Employer Action Code: Act

Recent amendments to the Labor Code, effective August 1, 2012, introduce significant changes to the business environment by lowering labor costs and increasing workforce flexibility. The measures reflect commitments in the 2011 Memorandum of Understanding between the Portuguese government, the European Central Bank, the European Commission and the International Monetary Fund as part of an aid and support package.

Key Details

Changes and/or new provisions under the amended Labor Code include:

  • Reduction of statutory severance from 30 to 20 days of base salary per year of service (plus seniority bonus, if any) for individuals hired on or after November 1, 2011. The total amount is limited to 12 times the individual’s base salary or 240 times the statutory minimum wage (US$149,678, or €116,400 in 2012).
  • Creation of banks for individual and collective hours that can be set up by mutual agreement between the employer and individual employees or groups of employees to allow normal work time to be extended by up to two hours per day, 50 hours per week and 150 hours per year. Compensation for hours banked may be in the form of normal cash compensation, additional paid leave or equivalent time off.
  • Reduction of overtime pay by half to a statutory pay premium of 25% of base pay for the first hour and 37.5% for additional hours. Overtime compensation for work performed during weekly days off or public holidays is now 50% of previous compensation.
  • Cancellation of four out of 12 public holidays previously observed as of January 2013: Corpus Christi, Republic Day, All Saints’ Day and Independence Day. They will not be paid public holidays for the five-year period from 2013 to 2017 but will be considered for reinstatement at a later date.
  • Elimination of the three bonus vacation days provided in cases of no or reduced absences during the prior year, setting the maximum (or minimum) annual leave entitlement at 22 working days.
  • Possible termination of unsuitable employees without reference to changes in the workplace or introduction of new technology.
  • Determination of job redundancies can now be based primarily on objective and nondiscriminatory criteria rather than on seniority.

Employer Implications

The amendments attempt to ensure a more flexible labor market through cost-effective measures and a performance-based approach to employment. Employers in Portugal should review their workplace practices to see how current practices may align with these new legal standards.