Labour System
1.8. Termination of Employment Contract
In addition to other procedures provided for by law, an employment contract may terminate due to:
a) Expiration;
b) Revocation;
c) Dismissal for cause attributable to the employee;
d) Collective dismissal;
e) Dismissal due to elimination of job;
f) Dismissal for inability to adapt;
g) Unilateral termination of the contract by the employee without just cause;
h) Unilateral termination of the contract by the employee with just cause.
Dismissal of the employee without just cause or for political or ideological reasons is forbidden.
1.8.1. Expiration and Revocation
Expiration of the Employment Contract
In general, an employment contract expires for the following reasons:
a) It reaches its end date (for instance, fixed or unfixed term contracts);
b) Due to absolute and definitive supervening facts preventing a employee from doing his job or the employer from receiving it;
c) When a employee retires, due to age or disability.
A fixed-term employment contract expires at the end of the stipulated term, or the end of its renewal, provided that the employer or the employee notifies the other party in writing of its desire to terminate either 15 or 8 days before the deadline expires, respectively.
In the event of expiration of a fixed-term contract due to declaration by the employer, the employee is entitled to compensation corresponding to 18 days of base salary and seniority for each full year of work.
The compensation is determined as follows:
a) The amount of the employee's base monthly salary and seniority to be considered for the purpose of calculating the compensation may not exceed 20 times the guaranteed minimum monthly salary (which, as from January 1, 2021, will ascend to € 14,100.00);
b) The overall amount of the compensation may not exceed 12 times the employee's base monthly salary and seniority or, when the limit prior to 240 times the minimum monthly salary guaranteed is applicable (which, as from January 1, 2022, will ascend to € 169,200.00);
c) The daily amount of the base consideration and seniority is that resulting from the division by 30 of the base monthly consideration and seniority;
In the case of a fraction of a year, the amount of compensation shall be calculated proportionally.
An unfixed-term employment contract expires when the employer foresees an end to the term and notifies the employee of said expiration, at least 7, 30, or 60 days in advance, depending on whether the contract has lasted up to six months, from six months to two years, or for a longer period of time.
In the event of expiration of an unfixed-term contract, the employee is entitled to compensation, which is the sum of the following amounts:
a) 18 days' base salary and seniority for each full year of work, for the first 3 years of contract duration;
b) 12 days' base salary and seniority for each full year of work in subsequent years.
The provisions of the preceding paragraphs concerning the termination of fixed-term employment contracts shall apply to the method of calculation of the compensation.
Labour law calls for an automatic conversion into a fixed-term contract after retirement due to old age or turning 70 years old.
Thus, the employment contract is considered as a fixed-term contract for a employee who remains employed 30 days after both parties acknowledge retirement due to age.
Revocation of Employment Contract
The employer and the employee may agree to terminate an employment contract. A revocation agreement must be executed in writing. If the signatures of such agreement are recognized before a public notary, the employee cannot regret from his previous declaration to revoke the contract and may not, in principle, file a labour demand against the employer to claim other amounts not established therein.
1.8.2. Dismissal of the employee
Dismissal for Cause Attributable to the Employee
A employee’s willful and guilty conduct is just cause for dismissal when, due to its seriousness and consequences, it becomes immediately impossible to continue the employment relationship.
The following types of conduct are just cause for dismissal:
a) Unlawful disobedience of orders given by superiors;
b) Violation of the company’s employee rights and entitlements;
c) Repeated provocation of conflicts with company employees;
d) Repeated failure to fulfill obligations related to one’s position or job, with appropriate effort;
e) Serious damage to the company’s assets;
f) False statements regarding the justification of absences;
g) Unjustified absences that directly lead to harm or serious risk to the company, or whose number reaches in each calendar year 5 consecutive or 10 interspersed absences, regardless of damage or risk;
h) Willful failure to follow safety and health rules at work;
i) Engaging in physical violence, injuries or other offenses punishable by law, while at work, against employees of the company, members of governing bodies or an individual employer not belonging to these, their delegates or representatives;
j) Kidnapping, or in general, any violation of freedom of the persons mentioned in the preceding item;
k) Failure to comply with or opposition to fulfillment of judicial or administrative decisions;
l) Abnormal reduction in productivity.
