Dismissal and Termination of Contracts in Portugal: What Employees Need to Know
Margarida Tempera | Lawyer
Portuguese law treats the ending of a job with great seriousness, and employees in Portugal have important protections and processes to ensure any dismissal is lawful and fair. Under the Portuguese Labour Code, an employer may not simply terminate a contract without a valid reason; in fact, the law requires “just cause” for dismissal and forbids firing someone for political or ideological reasons. In practice, this means an employer must either point to an objective business reason or to the employee’s own misconduct.
When considering the different ways in which an employment relationship may come to an end under Portuguese law, it is important to distinguish between those situations that arise automatically, those that result from agreement, and those that derive from unilateral decisions. A contract may lapse upon the expiry of its fixed term, or it may be brought to an end by mutual revocation agreed between the parties. Termination may also occur through dismissal, which can take place for disciplinary reasons where the employee’s conduct justifies it, or for objective reasons such as collective redundancy, the elimination of the job position, or situations of professional inadequacy where the employee is no longer able to perform the role. In addition, the employee may decide to terminate the contract, either through termination with just cause where the employer’s behaviour makes the continuation of the relationship impossible (in this case, the employee has the right to receive compensation), or through resignation without cause, provided that the legal notice period is observed.
Dismissals are therefore classified broadly as either for objective reasons (such as redundancy or unsuitability) or for disciplinary reasons (a serious breach of duties), and each type has its own rules. Both are strictly regulated to protect employees, and the employer must follow formal procedures to notify, consult and in some cases negotiate with the employee or their representatives before actually ending the contract.
A disciplinary dismissal (despedimento por justa causa) is a termination due to the worker’s own conduct. Examples of justifying behaviour include insubordination, damage to company property, dishonesty or other serious misconduct that makes the employment relationship untenable. For instance, if an employee repeatedly disobeys lawful instructions or commits theft at work, the employer could have grounds to dismiss them; however, even in these cases, the employer cannot act unilaterally or secretly; a detailed disciplinary procedure is required. The employer must inform the employee in writing of the allegation (often called a “note of fault”), giving a full description of the facts and the intention to dismiss. The employee then has the right to respond, produce evidence or witnesses, and defend themselves within set time limits (10 working days). A works council or union representative may also be involved at certain stages. Only after this process can a final decision be made to dismiss. Importantly, because such misconduct is attributable to the employee, no notice period is required, and no severance pay is automatically owed when a disciplinary dismissal is carried out lawfully. The dismissal takes effect as soon as the employee is notified. In other words, if the disciplinary dismissal is justified and all procedures are followed, the employee leaves immediately without the usual notice and without a statutory payout.
By contrast, an objective dismissal arises from business needs or job unsuitability, being the most common form of redundancy or the abolition of a job position (for example, if a department closes or a company is reorganised for economic reasons). Portuguese law calls these “objective reasons” such as market, technological or structural changes in the business. Another category is unsuitability (inadaptação, in Portuguese), where an employee cannot adapt to new job requirements or fails to meet agreed performance targets despite training and adjustments. This unsuitability procedure is complex, but in simple terms, the law allows an employer to dismiss for these reasons provided strict conditions are met: the employer must notify the employee in writing of the precise reasons and any new conditions, allow an adaptation or training period, and consult with the worker before proceeding.
Whether for redundancy or unsuitability, the employer must give the employee advance notice. The length of notice depends on how long the employee has worked for the company: it starts at 15 days’ notice for employees with up to one year of service, rising to 30 days for one to five years, 60 days for five to ten years, and 75 days for ten years or more. During this notice period, the employee is still on the payroll and entitled to full pay. Also, objective dismissals require the employer to pay severance compensation based on the employee’s salary and length of service. Under current law, severance compensation is calculated by reference to the employee’s basic pay and length of service. For employment contracts entered into on or after 1 October 2013, the standard formula is 14 working days of basic salary and seniority allowances for each full year of service. For contracts entered into before that date, transitional rules apply, meaning that different formulas coexist depending on the period of service accrued, but as of today, the applicable rate for new service is 14 working days per year.
If a dismissal process affects multiple employees (known as a collective dismissal or redundancy plan), even more formal procedures apply, including consultation with employee representatives and notification to labour authorities.
