New rules on unemployment benefit impose stricter criteria

On 1 January 2007, new rules on unemployment benefit came into effect. The new rules impose more stringent measures in relation to unemployed persons refusing job offers. The main changes introduced affect non-voluntary unemployment and, in the case of restructuring, restrictions on the number of workers in each company who are entitled to unemployment benefit. Moreover, the parameters of a so-called ‘convenient job’ have been established, obliging those in receipt of unemployment benefit to accept the offer of a less well-paid job. The duration of unemployment benefit, which was before solely dependent on age, now also takes employee contributions into account.

In 2006, the socialist government focused on the follow-up situation of unemployed persons receiving unemployment benefit; the government aims to promote a faster reintegration of these job seekers into the labour market. In the eight months from March 2006 to October 2006, around 5,000 people lost their unemployment benefit because they refused a job or vocational training offered by the Institute of Employment and Vocational Training (Instituto de Emprego e Formação Profissional, IEFP).

Furthermore, it appears that some 340,000 people enrolled in the local employment centres were eliminated from the lists for administrative reasons, with no indication that they found gainful employment. The President of IEFP, Francisco Madelino, stated that the criteria according to which people were eliminated from these centres followed those dictated by the International Labour Organisation (ILO). However, the General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP) refuses to accept this argument, while the General Workers’ Union (União Geral de Trabalhadores, UGT) contends that it is important to maintain stable criteria over the years.

New unemployment benefit legislation

At the beginning of January 2007, new rules on unemployment benefit came into effect with the publication of Directive No. 8-B/2007 (in Portuguese, 83Kb PDF). This directive defines the precise rules to be followed in accordance with Decree Law No. 220/2006 (in Portuguese, 825Kb PDF) published in November 2006, which itself defines the new legal framework for unemployment protection. This framework was the result of a long period of negotiations with the social partners (PT0604029I), and the final decision of the government was accepted by all of the social partners, with the exception of the Confederation of Portuguese Industry (Confederação da Indústria Portuguesa, CIP). The latter expressed a serious reservation about one of the new measures which, in the event of restructuring, places limits on the number of people who may accumulate dismissal compensation and unemployment benefit in cases where the employment contract ends by mutual agreement. These limits are determined in relation to the company’s employment level (see below).

According to the new legal regime, those in receipt of unemployment benefit will be subject to a personal employment plan and are obliged to actively seek work.

Non-voluntary unemployment more clearly defined

Under the new legal framework, non-voluntary unemployment is more accurately defined in order to determine the right of an individual to unemployment benefit. Accordingly, unemployment is non-voluntary when the employer terminates the employment contract. Exceptions to this are listed as: a dismissal based on ‘fair reason’ (justa causa) invoked by the employer; expiration of a contract based on ‘fair reason’ invoked by the employee; expiration of a contract without the provision of pension entitlements. Furthermore, unemployment is also considered non-voluntary when the contract ends by mutual agreement between the employer and the worker in the case of company restructuring, or when companies are faced with financial difficulties. Collective [dismissals](/search/node/areas OR industrialrelations OR dictionary OR definitions OR dismissals?oldIndex) also fall into the category of non-voluntary unemployment.

New restrictions relating to company restructuring

In the event of restructuring, the new legislation introduces rules at company level, restricting the number of workers who are entitled to receive unemployment benefit, together with dismissal compensation in cases where the employment contract ends by mutual agreement. These restrictions take into account a company’s size: for instance, in companies with less than 250 workers, a maximum of 25% of the workforce are entitled to receive unemployment benefit up to three years following their dismissal; in companies with more than 250 workers, up to 62 employees or a maximum of 20% of the workforce with a limit of 80 workers are entitled to unemployment benefit. Therefore, in the case of restructuring, the demands that companies can put on social security are restricted, which in turn can limit the number of workers they intend to lay off. The underlying reason for this reform relates to the fact that the social security system cannot continue to support costs resulting from all situations of mutual agreement between workers and the companies. CIP strongly opposes this measure of the reform and argues that it could undermine the possibility of company restructuring.

Contribution period and age criteria combined

The new legislation also defines the criteria for awarding unemployment benefit, as well as the amount of unemployment benefit given. Accordingly, only those who have worked at least 450 days in the two years preceding unemployment are entitled to receive unemployment benefit. The daily amount of unemployment benefit is based on 65% of the unemployed person’s gross monthly wage, calculated on the basis of a 30-day month. The main change here is that the amount of the benefit cannot be above the net wage of the worker before unemployment, which was possible under the old rules.

The new reforms relate the duration of the benefit not only to the age of the beneficiary, which was the case before, but also to the period of contributions. Different age brackets are considered when these two conditions are applied. Unemployed persons younger than 30 years, who have worked for less than two years, are entitled to nine months’ unemployment benefit. For those who have worked more than two years, the entitlement can be up to 360 days, plus an extra 30 days per five years worked. Unemployed persons who are older than 45 years are entitled to up to two years of unemployment benefit where they have worked six years, or up to 900 days if they have worked for more than six years; they are entitled to 30 days more for each five-year period of social security contributions made.

A ‘convenient job’

The unemployment benefit reforms also define the concept of a ‘convenient job’ (emprego conveniente), which refers to job offers that cannot be refused by those in receipt of unemployment benefit. A ‘convenient job’ constitutes a job which is compatible with the worker’s capacities and skills, and which must meet certain wage conditions. If an unemployed person refuses a job offer that meets these conditions, they risk losing their unemployment benefit.

With regard to pay, the monthly gross wage of a ‘convenient job’ has to be above the unemployment benefit, or equal to the unemployment benefit plus 25% in the case of those who have been receiving unemployment benefit for up to six months,. However, if the unemployed person has been in receipt of unemployment benefit for more than six months, they will not be entitled to refuse a job offer which pays a monthly gross wage equal to the unemployment benefit plus 10%.

Further conditions defined for a ‘convenient job’ take the geographical mobility of workers into account; travel expenses and time spent commuting to the job offered will be considered. More precisely, a ‘convenient job’ cannot involve travel expenses above 10% of the monthly gross wage, and commuting time cannot exceed 25% of the working time, or in the case of those with children or dependents, 20% of the working time.

Unemployment benefit can be withdrawn in the following instances: if unemployed persons miss their appointments at the local employment centre without good reason; if personal employment plans are refused or not followed; and if work is not actively being sought.

Further reforms

A number of other legal reforms encompassed under the new rules are also worth mentioning, namely: the consideration of independent workers as being unemployed when their income is below, or equal to, half of the statutory minimum wage, currently at €385.90 a month; the possibility of combining part-time employment with a part-time unemployment benefit; and the possibility of receiving unemployment benefit when completing occupational programmes.

All in all, despite initial teething problems, the new reforms have met with a positive response; it is hoped that their impact on Portugal’s unemployment situation will be equally positive, reflecting the efforts of those involved in the process.

Maria da Paz and Reinhard Naumann, Dinâmia