Portugal: Employment protection weakened

After the troika intervention ended in Portugal in May 2014, important changes were made to employment rules. These allow companies to dismiss workers for ‘unsuitability’, and companies in crisis to suspend collective agreements. They also reduce the period for which expired collective agreements remain valid, and extend exceptional measures that undermine collective agreements on overtime pay.

Changes in employment protection: Individual dismissals

In 2012, some of the terms of Portugal’s Labour Code (215 KB PDF) were aligned with those in the Memorandum of Understanding (MoU) signed between the Portuguese government and the EU/ECB/IMF troika on redundancies, and on making it easier to dismiss individual workers for ‘unsuitability’. These terms stated that:

  • it should be possible to dismiss individual workers because of unsuitability even without the introduction of new technologies or other changes to the workplace;
  • selecting workers for dismissal when jobs become defunct should not necessarily follow a pre-defined seniority order, if there is more than one worker doing the same job;
  • companies who dismiss individuals would no longer be obliged to try to transfer them to another post instead.

However, on 20 September 2013, almost one year after the Labour Code 2012 came into force, the Constitutional Court declared some of these terms unconstitutional (in Portuguese), because they amounted to unfair dismissal, prohibited by Article 53 of the Constitution. There were two terms in question.

Rules on individual dismissals for extinction of job positions: (Labour Code 2012, article 368, paragraphs 2 and 4). The Labour Code 2009 had stipulated that companies selecting workers for dismissal should do so on the basis of seniority (first in, last out). However, the Labour Code 2012 (paragraph 2) gave employers the freedom to define their own selection criteria. Furthermore, while the Labour Code 2009 (article 368, paragraph 4) said that dismissal was possible only if the employer could not offer a worker another job compatible with his or her professional category, the Labour Code 2012 (article 368, paragraph 4) abolished this rule.

Rules on individual dismissals linked to unsuitability of the worker: the Labour Code 2012 abolished the provisions of the Labour Code 2009 (Article 375, paragraph 1d) which had stated that dismissals were possible only if the company had no other jobs available that were compatible with a worker’s qualifications.

Nevertheless, the Constitutional Court did accept an important change introduced by the Labour Code 2012 (article 375, paragraph 2), which allowed individual dismissals linked to the unsuitability of a worker, regardless of the introduction of new technologies or other changes to the workplace.

Following the court’s ruling, the government submitted a new draft law, which the parliament approved on 28 March 2014 and which came into force on 1 June 2014. Law No. 27/2014 (sixth amendment to the Labour Code 2009) includes two main changes. It complies with the court ruling by allowing companies are allowed to dismiss workers on the grounds that they are unsuitable, or that their job is defunct only if there are no other jobs available that are compatible with the employee’s job description (article 368, paragraph 4 and article 375, paragraph 1d). It also defines new rules that companies must follow while selecting workers for dismissal when jobs become defunct (article 368, paragraph 2). These criteria, in order of importance, are:

  1. poorer performance evaluation;
  2. lower educational and professional qualifications;
  3. higher costs in maintaining the employment relationship;
  4. less experience in the job;
  5. less seniority in the company.

The employer confederations welcomed these new criteria, which replaced the previous single criterion of seniority included in Labour Code 2009 (Article 368, Paragraph 2). However, the trade union confederations opposed the new law, saying it paved the way for unfair dismissals and that it allows firms to reduce labour costs by firing the workers who earn most and paying replacement workers less. In addition, they opposed the criteria of selection based on performance evaluation because it is not objective.

Changes in collective bargaining regulatory framework

New validity rules for expired collective agreements

Law No. 55/2014, the seventh amendment to Labour Code 2009, which came into force on 1 September 2014, introduced new rules about the length of time collective agreements can remain valid, and also on whether companies in crisis should comply with collective agreements.

The terms of many collective agreements continue after they expire if they are not renewed, but the new law echoes the MoU recommendation that it would be desirable to shorten this period of continuation. It does this by reducing the expiry period from five years to three years (Article 501, Paragraph 1) and the period of continuation upon expiry from 18 months to 12 months (Article 501, Paragraph 3). It also includes a new rule stating that whenever there is an interruption of negotiations, including conciliation, mediation or voluntary arbitration for more than 30 days, the period of ‘survival’ is suspended (Article 501, paragraph 4), and the period of negotiation with suspension cannot exceed 18 months.

Furthermore, Law No. 55/2014 introduced an additional provision (Article 3):

1 - Within one year of this law coming into force, amendment of the Labour Code must be promoted in reducing the delays referred to in paragraphs 1 and 3 of Article 501 for, respectively, two years and six months, after positive evaluation by the social partners at the Standing Commission for Social Concertation (CPCS).

2 - For the purposes of the preceding paragraph, it is considered a positive evaluation when it results from the assent of at least half of the trade union confederations and at least half of the employer confederations, with a permanent seat on the CPCS.

Companies in crisis may suspend collective agreements

Law No. 55/2014 also states (in Article 502) that companies in crisis can suspend a collective agreement (or any part of it) temporarily, for market, structural or technological reasons, disasters or other events that have severely affected their normal business activity, provided that such action is necessary to ensure the viability of the company and the maintenance of jobs. However, this can only be done with a written agreement between the employer associations and the trade unions who signed the collective agreement.

Suspension of favourable collective agreement clauses extended

Law no.48A/2014 amends the Labour Code 2012 (Article 7). The new law prolonged, until the end of 2014, the suspension of the norms of collective agreements and of labour contracts. This applies when agreement and contracts include more favourable rules for employees on overtime payments, on rest periods or additional payments for normal working time in public holidays than those set by Labour Code 2012 (Article 269).

On May 2014 the government launched a discussion with the social partners at the Standing Commission for Social Concertation (CPCS) to try to change the framework to collective bargaining on the following issues:

  • reduction of the length of collective agreements’ validity;
  • suspension of collective agreements in companies in crisis;
  • extending the suspension of collective agreements clauses that give more favourable conditions than those set by law for overtime payments and payment for work on public holidays.

The government succeeded in reaching a verbal agreement with the employer confederations and the General Workers’ Union (UGT) on the first two issues. The General Confederation of Portuguese Workers (CGTP-IN) opposed such a deal, claiming it constituted a serious attack on collective bargaining. Both CGTP and UGT considered the third measure unacceptable, but it was welcomed by the employer confederations.

Commentary

The changes implemented will reduce employment protection and might have a significant impact on collective bargaining by creating pressure to revise collective agreements and perhaps pushing the parties towards concession bargaining or even eroding sector agreements.

The decision to allow companies in crisis to suspend collective agreements is at the expense of labour rights. Furthermore, the continuing suspension of collective agreements on overtime payments and work during public holidays effectively limits the autonomy of the bargaining process.

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