Expanding to a new market requires that you comply with all local labor and employment laws to ensure consistency of service. This applies not just to recruitment and payroll, but also to terminating a contract or dismissing an employee. If you don’t handle termination correctly you could risk having to pay expensive fees and fines. This could be in addition to severance pay in Portugal, thereby risking damage to the finance and integrity of your company.
Like many countries in the EU, Portugal’s employee termination laws are quite stringent. As a result, it is essential to ensure accuracy at every stage of the process. This article explains everything you need to know about notice periods, different types of termination, and severance pay in Portugal.
Dismissing an Employee in Portugal
An employee relationship can end naturally at the end of a contract. It can end when both parties mutually agree to terminate the contract.
However, it can also end due to dismissal. A dismissal is when one party unilaterally terminates the contract against the other’s will. Portuguese law distinguishes between two types of dismissal: ordinary dismissal and dismissal for just cause. An ordinary dismissal is when an employer terminates a contract without any fault on the employee’s part.
Employers are obligated to provide notice to the employee prior to dismissal and the circumstances around dismissal may affect the amount of severance pay in Portugal. If the employer fails provide severance pay in Portugal, the employee may be able to file a lawsuit against the employer.
Alternatively, dismissal for just cause is when an employee has done something to warrant immediate dismissal. In this case, the employer is not obligated to provide notice or a severance pay in Portugal.
In either case, it is important to note that employers must handle termination in accordance with the law. Failing to do so can result in expensive fees and fines, in addition to any severance pay the employee may be owed.
Dismissal due to the fault of the employee
This can be a result of poor performance, repeated mistakes, unjustified absences, disregard for contract rules, etc. An employer is required to state in writing the behavior that led to their dismissal and notify both the employee and any relevant employment union.
The employee then has 10 days to respond to the report. If the employee is part of a union, the union may also investigate the cause for termination. After this, the dismissal is considered final.
Collective dismissals are defined as when at least 2-5 employees are terminated in three months. The exact number of employees depends on the size of the company.
In these cases, the employer must inform the workers’ union or employee representatives. A negotiation period will take place, during which an agreement may or may not be reached with the employees.
After this, the employer should notify the employee of the termination in writing, and the regular notice period will then begin.
Termination Due to Other Circumstances
Should the company need to make workers redundant due to new circumstances, they must provide notice and severance pay to the employees affected. We will go through these necessities below.
Notice Periods in Portugal
If an employee is dismissed due to severe misconduct and breach of contract, the employer doesn’t need to offer a notice period.
In other situations, including collective dismissals, extinction of position (redundancy), or employee issues, the notice periods are as follows:
– 15 days for employees who have worked less than a year
– 30 days for employees who have worked 1-5 years
– 60 days for employees who have worked 5-10 years
– 75 days for employees who have worked more than 10 years
If a probation period lasts less than 60 days there is no need for a notice period during dismissals. If the probation period goes over 60 days, 7 days’ notice must be given, which increases to 15 days if the probation is longer than 120 days.
Understanding Severance Pay in Portugal
Due to changes in policies around severance pay in Portugal, being sure of the start date of employment is vital to calculating the right amount of compensation when terminating a contract. The chart below provides a simple and clear structure to follow:
(This information only applies to indefinite-term contracts entered into before November 1, 2011.)
· Before October 31, 2012: 1 month’s wages for every year of service
· November 2012 – September 30, 2013: 20 days of wages for every year of service
· From October 2013: 18 days’ wages for the first 3 years of service and then 12 days for the remaining time.
Severance pay in Portugal is capped at 240 times the national minimum monthly wage.
Severance Pay in Portugal in Cases of Wrongful Termination
If an employee deems a dismissal as unfair, they can challenge it in the labor courts. If a dismissal is ruled as unjust, the employer is required to compensate the employee with between 15-45 days of wages for every year of service with an amount no less than 3 months of wages.
In some cases, the court will require the employer to reinstate the employee. If the employer maintains that reinstating the employee would be harmful to the company, they must instead compensate the employee with 30-60 days of wages per year of service. This should provide the employee with an amount no less than 6 months of wages.