Employment Law in Portugal

Portugal's Labour Code (Código do Trabalho), enacted under Law No. 7/2009 and substantially amended since, governs virtually every aspect of the employment relationship - from hiring to dismissal. Employers operating in Portugal face a highly regulated environment where procedural errors in termination or contract drafting routinely result in reinstatement orders or significant compensation awards. This article examines the legal framework, the most commercially relevant tools, and the practical risks that international businesses encounter when managing a Portuguese workforce.

The Código do Trabalho (Labour Code) is the primary source of employment law in Portugal. It sets minimum standards that cannot be waived by individual agreement, though collective bargaining agreements (Contratos Coletivos de Trabalho) can improve on those standards and frequently do in sectors such as construction, retail, and financial services.

The Labour Code is supplemented by a dense body of secondary legislation. Decree-Law No. 76/2012 regulates working time in detail. Law No. 105/2009 establishes procedural rules for applying the Labour Code. The Social Security Contributions Code (Código dos Regimes Contributivos) governs employer and employee contributions, which currently stand at 23.75% and 11% of gross remuneration respectively, though these figures are subject to periodic revision.

The Authority for Working Conditions (Autoridade para as Condições do Trabalho, ACT) is the principal enforcement body. ACT conducts workplace inspections, investigates complaints, and issues administrative fines. Labour courts (Tribunais do Trabalho) have exclusive jurisdiction over individual employment disputes. Appeals go to the Courts of Appeal (Tribunais da Relação) and, on points of law, to the Supreme Court of Justice (Supremo Tribunal de Justiça).

A non-obvious risk for international employers is the mandatory application of Portuguese law to employees habitually working in Portugal, regardless of any choice-of-law clause in the contract. Under EU Regulation Rome I, a contractual choice of foreign law cannot deprive a Portuguese-based employee of the protections afforded by Portuguese mandatory rules. Many foreign companies discover this only after a dispute arises.

An employment contract (contrato de trabalho) is defined under Article 11 of the Labour Code as an agreement by which a person undertakes, for remuneration, to provide activity to another person under their authority and direction. This definition is broad, and Portuguese courts apply a presumption of employment under Article 12 when certain indicators are present - such as fixed working hours, use of employer equipment, or integration into the employer's organisational structure.

The Labour Code recognises several contract types. Open-ended contracts (contratos sem termo) are the default and carry the strongest protections. Fixed-term contracts (contratos a termo certo) are permitted only for temporary needs and may not exceed two years, renewable once for up to two years. Uncertain-term contracts (contratos a termo incerto) cover work whose duration cannot be predetermined, such as replacing an absent employee. Temporary agency work is regulated separately under Law No. 19/2007.

Fixed-term contracts require written form and must state the specific justification for the temporary nature of the work. Failure to comply with these requirements converts the contract into an open-ended one by operation of law under Article 147 of the Labour Code. This is a common mistake made by international employers who import contract templates from other jurisdictions without adapting them to Portuguese requirements.

Mandatory written content includes: identification of the parties, place of work, description of duties, remuneration, working hours, and the start date. For fixed-term contracts, the justification and end date are also mandatory. Probationary periods (períodos experimentais) are permitted under Article 111: 90 days for most employees, 180 days for employees in positions of trust or technical complexity, and 240 days for senior management.

Part-time contracts, remote work agreements (teletrabalho), and service commission agreements (contratos de comissão de serviço) for senior executives each carry specific formal requirements and distinct termination rules. Remote work, significantly expanded after Law No. 83/2021, now entitles employees to compensation for additional home-working expenses and grants them the right to disconnect outside working hours.

To receive a checklist on employment contract drafting and mandatory content requirements in Portugal, send a request to info@vlolawfirm.com.

The standard working week in Portugal is 40 hours, with a maximum of 8 hours per day under Article 203 of the Labour Code. Overtime (trabalho suplemento) is permitted but subject to annual caps: 150 hours per year for employees in companies with 50 or more workers, 175 hours for smaller companies. Overtime must be compensated at a premium - 25% for the first hour and 37.5% for subsequent hours on a normal working day, and 50% on rest days or public holidays.

The national minimum wage (Retribuição Mínima Mensal Garantida, RMMG) is reviewed annually by government decree. Employers must pay at least 14 monthly salaries per year: 12 regular monthly payments plus a holiday subsidy (subsídio de férias) and a Christmas subsidy (subsídio de Natal), each equivalent to one month's base salary. These two additional payments are a mandatory statutory entitlement under Articles 264 and 263 of the Labour Code, not a discretionary bonus.

Annual leave entitlement is 22 working days per year under Article 238. Employees accrue leave from the start of employment, with a proportional entitlement in the first calendar year. Unused leave can be carried over only in limited circumstances defined by the Labour Code, and employers who fail to allow employees to take their leave may be required to pay double compensation.

