A) General aspects of the transfer regime

The Labor Code establishes that with the transfer, for whatever title, of ownership of the company or establishment, or even of part of the company or establishment that constitutes an economic unit, the employer’s position in the employment contracts in force at the time of the transfer is assigned to the successor or acquirer and, consequently, all the obligations resulting from those employment contracts, including those originated at the time of said transfer.

In such cases, the employment contracts will remain with the successor or acquirer, and the employee will retain all their rights, in particular the professional category, functional scope, remuneration, acquired social benefits and seniority acquired with the transferor, and the rights deriving therefrom.

The legal regime applies to the transfer of ownership or operation of the economic unit (among others, transfer, merger, demerger, judicial sale, donation, operating concession, purchase and sale of assets), i.e. it has a wide scope of application and is not necessarily only of a definitive nature.

In this respect, article 286 of the same law establishes that, in these situations, the transferor and the acquirer must inform the employees’ representatives or, in their absence, the employees themselves, of the essential aspects of the transfer, in particular:

a) date and reasons for the transfer;

b) the legal, economic and social consequences of the transfer for the employees;

c) the measures planned with regard to the employees, if any, and;

d) the content of the contract between the transferor and the acquirer, without prejudice to the provisions of Articles 412 and 413 of the Labor Code (regarding the disclosure of confidential information), with the necessary adaptations, if confidential information is made available to employees.

In the event that there are specific measures to be implemented for employees, the transferor and the acquirer must initiate a consultation process with the employees’ representatives in order to reach an agreement on the measures to be implemented.

The information must be made available in writing, prior to the transfer, within at least 10 working days prior to the consultation process with the employees’ representatives.

At the request of either party, the department responsible for labor inspection within the ministry responsible for the labor area – the Direção Geral para o Emprego e Relações de Trabalho – participates in the aforementioned negotiations, with the aim of promoting their substantive and procedural regularity, the conciliation of the parties’ interests, as well as respect for workers’ rights.

In the event that there are no representatives of the employees involved in the transfer, they may appoint from among themselves, within 5 working days of receiving the information mentioned in paragraphs (a) to (d) above, a representative committee with a maximum of 3 or 5 members, provided that the transfer involves up to 5 or more employees. The transferor must immediately inform the employees involved in the transfer of the content of the contract or of the end of the aforementioned consultation, if the representative committee does not intervene.

The transfer of a company, economic unit or operation has the following effects as set out in Article 285(1) and (2) of the Labor Code:

a) Assumption by the acquirer of the employer’s legal position in the employment contracts of the employees involved in the transfer;

b) The transferor and the acquirer are jointly liable for the employee’s claims arising from the employment contract, its breach or termination, as well as for the corresponding social contributions due up to the date of the transfer, assignment or reversion and during the following 2 years after the date of the transfer;

c) The transfer may only take place 7 working days after the deadline for appointing the representative committee, if one has not been set up, or after agreement or the end of the consultation phase.

The transferor must inform the Authority for Working Conditions (“ACT”) of the content of the contract between the transferor and the acquirer, as well as the transfer of the economic unit, and all the elements that comprise it. However, this obligation does not apply to all companies in the same way. In fact, it applies in the case of medium-sized companies (between 50 and 250 employees) or large companies (more than 250 employees) and only at the request of the Working Conditions Authority in the case of micro companies (up to 9 employees) or small companies (between 10 and 49 employees).

Employees have the right to object, which allows them to oppose the transfer of their employment contract and consequently maintain their employment contract with the transferor. However, the exercise of this right of opposition is conditional on the existence of “serious harm” to the employee, which can be verified, in particular, in the following cases:

a) due to a manifest lack of solvency or negative financial situation of the acquirer; or

b) If the acquiring entity’s work organization policy does not deserve the employee’s trust.

The exercise of the employee’s right to object does not prevent the transfer from taking place with regard to the other employees or the other legal effects arising from it, but only allows the employee to maintain the previously existing employment relationship with the transferor.

If the employee chooses to exercise their right to object, they must inform the employer in writing within 5 working days of the expiry of the deadline for appointing the representative committee, if one has been set up, or after the agreement or end of the consultation of employee representatives, expressly stating their identity, the activity contracted and the grounds for objection.

In addition, the employee has the option of terminating the employment contract for just cause within 30 days, with the right to receive compensation calculated in accordance with article 366 of the Labor Code.

B) Points to consider in a future revision of the legal regime

The current regime for the transfer of the company and establishment, contained in article 285 of the Labor Code, is essentially the result of the changes promoted by Law no. 14/2018, of March 19 and Law no. 18/2021, of April 8. The 2018 amendments introduced, in general terms, the following changes:

a) Regarding the effects of the transfer of a company or establishment, there was an extension to 2 years of the period during which the transferor maintains joint liability with the acquirer for obligations due up to the date of the transfer;

b) Increase in the scope of information and consultation with workers’ representatives, leading to an increase in the complexity and bureaucracy of the business transfer process and its effects on employment contracts;

c) Application of a collective bargaining agreement in cases of transfer of a company or establishment;

d) Expressly enshrining an employee’s right to oppose the transfer of their employment contract, but subject to the existence of “serious harm” to the employee;

e) An increase in the number of potential administrative offenses, specifically the simulation of the transfer of a company or establishment, as well as the non-recognition of the existence of the transfer of an establishment (when it has occurred), will now constitute a very serious administrative offense, and the decision condemning the practice of an administrative offense (to be issued by the Labor Conditions Authority (“ACT”)) must state whether or not the transfer of the employer’s position in the employment contracts has actually taken place.

The aim of the 2021 amendment was to extend the legal regime applicable to the transfer of a company or establishment to situations of transfer by award of a contract for the supply of services that takes place by public tender, direct award or any other means, in the public and private sector, namely the award of contracts for the supply of surveillance, food, cleaning or transport services, taking effect at the time of the award. In fact, this amendment was intended to reflect, in a more transversal way, a solution that was already enshrined in many collective bargaining instruments, especially those relating to the economic sectors mentioned.

Without prejudice to the 2021 changes, it is the 2018 changes that have provoked the most criticism, specifically the complexity of the administrative process inherent in the information and consultation processes (deadlines that overlap with each other, scope of the information to be provided to the ACT and to the employee representative committees, possibility of intervention by the Direção Geral do Emprego e das Relações de Trabalho), the scope of the ACT’s intervention in this process and the scope of the powers attributed to it (can the ACT, an administrative body, effectively declare if and when a transfer has taken place? ), or the indefinite imposition on the transferee of the conditions contained in a collective regulation instrument that they did not negotiate or adhere to, limiting the freedom to shape the working conditions of the workers transferred.

Despite the merit of various changes and the claim that they can strengthen the sanctioning system (particularly with regard to non-compliance with the information and consultation phase), all of the points mentioned above deserve, in our opinion, a thorough reflection within the process of reviewing the legal regime that has now been announced, otherwise the complexity (and length) of the process will continue to be a deterrent to compliance, leading companies to seek alternative solutions that, in certain situations, may not fully protect the position of workers.

The Employment Law Department of Belzuz Abogados in Portugal has extensive experience in advising companies on this subject, so it will be able to advise and provide clarification on the regime and effects of the transfer of company and establishment.