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PORTUGAL: An Introduction to Employment

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Chambers Practice Area Overview 2020 – Employment (Portugal)

1. Economic Environment Overview 

The Portuguese economy continued to improve in 2019, although the growth rate is expected to slow down in the next few years.

In fact, Portuguese GDP is estimated to have grown by 2% in 2019, which exceeds the estimated average GDP growth in the Euro Area (1.2%). The downward trend in the growth of Portugal's GDP growth when compared to 2018 and 2017 (3.5% and 2.4%, respectively) may be an indication of a deceleration in the country’s economic activity. This is expected to continue in the coming years, against the background of a similar global trend.

In 2019, the unemployment rate continued to fall from 7% in 2018 to 6.5%, the lowest rate since 2004, and it is expected to decrease by 0.4% in 2020.

On the Portuguese political scene, considering the outcome of the 2019 elections was the re-election of the previous Government, political choices in Portugal may benefit from a certain degree of stability for the next four years. However, the alliance between the left-wing parties that was in place during the last four years has officially been terminated. This may lead to different political balances and solutions being found on a case-by-case basis by the minority government in the future.

2. Legislative changes 

The most significant legislative changes in 2019 relate to the limitations placed on fixed-term employment contracts. The maximum periods have been reduced from 3 to 2 years and the number of renewals from 3 to 2. The grounds for hiring workers under these contracts have also been limited. Furthermore, in line with this, legislation was approved to introduce penalty social security rates for businesses that use fixed-term contracts more often than the average in the economic sector where they operate.

Changes have also been made to what is known as the “hours bank”, a mechanism under which the employee can work up to two additional hours per day that do not qualify as overtime work. The employee is compensated, at the employer's discretion, with rest, payment in lieu (at the standard hourly rate) or with an increase in the number of holidays. The changes bring an end to the possibility of implementing the bank of hours scheme by individual agreement and impose stricter requirements on collectively agreed hours banks.

The programme of the Government (elected in October 2019) includes a number of proposals that, in one way or another, represent important changes to the Portuguese legal system:

1. The creation of mechanisms to represent workers on the boards of large companies and companies quoted on the stock exchange, in matters involving employment and labour issues, and the distribution of dividends.

2. Tax penalties for companies that have a salary range greater than the S80/S20 ratio.

In particular, if this second proposal comes into force, it will motivate companies to begin to consider adopting measures to diversify their salary structures in order to escape the rigidity of the limits and consequent tax penalties.

3. Trends for 2020 

It is hoped that 2020 will not be marked by significant social conflict, especially in the private sector. In part, that would be due to the overall impact the increase in the minimum wage has had (in the last 2 years alone, it has grown by around 10%), and to the lower degree of animosity that the trade unions feel, by definition, towards a left-wing government.

The level of inspections of companies carried out by the ACT (the Portuguese Working Conditions Authority) in 2019 is likely to be maintained or even increase in 2020. Indeed, the Government has announced that this is one of its aims and it has revealed several measures that point in this direction. It particular, there is a plan to strengthen operational processes and to create a system to exchange information between the ACT, the Tax and Customs Authority, and the Social Security. As a result, it is advisable for companies to have well-organised procedures covering even less important administrative matters.

We also expect to see a certain increase in judicial litigation relating mainly to conflicts arising from the effect of changes in the applicable legislation on complementary social benefits (pre-retirement, pension complements...). This legislation has been subject to a range of complex changes over the past three years.

Another feature of 2020 will the growing pressure on certain sectors, in particular, the banking and financial sector. This sector has been suffering because the new business models, in particular, the use of new technologies to interact with customers, which means there is now an excess of workers. As a result, there is a need to seek out hopefully consensual solutions that creatively exploit the existing legal mechanisms, but do not endanger the economic viability of the organisations themselves.

Finally, there is some misalignment between the rigidity of the policies referred to above (stricter rules on hiring workers, working hours and salary structures) and the aspirations of the younger generations who are entering the job market and seeking “made-to-measure” flexibility in their working lives.

By Tiago Cortes and Nuno Ferreira Morgado