Terminating an employment contract in Portugal: advice for employers

Ending an employment contract is one of those decisions where a procedural error costs more than the decision itself. A dismissal with sound grounds but a defective procedure is unlawful, exposing the employer to reinstatement or compensation and back pay. We advise employers from the choice of route through to the final step, so that the exit is achieved at the lowest risk and cost.

The right route for each case. The Portuguese Labour Code provides for several forms of termination: termination by mutual agreement, dismissal for cause attributable to the employee, collective dismissal, redundancy of the position and dismissal for unsuitability. Each has its own requirements, deadlines and costs. In most cases, the first question is not how to dismiss, but whether a negotiated exit is preferable to a formal procedure.

Termination by mutual agreement. This is the quickest route and the one least likely to lead to litigation, provided it is well drafted. The employee may revoke it until the seventh day after signing, unless the signatures are notarised in person. Access to unemployment benefit depends on the termination falling within the statutory quotas, a point that often weighs heavily in the negotiation. We prepare the agreement, the severance package and the declaration for Social Security.

Dismissal for cause. This requires a disciplinary procedure with a statement of charges, the right of reply and a reasoned decision, all within short limitation periods. We conduct the procedure or review it before the decision when the company runs it internally.

Dismissals on objective grounds. In collective dismissals and redundancies, the law requires selection criteria, information and consultation phases, and severance of fourteen days' base pay and seniority allowances for each year of service. We structure the criteria and the documentation so that they withstand challenge.

Specially protected employees. Terminating the contract of a pregnant, postpartum or breastfeeding employee, or of an employee on parental leave, requires the prior opinion of CITE, the Portuguese equality commission, in certain cases and notification to it in others. Failing to do so renders the termination unlawful.

After termination. As a rule, the employee has sixty days to challenge the dismissal. We represent the employer at the conciliation hearing and in court, before the Labour Court and the higher courts.

Book a meeting before communicating any decision to the employee. That is the stage at which the risk can still be managed.