lacks grounds to proceed with a collective dismissal as a result of an insufficient number of employees involved (i.e., the company has more than 50 employees and the closing of the section affects only three employees) in a redundancy caused by the above-referred market, structural or technological motives.

If there are at least two similar work positions that may be extinct, the employer must comply with a sequence of non-discriminative legal criteria (starting with the worst performance assessment carried out on the basis of previously disclosed parameters), in order to select which employees will be affected by the extinction. Employees subject to the extinction of their labour position are entitled to compensation equal to that set for collective dismissal situations.

Even when the grounds occur, extinction of labour position may only determine the termination of the employment contract should the maintenance of the employment relationship prove to be impossible, in terms of the employer failing to have an alternative job position that is compatible with the affected employee’s professional category.

Furthermore, it is mandatory that the employer has no fixed term employees executing functions corresponding to the labour position to be terminated.

When there are more equivalent job positions than the number of the positions to be terminated, the identification of the labour position to eliminate has to be made in accordance with the criteria set forth by the law:

  • worst performance evaluation, according to an appraisal system and criteria previously known to all the affected employees;
  • less academic and professional qualifications;
  • bigger burden in terms of costs for the company;
  • less experience in the job;
  • less seniority in the firm.

Employees who have been transferred to the labour position to be extinguished less than 3 months before termination are entitled to reoccupy the former position (if existing), with no loss of remuneration. Procedural requirements also apply in this case. The intention to terminate the employment contract based on the extinction of the labour position must be communicated in writing to the employees’ representatives and to each employee involved.

Together with the communication, the employer must indicate the grounds for the extinction of the affected labour positions, identify the relevant section they belong to, provide an explanation on the need to dismiss and indicate the professional categories of the employees affected by the job extinction, and the criteria used to select the employees to be dismissed.

The employees involved, if the employee is the trade union representative, the respective trade union association and the employees’ representatives, have a 15-day period from the initial date of the communication to oppose the extinction measure, in writing, notably alleging the lack of grounds or that the employer has failed to comply with the requirements described above, and alternatives to mitigate the effects of dismissal.

Within 5 business days counted from the initial communication’s date, employees’ representatives and employees may request the competent department of the Portuguese Ministry of Employment to issue a report on whether the employer has complied with the referred requirements.

Following at least 5 days counted from the term of the 15-day period referred to above or from the report’s reception or the expiry of the deadline for its issuance, the employer may communicate to the employees the decision to terminate their employment agreements based on the extinction of their labour positions.

A copy of the decision must be sent to the employees’ representatives and to the competent department of the Ministry of Employment. The decision must be formalised in writing and include:

  • the grounds for the extinction;
  • confirmation of the existence of the above described requirements;
  • proof that the legal selection criteria for the determination of which position to extinguish, has been followed, if there has been opposition to this;
  • an indication of the amounts of due compensation and all labour credits due, as well as the manner, moment and place their payment will occur; and
  • the date on which the employment agreement will terminate.

Finally, the compensation (severance pay) to which the employees are legally entitled and the mandatory prior notice are the ones described under the collective dismissal regime.

The employer may also terminate the labour agreement if:

  • the employee’s productivity and quality decreases continuously,
  • repeated technical problems in the resources affected by the labour position,
  • risks to the safety and health of the employee, other employees or third persons or
  • the employee developing management functions or functions of technical complexity has failed to comply with objectives previously agreed in writing, provided that it implies the impossibility to maintain the labour relationship.

The grounds above depend on the cumulative verification of the following requirements:

  • the introduction of new production procedures, technologies or equipment within the labour position based on different or more complex technology, in the six months preceding the initiation of the procedure,
  • the employee having been given adequate professional training to adapt to the changes
  • the employee having been given time, at least 30 days, to adapt to the new technologies at the workplace or outside of it, whenever the performance of duties in that position is likely to cause damage, or pose risks to the health and safety of the employee, other employees or third parties,
  • no other position in the firm is available and compatible with the employee’s category.