Sick leave is managed through the social security system. Employees receive a daily allowance (subsídio de doença) from the Social Security Institute (Instituto da Segurança Social) from the fourth day of absence, subject to contribution history requirements. Employers are not generally required to top up sick pay unless a collective agreement or individual contract provides otherwise.

A common mistake among international employers is treating the holiday and Christmas subsidies as optional benefits rather than statutory obligations. Failure to pay them constitutes a serious labour infraction under ACT's enforcement framework and can trigger administrative fines ranging from moderate to substantial amounts depending on the size of the company and the number of affected employees.

Termination is the area of Portuguese employment law that generates the most disputes and the greatest financial exposure for employers. The Labour Code establishes a closed list of lawful grounds for termination. Dismissal without a lawful ground is unlawful (despedimento ilícito) and entitles the employee to reinstatement or, at the employee's election, enhanced compensation.

The main termination modalities are:

• Dismissal for just cause (despedimento por justa causa) - Article 351, based on serious employee misconduct
• Collective redundancy (despedimento coletivo) - Article 359, affecting five or more employees within three months
• Redundancy due to job elimination (extinção do posto de trabalho) - Article 367, affecting one or more employees
• Redundancy due to employee unsuitability (inadaptação) - Article 373, where the employee cannot adapt to changes in the role
• Mutual agreement (acordo de revogação) - Article 349, by written consent of both parties

Each modality has distinct procedural requirements and compensation consequences. A procedural defect in any of them - even a technically justified dismissal - can render the termination unlawful.

For dismissal for just cause, the employer must conduct a disciplinary procedure (procedimento disciplinar) under Articles 352 to 358. This involves serving a written accusation (nota de culpa) on the employee, allowing a minimum of 10 working days for the employee to respond, conducting an inquiry if requested, and issuing a written decision. The entire procedure must be completed within 60 days of the employer becoming aware of the misconduct. Missing this deadline extinguishes the right to dismiss for that specific act.

For collective redundancy, the employer must notify ACT and employee representatives simultaneously, provide detailed written information on the reasons for redundancy, the selection criteria, and the proposed compensation. A consultation period of at least 15 days follows. Individual notices must then be given with a minimum notice period of 15 to 75 days depending on seniority.

Statutory redundancy compensation under Article 366 is calculated at 12 days of base salary plus seniority allowances per year of service, subject to a cap of 20 times the national minimum wage per annual payment and an overall cap of 12 times the employee's monthly remuneration. For contracts entered into before certain reform dates, transitional rules may apply different calculation bases, which is a source of frequent disputes.

Unlawful dismissal (despedimento ilícito) entitles the employee to reinstatement with back pay, or - if the employee opts against reinstatement or the employer demonstrates that reinstatement would cause serious damage to the company - to compensation of between 15 and 45 days of base salary per year of service, with a minimum of three months' salary under Article 391.

In practice, mutual termination agreements are the most commercially efficient exit route when both parties are willing. A well-structured revogação can include a negotiated compensation package, a waiver of future claims, and a confidentiality clause. The agreement must be in writing, signed by both parties, and the employee has seven days to revoke it under Article 349.

To receive a checklist on lawful termination procedures and compensation calculation in Portugal, send a request to info@vlolawfirm.com.

Scenario one: a technology company dismisses a senior developer for poor performance. The employer relies on the inadaptação procedure under Article 373. This modality requires prior introduction of changes to the employee's role, written notice of the performance issues, a 30-day period for the employee to respond, and confirmation that no other suitable position exists within the company. If the employer skips the prior change-of-role requirement - a step many international employers overlook - the dismissal is procedurally defective and will be declared unlawful by the labour court. The financial exposure in such a case, including back pay from dismissal to judgment, can easily reach the mid-five-figure range in euros for a senior employee.

Scenario two: a retail chain closes one of its stores and eliminates 12 positions. This triggers the collective redundancy procedure. The employer must select employees using objective, non-discriminatory criteria. Portuguese courts scrutinise selection criteria carefully, and criteria that disproportionately affect older workers or workers on protected leave (maternity, paternity, sick leave) are regularly challenged. Employees on parental leave have special protection under Article 63 and cannot be made redundant without prior authorisation from ACT, which adds procedural complexity and time.

Scenario three: a foreign company engages a Portuguese national as an independent contractor for three years. ACT or the employee subsequently challenges the classification. Under Article 12 of the Labour Code, if three or more of the statutory indicators of employment are present - fixed hours, use of employer's equipment, integration into the organisation, exclusivity, employer's direction - the relationship is presumed to be employment. The reclassification triggers retroactive social security contributions, holiday pay, Christmas subsidy, and potentially unlawful dismissal compensation if the relationship is then terminated. The total liability in such cases routinely reaches the high five figures in euros.

The risk of inaction is particularly acute in the reclassification scenario: ACT can investigate relationships going back five years, and the statute of limitations for labour claims under Article 337 is generally one year from the date the right became exercisable, though social security claims follow different limitation rules.

