Severance per disimissal in Portugal – a complex legal framework

Currently, the severance calculation in case of collective dismissal or dismissal due to the redundancy of the job position is subject to different calculation rules, depending on the type of employment contract and the period during which the contract was performed, as follows:

1. Fixed-term contracts (“contratos a termo certo”)

• 1. Contracts entered into up to October 31^st, 2012: one month of base salary and seniority allowances for each full year of service;
  2. Period between November 1^st, 2012 and September 30^th, 2013: 20 days of base salary and seniority allowances for each full year of service;
  3. Period between October 1^st, 2013 and April 30^th, 2023:

1. 1. 1. 18 days of base salary and seniority allowances for each full year of service, in respect of the first 3 years of the contract;
      2. 12 days of base salary and seniority allowances for each full year of service in the subsequent years;

The regime set out in point (a) above applies only to contracts which, on October 1^st, 2013, had not yet reached a duration of three years.

1. 4. Period from May 2023 onwards: 14 days of base salary and seniority allowances for each full year of service.

It should be noted that this latest calculation formula, in force since May 2023, has no retroactive effect and applies exclusively to the period of performance of the employment contract after May 1^st, 2023.

It should also be emphasized that, notwithstanding the various calculation formulas presented above, statutory caps apply to the amount of severance due to the employee.

The above rules are also applicable, with the necessary legal adjustments, to the following situations of termination of the employment contract:

• dismissal due to unsuitability;
• termination of the contract due to the employer’s death, dissolution of a legal entity, closure of the business or insolvency;
• termination of the contract under a service commission;
• termination of the employment contract by the employee based on a lawful act of the employer;
• termination of the employment contract following a transfer of undertaking where the employee presents his opposition.

2. Temporary contracts

With regard to temporary employment contracts, the severance due in the event of termination at the employer’s initiative has, since May 2023, been set at 24 days of base salary and seniority allowances for each full year of the contract’s duration (even if the contract commenced prior to May 2023), which represents a significant increase compared to the previous framework, under which:

• fixed-term contracts: severance correspondent to 18 days per full year;
• unfixed-term contracts: severance correspondent to 18 days during the first 3 years, and to 12 days in subsequent years.

The amendments introduced in 2023 strengthen the employee’s protection in case of termination of the employment contract, as they increase the amount of severance while simultaneously imposes a greater effort on employers in terms of legal compliance and correct application of severance calculation rules.

Indeed, the criteria for calculating severance per termination of employment contracts have a direct impact on the management of corporate restructuring and reorganization processes, as well as on strict compliance with labour compliance rules. By way of example, failure to pay the full amount of severance may qualify the dismissal procedure unlawful.

The current framework therefore requires a careful analysis of each employee’s employment situation and the phased application of the applicable rules, making the calculation of severance per termination of employment contracts more complex for employers and human resources teams.

In a context of increased labour inspection and litigation, the correct interpretation and application of the legal framework governing severance per termination of employment contracts is of strategic importance. Obtaining specialized labour law advice is therefore essential to mitigate legal risks, ensure compliance with the Labour Code and support informed and well-founded business decisions.

Belzuz Abogados, S.L.P. has a Labour Law team in Portugal with extensive experience in advising on employment contract terminations, corporate restructuring processes and labour compliance matters, providing rigorous legal support tailored to the needs of companies and individuals.