It is also possible to dismiss an employee in a case where no modifications were made to the position, as long as the following requirements are cumulatively verified:

  1. the employee’s work level has modified substantially in such a way that foreseeably it will lead to continuous productivity and quality decrease, repeated technical problems in the resources affected by the labour position, risks to the safety and health of the employee, other employees or third persons, determined by how they are exercised and which, in the light of the circumstances, is reasonable to expect to be definitive;
  2. the employer informs the employee, with a copy of the relevant documents, with a description of the facts and evidence of the substantive modification to the manner the work has been performed, as well as informing that an answer to this communication can be given in 5 working days.
  3. after the answer, the employer must communicate orders and instructions adequate to the execution of the position’s functions, with the intention of correcting them.
  4. b) and c) above have been verified.

The employer must send a copy of the communication and the documents to the employee’s representatives and, if the employee is a union representative, to the corresponding trade union.

Employees who have been transferred to the labour position to be made redundant less than 3 months before are entitled to reoccupy the former position (if existing), with no loss of remuneration. Moreover, the dismissal can only take place if the compensation and all other labour credits are made available to the employee, by the end of the period of notice.

Employees subject to the termination of their employment agreement for failure to adapt are entitled to compensation equal to that set for collective dismissal situations. In order to formalise the dismissal proceeding, the employer must communicate to the employee, and if the employee is a union representative, to the corresponding trade union:

  • the intention to dismiss and the grounds for dismissal;
  • the modifications introduced in the position or the substantial modification in the performance of the tasks of the position;
  • the results of the professional training and the following adaption period.

Within 10 days following the previous communication, the employee is entitled to require diligence to gather evidence, and the employer has to inform the employee, the employee’s representatives and the corresponding trade union, if the employee is a union representative, on the result of such diligence. Any of these people/structures may send the employer their opinion on the grounds of the dismissal. The employer then has 30 days to proceed with the dismissal, through a grounded, written decision stating:

  • the motives or the dismissal;
  • confirmation of the requirements set for the determination of the failure to adapt;
  • the amount due or the compensation and for the labour credits, as well as the means, moment and place of their payment;
  • the date of the termination.

The termination of the employment contract must be communicated to the employee, the employee representatives, the trade union, if the employee is a union representative, and the competent service of the Employment Ministry, with the following prior notice:

  • 15-day prior notice period, for employees whose seniority is less than 1 year;
  • 30-day prior notice period, for employees whose seniority is between 1 year and less than 5 years;
  • 60-day prior notice period, for employees whose seniority is between 5 years and less than 10 years;
  • 75-day prior notice period, for employees whose seniority is equal to or exceeds 10 years.

A disciplinary proceeding must precede dismissal by the employer on disciplinary grounds. Such dismissal is only lawful if the employee is guilty of committing a serious breach in his duties as employee (just cause).

Termination under these circumstances requires the existence of just cause, which means a guilty behaviour that due to its seriousness and consequences makes it immediately and practically impossible for the labour relationship to subsist. A disciplinary process must be set in motion, involving:

  • previous inquiry into the matter when necessary;
  • accusation note, which must state the facts that justify the dismissal and may or not be accompanied by the employee’s preventive suspension;
  • the employee has 10 working days to rebut the accusation;
  • the employer must undertake an investigation and take into consideration any evidence the employee may have requested in his/her rebuttal;
  • decision of dismissal or non-dismissal (e.g. application of an alternative disciplinary measure).

In addition, the employer is obliged to deliver the decision in writing, explaining the facts and grounds on which the decision is based. The decision must be communicated to the employee and to the work committee or trade union, if the employee is a union representative.

Is Severance Pay Required?

Employees subject to collective dismissal, dismissal resulting from job extinction or failure to adapt to the job position are entitled to compensation which calculation basis varies, depending on the seniority period under consideration and date on which the contract was initially executed, between 1 month, 20, 18 or 12 days base salary and seniority premiums per year of service (fractions of seniority are to be calculated on a proportional basis).

Both the labour credits and any compensation that may be due to the employee must be expressly recognised in the decision of dismissal. The amount, as well as the means, moment and location of payment have to be included in the communication giving prior notice.

