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Labor and employment law challenges in business transformations

Portugal

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Workforce restructuring, also referred to as collective redundancies, is governed by Art. 359 and subsequent articles of the Portuguese Labor Code (Código do Trabalho).

Collective bargaining agreements (CBAs) can modify the rules regarding the criteria to set compensations due to employees, deadlines for the mandatory stages of the procedure and notice periods and, within the legal thresholds, the amount of the compensations due to employees.

The rules governing the collective redundancy procedure vary based on the number of impacted employees.

For companies with at least 50 employees, a complex collective redundancy (Despedimento Coletivo) procedure is applicable for redundancy of five or more employees; for redundancy of less than five employees, a simplified procedure must take place.

For companies with less than 50 employees, the collective redundancy procedure is applicable when it impacts two or more employees.

The collective redundancy (Despedimento Coletivo) procedure has the following stages:

  1. Legal justification
  2. Works council consultation
  3. Labor administration (Ministério Responsável pela Área Laboral) intervention
  4. Termination

Required legal justification

Collective redundancy must be justified by the following economic or financial grounds:

  • Economic or financial difficulties of a durable nature
  • Change(s) in technology that would render certain job position(s) obsolete
  • Company reorganization necessary to safeguard its competitiveness
  • Closure of business

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

At the outset, the employer shall notify in writing, for information and consultation, the workers’ collective representation structure in place. Under the Portuguese labor law, employee representative structures are the works council, the inter-union committee (employee representative body composed by representatives of all the unions represented in the company) and the union committee (employee representative body composed by representatives of a single union represented in the company). The existence of these structures is not mandatory, and depends on the verification of representation thresholds of the unions among the workers, in the case of the union and inter-union committees, and an election called upon by a minimum number of workers, in the case of the works council. This notification shall include the following:

  • Legal and business justification of the collective redundancy
  • Workforce broken down by organizational structures
  • Selection criteria process
  • Number of employees to be made redundant, and categories covered
  • The method of calculating compensation for the employees to be made redundant

In the absence of any of these collective representation structures, the employer must notify, in writing, each of the impacted employees, who may then, within a five-day period, appoint an ad hoc committee of three or five employees who will represent the remaining employees in the subsequent negotiations.

Within five days of the notification, a mandatory consultation procedure with the workers’ representative structure must take place, with the purpose of reaching an agreement to limit the impact of the measures to be adopted and/or the number of employees to be dismissed.

Whether or not an agreement is reached, after 15 days from the initial communication to works council or union (or to the ad hoc committee or to each of the impacted workers, in the absence of works council or union), the employer is allowed to notify each affected employee, in writing, of its final decision to terminate the employment agreement. However, the employment agreement will only terminate after the expiration of the notice period and the duration of which varies between 15 and 75 days according to the length of service of the employees.

Consultation requirements with other employee representatives

In the absence of workers’ collective representation structures (works council, inter-union committee or union committee), the employer must notify, in writing, the same information to each of the impacted employees, who may then, within a five-day period, appoint an ad hoc committee of three or five employees who will represent the remaining employees in the subsequent negotiations (for more information, see “Consultation requirements with works council/unions”).

Consultation requirements with employees

There is no obligation to consult the employees themselves or to take their consent. The employer is free to communicate with the employees, although after the notification has taken place, all negotiations are done with the collective representation structure.

However, in the absence of workers’ collective representation structures (works council, inter-union committee or union committee), the employer must notify, in writing, the same information to each of the impacted employees, who may then, within a five-day period, appoint an ad-hoc committee of three or five employees who will represent the remaining employees in the subsequent negotiations (for more information, see “Consultation requirements with works council/unions”).

After the works council (or other workers’ collective representation structure) consultation, the employer must notify each of the impacted employees of the final termination decision, stating the reason and date of effective termination of their employment agreement and an indication of the total amount, payment method, time and place of compensation payment, credits overdue or other claims stemming from the termination of employment with a prior written notice, depending on the time of service of each employee — from 15 to 75 days for employee between 1 to more than 10 years of service.

Approval/notification of the labor authorities or other government authorities

No approval of the labor authorities is required to implement collective redundancy procedure. However, at the outset of the consultation stage of the collective redundancy procedure, a copy of the notification of the projected collective dismissal must be sent to the Ministry of Labor, which, through a designated representative, will take part in the negotiation stage of the procedure between the employer and the works council or unions, to promote an agreement between the parties as to the measures to be adopted and confirm the material and procedural regularity of the procedure.

In addition, when the final decision is notified to each of the impacted employees, the employer must send to the Ministry of Labor the minutes of the meetings with the works councils held in the negotiation stage, and also the information regarding each of the impacted employees (e.g., name, residence, date of birth, hiring date, social security situation, occupation, category, wage, the measures decided and their intended date).

