Companies opt for collective dismissals rather than lay-offs

Companies are increasingly using collective dismissals instead of lay-offs to cope with the reduction or temporary suspension of work, according to findings of the General Directorate for Studies, Statistics and Planning. Collective dismissals are also being used more frequently than aeuro~softeraeuroTM solutions like agreements to work fewer hours and adapting wages, in order to maintain jobs. While the flexible legislation on collective dismissals in Portugal is not the sole reason for this trend, it has nevertheless facilitated the restructuring strategies of companies, by enabling them to reduce employment levels.

According to the National Statistics Institute (Instituto Nacional de EstatA­stica, INE) the number of unemployed persons amounted to 417,400 in the third quarter of 2006, representing an unemployment rate of 7.4% of the labour force. While this represents a slight decrease in unemployment compared with the figure for the same quarter in 2005 (7.7%), the number of collective dismissals is increasing.

Negotiations over alternative solutions to collective dismissals, in light of financial difficulties or increased competition experienced by companies, are still an emerging practice in Portugal, although some cases of good practice have been observed (PT0612039I).

Collective dismissal statistics

According to the General Directorate for Studies, Statistics and Planning (DirecA§A£o-Geral de Estudos, EstatA­stica e Planeamento, DGEEP) of the Ministry for Labour and Social Solidarity (MinistA©rio do Trabalho e da Solidariedade Social, MTSS), the number of companies using collective dismissals (Despedimento colectivo) increased by 54% from January to August 2006. In the first eight months of 2006, some 87 companies employing a total of 10,000 workers initiated collective dismissal proceedings affecting 1,500 workers altogether. This situation was more critical compared with that in the same period in 2005 when a smaller number of companies aeuro" 64 companies employing a total of 5,000 workers aeuro" initiated collective dismissal proceedings in relation to some 1,000 workers.

Despite the fact that collective dismissals procedures are regulated by Portuguese labour law in accordance with Community rules (Council Directive 75/129), companies are increasingly using collective dismissals instead of lay-offs (SuspensA£o do contrato de trabalho por factors relativos a empresa) to cope with crisis situations. In such situations, enterprises may have to reduce or temporarily interrupt work to cut down costs arising from a surplus of labour. Collective dismissals are also being used more frequently than aeuro~softeraeuroTM solutions such as agreements to work fewer hours and adjusting wages, while still retaining jobs.

In fact, the number of lay-offs is decreasing, although the procedure has been simplified since the labour law was enacted in 1989, and employers have the right to lay off employees unilaterally. From January to August 2006, the number of workers who agreed to reduce their working time as well as their wages fell by 50%, compared with the same period in 2005. Furthermore, smaller companies are using this strategy to control labour costs: in 2005, the 43 lay-off processes recorded were implemented by companies encompassing 8,600 workers, while in 2006 the 40 lay-off processes recorded were initiated by companies employing fewer than 4,000 workers altogether.

Commentary

The present increase in collective dismissals is not the direct result of labour legislation, insofar as there have not been any legal changes in this respect. Instead, it may be attributed to the restructuring strategy implemented by companies to reduce employment levels. As highlighted by the [Green Paper on labour relations (in Portuguese, 6.89Mb PDF)](http://www.mtss.gov.pt/docs/Livro Verde sobre as RelaçOes Laborais.pdf) published in April 2006 by MTSS (PT0606019I), Portugal has a more rigid system than other Member States in relation to individual lay-offs but the employment protection legislation (EPL) index regarding collective dismissals is close to that of the EU15 and legislation is more flexible than that in Belgium, Denmark, Germany and Italy.

Maria da Paz Campos Lima and Reinhard Naumann, DinA¢mia