Portugal: Wide-ranging changes to the Labor Code

Employer Action Code: Act

New amendments to Portugal’s Labor Code (and social security law) have transposed European Union directives 2019/1158 (on work/life balance) and 2019/1152 (on transparent and predictable working conditions) into local legislation. The changes, which are part of the government’s Agenda for Decent Work initiative, also touch on a wide variety of subjects not directly related to the directives (e.g., increasing statutory severance), some of which are addressed below. The changes came into effect May 1, 2023, unless otherwise noted.

Key details

• Teleworking agreements must now stipulate the compensation due to the teleworker to cover additional expenses related to telework. Such compensation is not taxable to the employee, up to limits established the Tax and Customs Authority.
• Termination of employment during a trial period of more than 120 days is now subject to a 30-day notice period (up from 15 days previously).
• Overtime pay is increased if total annual overtime hours exceed 100, payable at 150% (rather than 125%) of normal pay for the first hour of overtime per week and 175% (rather than 137.5%) for any additional hours, and payable at 200% for overtime on a weekly rest day or public holiday (rather than 150%).
• Severance payable by the employer upon expiration of a fixed-term contract that is not renewed is increased from 18 to 24 days’ pay (base plus any long-service payments) per full year of service.
• Severance for indefinite-term employees is increased from 12 to 14 days’ pay (base plus any long-service payments) per full year of service, applicable to service from May 1, 2023. The amount of severance due for periods of service prior to May 1 are unchanged at 12 to 30 days’ pay per year of service, depending on prior dates of service with the same employer.
• Employer contributions to the Fundo de Garantia de Compensacao do Trabalho, which guarantees partial payment of compensation in the event of employer bankruptcy or closure of an establishment, and to the Fundo de Compensacao do Trabalho, which partially prefunds severance, are temporarily suspended indeterminately.
• Paternity leave is increased from 20 to 28 days, of which seven days (previously five) must be taken immediately following the birth. Entitlement to paternity leave is also extended to the second parent in the case of adoption for the first time.
• To encourage sharing of parental leave, the level of pay replacement benefits from social security will be increased if the leave is shared (the higher rate is yet to be determined).
• In the event of miscarriage, both parents are entitled to three consecutive days of employer-paid bereavement leave.
• Bereavement leave is increased from five to 20 consecutive days for the death of a spouse and from two to five consecutive days for the death of a parent.

Employer implications

According to the government, the Agenda for Decent Work initiative includes around 70 measures intended to combat marginal work and promote workforce equality as well as encourage collective bargaining, social dialogue, sharing of family responsibilities and work/life balance, among other things. Employers should review the changes and consider the effects on their employment policies and practices.