Whenever a certain behavior constitutes just cause for dismissal, the employer shall notify the employee in writing of the company’s intention to proceed with his/her dismissal, adding a statement of misconduct with a detailed description of the facts charged to the employee. On the same date, the employer sends copies of the notice and statement of misconduct to the employees commission, and if the employee is a union representative, to their respective employees union.
The employee has then 10 business days to consult the documents and respond to the statement of misconduct.
After this initial phase, and after the hearings proceedings, the dismissal decision must be substantiated and executed in writing.
The decision results in termination of the contract as soon as the employee receives a copy or is notified or when not received by the employee in a timely manner due to the employee’s own fault.
Whenever there is just cause for dismissal, the employee is not entitled to receive a compensation.
Collective dismissal
Whenever an employer decides to terminate employment contracts simultaneously or within a period of three months, including at least two or five employees, respectively, depending on whether they involve a micro or small companies, in the first case; or a medium or large company, in the second, provided that such termination is based on closing one or more sections or equivalent structures or on a reduction of the number of employees due to economic, structural or technological reasons – such procedure is called Collective Dismissal.
For these purposes, the following definitions apply:
a) Market reasons: a slowdown in business activity caused by an expected decrease of demand for goods or services; or a supervening legal or practical impediment to placing these goods or services on the market;
b) Structural reasons: economic and financial imbalance, changing business, restructuring productive organization, or replacement of dominant products;
c) Technological reasons: changes in technical or manufacturing processes, automation of production, control, or cargo-transport tools, as well as computerization of services or automation of means of communication.
An employer that intends to carry out collective dismissals must initiate the procedures by notifying the employees and its representatives of its intentions and reasons.
Furthermore, the employer must also labour authorities that a Collective Dismissal will take place.
Subsequently an information and negotiation period has mandatorily to be. Generally, the labour authorities are present during this stage.
Having reached an agreement with employees, or in its absence, after a certain period of time, the employer may issue the Collective Dismissal final decision. This decision has to be issued in writing and observing a prior notice period of:
a) 15 days in advance, for an employee with less than 1 year of seniority;
b) 30 days in advance, for an employee with seniority equal to or greater than one year but less than five years;
c) 60 days in advance, for an employee with seniority equal to or greater than five years and less than ten years;
d) days in advance, for an employee with seniority equal to or greater than ten years.
In the event of a collective dismissal, the employee is entitled to a compensation calculated in accordance to the following rules (depending on the date of the execution of the labour contract):
a) Entered into force before November 1st, 2011:
■ Regarding the period until October 31st, 2012: one month´s salary per each year of work;
■ October 31st, 2012 until September 30th, 2013: 20 days´ salary per each year of work;
■ After September 30th, 2013:
· For the first 3 years of the labour contract’s duration: 18 days´ salary per each year of work;
· For the remaining years: 12 days´ salary per each year of work.
If the compensation regarding the period until October 31st, 2012 or until September 30th, 2013, exceeds the legal limits of 12 monthly wages or € 169,200.00 (240 times the national minimum wage) the severance pay will be limited to that amount.
The compensation cannot be inferior to 3 months’ salary.
b) Entered into force after November 1st, 2011, until September 30th, 2013:
■ Until September 30th, 2013: 20 days salary per each year of work;
■ After September 30th, 2013:
· For the first 3 years of the labour contract’s duration: 18 days´ salary per each year of work;
· For the remaining years: 12 days´ salary per each year of work.