A non-obvious risk in all three scenarios is the role of collective agreements. Even if the employer is not a signatory to a sectoral collective agreement, the agreement may be extended by ministerial portaria de extensão to cover all employers in the sector. Employers who do not monitor applicable collective agreements may unknowingly apply lower standards than required, creating accumulated liability.

Before filing a claim in the labour court, Portuguese law does not impose a mandatory mediation or conciliation step for most individual employment disputes. However, the Labour Code encourages conciliation, and labour courts routinely attempt conciliation at the first hearing (audiência de partes). Many disputes settle at this stage, which typically occurs within two to four months of filing.

Labour court proceedings in Portugal are governed by the Code of Labour Procedure (Código de Processo do Trabalho), approved by Decree-Law No. 480/99. Claims must generally be filed within one year of the act giving rise to the claim under Article 337 of the Labour Code. For unlawful dismissal specifically, the employee must file within one year of the dismissal date.

Electronic filing through the Citius platform is mandatory for lawyers and available for parties acting in person. The labour court system has dedicated first-instance courts in major cities, with general civil courts handling labour matters in smaller jurisdictions. Enforcement of judgments follows the general civil enforcement procedure, with the employer's assets subject to attachment if payment is not made voluntarily.

Provisional measures (providências cautelares) are available in urgent cases. An employee challenging a dismissal can seek provisional reinstatement under Article 34 of the Code of Labour Procedure if the dismissal appears manifestly unlawful. The court can order provisional reinstatement within days of the application, creating immediate operational pressure on the employer.

Costs in labour court litigation vary significantly. Employees benefit from reduced court fees and, in many cases, legal aid (apoio judiciário) if their income falls below statutory thresholds. Employers typically face court fees calculated on the value of the claim, plus lawyers' fees that generally start from the low thousands of euros for straightforward matters and rise substantially for complex multi-party or high-value disputes. The losing party bears court costs, and partial cost awards are common.

We can help build a strategy for managing employment disputes or structuring terminations in Portugal. Contact info@vlolawfirm.com for an initial assessment.

What are the main risks for a foreign employer dismissing an employee in Portugal without following the correct procedure?

A procedurally defective dismissal is classified as unlawful (despedimento ilícito) regardless of whether the underlying reason was substantively valid. The employee is entitled to reinstatement with full back pay covering the period from dismissal to the court's decision, which can span one to three years given typical litigation timelines. If the employee opts for compensation instead of reinstatement, the award ranges from 15 to 45 days of base salary per year of service, with a statutory minimum of three months. In addition, the employer may face administrative fines from ACT for procedural violations. The combined financial exposure frequently exceeds the cost of a properly structured mutual termination agreement, making procedural compliance the commercially rational choice.

How long does a labour court case typically take in Portugal, and what does it cost?

First-instance proceedings in a Portuguese labour court typically take between 12 and 24 months from filing to judgment, depending on the complexity of the case and the court's caseload. Appeals to the Court of Appeal add a further 12 to 18 months. Lawyers' fees for a standard unfair dismissal claim generally start from the low thousands of euros and increase with the value of the dispute and the number of hearings required. Court fees are calculated as a percentage of the claim value and are subject to statutory caps. Employees with limited means can access legal aid, which significantly reduces their cost exposure and can affect the employer's strategic calculus in settlement negotiations.

When is a fixed-term contract the right choice, and what happens if it is used incorrectly?

A fixed-term contract is appropriate only when the employer has a genuine temporary need - launching a specific project, replacing an absent employee, or covering a seasonal demand spike. The Labour Code requires the justification to be stated explicitly in the contract. If the justification is absent, insufficient, or does not correspond to the actual work performed, the contract is automatically converted to an open-ended contract from its inception. This means the employee acquires full open-ended contract protections retroactively, including the right to redundancy compensation calculated from the original start date. A common error is using fixed-term contracts as a general probationary device or to avoid open-ended obligations, which Portuguese courts consistently reject.

Portugal's employment law framework rewards employers who invest in procedural compliance and penalises those who import practices from less regulated jurisdictions without adaptation. The key commercial levers - contract type, termination modality, compensation calculation, and collective agreement coverage - each carry specific legal requirements and financial consequences that must be assessed before decisions are made, not after disputes arise. A structured approach to workforce management, grounded in the Código do Trabalho and current ACT enforcement priorities, significantly reduces litigation exposure and operational disruption.

To receive a checklist on employment law compliance and workforce management best practices in Portugal, send a request to info@vlolawfirm.com.

Our law firm VLO Law Firm has experience supporting clients in Portugal on employment and labour law matters. We can assist with employment contract drafting, termination procedures, redundancy planning, reclassification risk assessments, and labour court representation. To receive a consultation, contact: info@vlolawfirm.com.