Throughout the dismissal process, Portuguese law confers a number of rights on the employee. An employee must be informed of their rights and allowed to be heard, for example, by responding to the employer’s allegations in a disciplinary case.
In redundancy or job-termination procedures, employees (and their representatives) are entitled to a consultation phase where the employer must explain the business reasons, explore alternatives to dismissal, and negotiate terms or support measures. In many cases, a labour law lawyer, a union or even a government labour inspector will be involved to oversee that the rules are followed. Specific groups enjoy extra protection: for instance, women who are pregnant or on maternity leave, new mothers, and fathers on paternity leave cannot be dismissed without a special prior opinion from the equality authorities or a court decision confirming a valid reason. Likewise, an elected employee representative usually cannot be fired except for very serious reasons, and the employer must notify the representative’s union when any dismissal procedure begins. These safeguards mean that an employer cannot simply dispose of staff on a whim; they must respect formal steps and be able to justify the action.
If an employer fails to observe the law, the employee has remedies. In Portugal, any dismissal without proper justification or procedure is considered unlawful or unfair. When a dismissal is declared unlawful (for example, by a labour court finding the employer had no valid cause or skipped the required process), the employee may be entitled to either reinstatement or compensation.
Reinstatement means returning to the job under the same conditions, effectively undoing the dismissal; in practice, this can be rare if the relationship has irretrievably broken down, but it remains a legal option. If reinstatement is not chosen, the law provides for monetary compensation. On top of that, the employee is entitled to payment of all wages lost from the time of dismissal until the court’s decision. In any case, if the dismissal was for an objective reason (like redundancy) but found to be procedurally flawed or unjustified on the merits, the result is similar: the employer must either reinstate or pay indemnity as if it were a wrongful termination.
In other words, the law puts the risk on the employer to follow the rules. And the law explicitly forbids dismissals made for discriminatory or improper reasons (for example, based on race, sex, religion, sexual orientation, union activity or similar grounds).
Notice and severance aside, Portuguese law also limits how terminations can be negotiated or handled by mutual agreement. Although an employer and employee may choose to end a contract by mutual consent at any time (often involving a negotiated settlement), even these “separation agreements” must be in writing and observe legal formalities.
Employees also have the right to bring an employment contract to an end without the need to invoke just cause, provided that they notify the employer in writing and with the legally required period of notice. As a general rule, this period is thirty days where the employee has up to two years of service and sixty days where the employment relationship has lasted for more than two years, although in the case of employees holding positions of administration, management, representation or similar responsibility, the employment contract or a collective bargaining instrument may lawfully extend this period up to a maximum of six months. In the context of fixed-term contracts, resignation is permissible by giving at least thirty days’ notice when the contract has a duration of six months or more, or fifteen days if it is of a shorter duration, while in contracts of indefinite duration but with an uncertain term, the length of notice is calculated by reference to the period of employment already elapsed. It should further be noted that an employee who has been formally recognised as a victim of domestic violence is exempt from complying with any notice period, reflecting the protective stance of Portuguese labour law in this regard.
With all these detailed rules, it is clear that dismissals in Portugal are a legal minefield, and even well-meaning employers can slip up. For employees, the key takeaway is to know that you have rights at every step: you should receive written notice of any dismissal meeting or decision, a clear explanation of the reasons, and the chance to comment on those reasons before the decision is final. You should also know what, if any, compensation or notice pay you are entitled to if your contract is ended. If any of these steps are missing or the reasons seem dubious, you have the right to question the dismissal in court. Finally, it’s worth noting that employment law can be technical.
The general principles are as follows: disciplinary dismissals require clear evidence of serious misconduct and a fair internal process, but no advance notice and no statutory payout; if lawful and objective dismissals (like redundancy or unsuitability) require careful justification of business need and advance notice of 15-75 days. In all cases, certain employees (pregnant women, etc.) have extra protections. If an employer makes a mistake or acts without a valid reason, the dismissal can be overturned, and the employee may get compensation or even get their job back.
Understanding these rules can be challenging. A qualified lawyer can clarify whether the proposed dismissal is lawful, ensure that all notices and calculations are correct, and represent the employee’s interests if there is a dispute. In a situation as important as losing one’s job, sound legal advice can make a real difference in protecting your rights and, if necessary, challenging an unfair dismissal.