If the compensation regarding the period until October 31st, 2012 or until September 30th, 2013, exceeds the legal limits of 12 monthly wages or € 169,200.00 (240 times the national minimum wage) the severance pay will be limited to that amount.
c) Entered into force after September 30th, 2013: 12 days´ salary per each year of work, with the following maximum limits:
■ The salary used as a basis to calculate the compensation may not be higher than € 14.100,00 (20 times the national minimum wage);
■ The global amount of compensation may not be higher than 12 times the monthly salary or € 169,200.00 (240 times the national minimum wage).
For a partial year, compensation is calculated proportionally.
An employee is presumed to have accepted termination upon receiving compensation. This assumption may be rebutted as long as, simultaneously, the employee hands over the total cash compensation received or places it at the disposal of the employer, in any manner.
The compensation rules that have just been presented are applicable to dismissal for Extinction of Workplace and Dismissal for Inability to Adapt.
Dismissal due to Elimination of Job Position
It is considered dismissal due to elimination of a job position when an employer terminates an employment contract and justifies it on said elimination, if due to economic, structural or technological reasons related to the business.
Dismissal due to elimination of a job position may only take place provided that the following conditions occur:
a) The reasons given are not due to a wilful misconduct of the employer or employee;
b) The employment relationship is practically impossible to sustain (this occurs when the employer does not have another compatible job position with the professional category of the employee);
c) There are not, at the company, fixed-term employment contracts for taks related to those performed on the job being eliminated;
d) Collective dismissal is not applicable.
If in the section or equivalent structure there is a plurality of jobs with identical functional content, to determinate the job position to extinguish the employer must observe, by reference to the respective job holders, the following order of criteria:
a) Worst performance evaluation, according to criteria previously known by the employee;
b) Lower academic and professional qualifications;
c) Greater costs to the company for maintaining the employment relationship of the employee;
d) Less experience in the job position;
e) Less seniority in the company.
With dismissal due to elimination of a job, the employer must notify in writing the employees committee or, in its absence, the inter-union committee or union commission, and the employee involved, and if the employee is a union representative, the respective trade union.
During the ten days following notice as stipulated above, the employees representative body, the employee involved, and if the employee is a union representative, the respective union association, may send to the employer a justified opinion, as well as alternatives to mitigate the effects of the dismissal.
A dismissal decision shall be written.
The employer shall notify its decision in a copy or transcription to the employee involved (and if the employee is a union representative, to the respective trade union), to the employees committee (or in its absence, to the inter-union committee or the union committee), and also to the inspectors office of the ministry responsible for labour, with the same advanced notice as with collective dismissals.
Dismissal for Inability to Adapt
Dismissal for an inability to adapt results in the employer’s termination of an employment contract when an employee is unable to adapt to the job.
This inability to adapt occurs in any of the situations described below, when it becomes practically impossible to continue the employment relationship, based on the way in which the employee does his or her job:
a) Continual reduction of productivity or quality;
b) Repeated mistakes in job-related duties;
c) Risks to the employee’s health and safety, or of other employees or third parties.
A employee’s inability to adapt also occurs due to the technical complexity of duties or directions when objectives previously agreed upon in writing are not met as a consequence of the employee’s job performance, making it practically impossible to continue the employment relationship.
Dismissal due to an inability to adapt in the above mentioned situations may only take place provided that the following requirements are all met:
a) Changes to the job have been implemented due to changes in the manufacturing or marketing processes, new technology or equipment based on different or more complex technology, in the 6 months prior to starting the dismissal process;
b) Adequate professional training has been provided for the changes in the workplace under the supervision of the responsible party or a certified training entity;
c) After the training, the employee was given an adaptation period of at least 30 days on the job or outside of the workplace, if the duties for that position are likely to cause damage or risks to the safety and health of the employee, other employees or third parties;
d) There is no other available, compatible job at the company matching the employee’s professional qualifications;
In the case of dismissal due to an inability to adapt, the employer must notify in writing the employees commission, or in its absence, the inter-union committee or the union committee, the employee, and if the employee is a union representative, the respective trade union.