Employee selection criteria

The employee selection criteria is based on the employer’s discretion, provided it is objective (as required by the Labor Code) and not biased. The use of biased criteria, or of criteria that is not in accordance with the collective redundancy justification, constitutes grounds for the procedure to be invalid.

Special protection is granted to certain categories of employees, namely:

  • Works council and union delegates
  • Pregnant workers
  • Workers who have recently given birth
  • Workers who are breastfeeding

The final decision of termination may only be issued when authorized by the Portuguese gender equality authority (CITE), following required notification to that effect.

Actions required to limit the negative impact and social plan

Following the initial legal justification, a negotiation with the works council or unions is required to take place, with participation of a representative from the Ministry of Labor. The purpose of this is to find alternative measures to the collective redundancy, notably:

  • Suspension of the employment agreements
  • Reduction of normal working periods
  • Professional training and reclassification
  • Early retirement

Although these measures must be discussed, as well as any other measures aiming at limiting the impact of the redundancy procedure, the employer is not under the obligation to implement them, provided the refusal is justified in the sense that it would not avoid the redundancies.

Internal alternative employment/redeployment
This is not applicable to Portugal.

Other measures
This is not applicable to Portugal.

Estimated timeline

Preparation for the procedure may take up to two months, depending on the complexity of the project.

The time required to fully implement a collective redundancy depends on the number of redundancies contemplated, as well as the years of service of the impacted employees, since the employment agreements in question only cease after the notice period following the final decision to lay off, and notice periods vary in accordance with the employees’ years of service, ranging from 15 to 75 days.

The legal time frame for the works council’s or union’s negotiation stage is not determined, but normally takes about one month.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Notice of termination, if the employee(s) is(are) released from working during the notice period
  • Works council expert fees (if applicable)
  • Compensation to the impacted employees (minimum compensation is legally set in the value of 12 days’ worth of base retribution per year of service).

For employment contracts executed after October 2013, there are mandatory contributions to the public Work Compensation Fund (Fundo de Compensação do Trabalho).

Customary additional costs

Usually, there are no customary additional costs, but these may include, at the discretion of the employer, outplacement and additional benefits to the impacted employees.

Hiring restrictions post-redundancy

Under the Portuguese Labor Code, a collective redundancy must be undertaken on a reasonable ground, meaning that the employer is not allowed to simultaneously operate a collective redundancy and hire employees through outsourcing or temporary employment to the same work positions. This would be deemed as a violation of constitutional principles such as employment safety, equality and employee right to representation.

Litigation risk

Interested parties

Once the final termination notice is issued, and not before, the impacted employees, either acting autonomously or represented by their works councils or unions, can bring law suites to challenge the legal justification, including, but not limited to, the selection criteria process and the reclassification process, before the labor courts within six months from the date of effective termination.

Damages and other remedies

Challenges could lead to two types of civil remedies, as well as sanctions for administrative offences.

Damages for unfair dismissal
Damages could be awarded to employees based on notably:

  • Absence of a legal justification
  • Failure to apply the selection criteria properly
  • Failure to follow the legal procedure, notably the consultation procedure with the works council, inter-union committee or union committee and the notification to the labor and government authorities
  • Failure to respect the 15 days’ interval from the initial communication to works council or union (or, in the absence of these structures, to the ad hoc committee or to each of the impacted workers) before issuing the final decision to terminate the employment agreements, as set in the law
  • Failure to pay compensation due to the impacted employees

The amount of the damage varies depending on the employees’ age, years of service, salary and the damages suffered. Without prejudice to any claim for damages, the employee is entitled to a compensation corresponding to interim salaries, interest and also to a compensation in lieu of the employee’s reintegration, corresponding from 15 to 45 days of base salary and seniority payments for each full year of service.

There are no punitive damages under the Portuguese law.

Reinstatement
If the procedure is found invalid, the impacted employees are entitled to reinstatement within the company — and the employer cannot refuse the reinstatement, except in the following cases:

  • Company with a workforce under 10 employees
    Or
  • Employee in a managerial position

In such cases, the impacted employees are entitled to a compensation set by the court ranging from 30 to 60 days of base salary and seniority payments for each full year of service.

Sanctions for administrative offences
Failure to comply with certain legal requirements, in particular, those of the workers’ representation structure consultation, may expose the employer to sanctions ranging from EUR612 up to EUR9,690.

Country-specific issues

During the notice period following the final decision to terminate the employment agreements, each impacted employee may take up to two days of paid leave per week; effects of this leave in the work plans of the employer should be considered when implementing the procedure.

Contact

Primary Contact for Portugal Labor and Employment Law

Rodrigo Serra Lourenço
RRP Advogados
+351 217 912 000

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Portugal
PT

Contacts