Should the basis for the decision to dismiss an employee be non-existent or should the employer fail to comply with the procedural requirements, the termination of the labour agreement is unlawful and the employee is entitled to the payment of her salary from the date of dismissal until the final court decision. The employee is also entitled to choose one of two remedies: her reinstatement into the company or payment of a compensation for dismissal to be set by the court. The indemnity may vary between 15 and 45 days’ base salary plus the seniority premiums for each year (or fraction of a year) of seniority, with a minimum of three months’ remuneration.

If the dismissed employee’s role involved management responsibilities or if the company has less than 10 employees, the employer may oppose to his/her reinstatement in the job position on the grounds that this would seriously affect the employer organisation. If the court decides in favour of the employer, ruling against reintegration, the indemnity to be granted to the employee will be calculated between 30 and 60 days’ base salary plus the seniority premiums for each year (or fraction of a year) of seniority, with a minimum of six months’ remuneration.

Separation Agreements

a. Is a Separation Agreement required or considered best practice?

Employee and employer may freely agree to terminate an employment agreement in written form. An employee may revoke the termination agreement within seven days from the date the employee signs the termination agreement, except when the agreement was signed in the presence of a notary.

In a number of cases, even when other grounds could support dismissal, separation agreements are considered a best practice. Only in specific cases where agreements are made in the context of company restructuring or based on the same grounds that allow collective dismissal (and subject to cap limits of the number of employees involved in separation agreements within each triennial period) will the employee be entitled to unemployment allowance. This sometimes restricts the availability of employees to proceed with separation agreements.

b. What are the standard provisions of a Separation Agreement?

In general terms, separation agreements address the agreed compensation payable to the employee as a consequence of the termination; other monetary compensations or rights that are due, if they were, or when they are paid, and if nothing else is reciprocally due, may be claimed on the basis of the agreement, and of the employment relationship, as well as the agreed effective date for the separation.

It is also standard practice to include provisions on documents handed to the employee, e.g. 1) a work certificate; and 2) other legally required documents, such as, for instance, the social security form for unemployment allowance.

It is also fairly standard to find provisions on the return of documents, information and assets belonging to the employer by the employee and confidentiality provisions. Non-compete clauses are sometimes included, subject always to time limits and appropriate compensation.

c. Does the age of the employee make a difference?

A separation agreement may be celebrated at any time, and age makes no difference. There are, however, alternatives to pure separation agreements for employees 55 years of age or older, as provided by the so called pre-retirement agreements. These allow for an agreement to reduce or suspend the provision of work, by agreement between the employer and an employee of 55 or more years of age, from the time the agreement is executed to the date on which the employee reaches retirement age (and retires, or earlier if the employment contract is meanwhile terminated).

Remedies for Employee Seeking to Challenge Wrongful Termination

Employees may not be dismissed without a valid motive or for political or ideological reasons.

In the case of collective dismissal, extinction of labour position or failure of employee to adapt, employees are entitled to a pecuniary compensation.

Pregnant women that have given birth in the last 120 days and those breastfeeding, as well as any employee on paternity license, enjoy special protection. For this reason, dismissal of any of these categories of employee`s is illegal without a prior favourable opinion from the competent authority in the area of equality of opportunities between men and women (Comissão para a Igualdade no Trabalho e no Emprego – CITE).

If the CITE’s opinion is unfavourable, the employer can only proceed with dismissal of the protected employees by obtaining a court decision recognising the existence of a valid motive in a lawsuit that may be filed up to 30 days after the unfavourable opinion has been issued.

If the dismissal is considered illegal, the employer cannot oppose to the reintegration of the employee (except if either of the parties requires the payment of extra compensation instead of reintegration), but the employee may choose between the right to reintegration and the right to compensation.

Whistleblower Laws

The Portuguese data protection authority (CNPD) addressed the specific matter of “Whistleblowing Hotlines” in a guideline decision in 2009, containing the authority’s official guidelines for Whistleblowing procedures, which should be taken into account when an employer wishes to set-up and manage such lines. As with other matters that concern personal data, the applicable law for this type of processing activity is now the GDPR. As such, GDPR principles and duties must be fulfilled by the employer when developing and implementing whistleblowing hotlines and similar mechanisms. Legislative measures towards transposing the EU Whistleblower Protection Directive are on their way as the deadline of December, 31  2021 moves closer.

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