During 10 days after the notice, the employees representative body, the employee involved, and if the employee is a union representative, the respective union association, may send a justified opinion to the employer, in particular about the reasons for the dismissal, and the employee may also present any evidence that he/she deems relevant.
Five days after this deadline, the employer may finalize the dismissal, though a justified decision in writing.
The employer shall report the decision by copy or transcription to the employee (and, if the employee is a union representative, to the respective trade union), to the employees commission, or in its absence, to the inter-union committee or the union commission, as well as to the inspector’s office of the ministry responsible for labor, with at least as much advance notice as with a collective dismissal.
During the 90 days following dismissal due to an inability to adapt, the employment level must be maintained at the company by hiring or transferring a employee during the dismissal process for reasons not attributable to him.
Unlawful Dismissal
The dismissed employees may file a claim before a Labour Court in order to challenge the termination of their labour contracts.
If the Court decides that there was any illegal procedure or lack of reasons or formalities on the dismissal, he employees may choose between being reinstated in the company, or receive a compensation ranging between 15 and 45 days of base remuneration plus seniority bonus per each year or fraction of year of seniority, with a minimum of three months of base remuneration plus seniority bonus.
On both situations, the employees shall be entitled to the salaries which they would have received if the dismissal had not taken place and to an eventual compensation for damages suffered.
1.8.3. Employee’s Termination of Employment Contract
Unilateral Termination of the Labour Contract by the Employee with Just Cause
If it becomes immediately impossible to continue the employment relationship in ways to be considered as just cause, an employee may terminate it immediately.
For instance, failure to make timely payment of compensation that lasts for 60 days is a justifiable reason, or when the employer, at the employee's request, states in writing that it expects not pay the wages owed, by the end of that period.
The employee must notify the employer in writing of the termination of the contract, stating briefly the facts that justify the termination, within 30 days of becoming aware of the facts.
In this event, the employee is entitled to compensation to be determined between 15 and 45 days of base pay and seniority pay for each year worked, depending on the amount of compensation and the extent of the employer’s unlawful conduct, and may not be less than 3 months of base pay and seniority pay.
In the event of a partial year worked, the amount of compensation is calculated proportionately.
In the case of a fixed-term contract, compensation cannot be less than the amount of wages owed.
If the just cause for termination of the contract is not proven, the employer is entitled to compensation of damages caused, not less than the amount calculated in the below mentioned terms in the case of termination without prior notice, as described below.
Unilateral Termination of the Labour Contract by the Employee without Just Cause
Notice of termination: the employee may terminate a contract regardless of cause by notifying the employer in writing at least 30 or 60 days in advance, depending on whether he or she has worked, respectively, up to 2 years or for more than 2 years.
Collective bargaining regulation and the employment contract may increase the prior notice period by up to 6 months for an employee who holds a management or executive position, or one who has representative or responsibility duties.
In the case of a fixed-term contract, termination may take place with notice given 30 or 15 days in advance, if the contractual duration is at least 6 months or less.
Termination without notice: a employee who does not comply in whole or in part with the notice period must pay the employer compensation in an amount equal to base pay and seniority pay for the period in question, without limitation to compensation for damages caused by not abiding by the notice period or the obligation assumed in an employment commitment agreement.
1.8.4. Working Compensation Fund, Equivalent Mechanism and Working Compensation Warranty Fund
Law No. 70/2013 of August 30 introduced the legal framework of the Working Compensation Fund, the Equivalent Mechanism and the Working Compensation Warranty Fund.
Only employment contracts celebrated after October 1, 2013 are under the regulation of this law.
Employers are obligated to contribute with a value equal to 1% of the employee’s monthly remuneration to the referred funds, in each month.
The objective of these new funds is to guarantee that the employees will receive, at least, half of the compensation he is entitled to in case of contract termination.
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