Employment Contracts in Portugal: Legal Requirements and Strategic Considerations for Employers
Margarida Tempera | Lawyer
When expanding into Portugal or reinforcing existing operations, ensuring that a compliant and carefully drafted contract underpins each employment relationship is not simply a formality; it is a legal requirement that protects the business and fosters trust with employees.
The Portuguese Labour Code and related legislation outline detailed rules regarding the form and content of contracts, the types of contracts available, and the procedures that must be followed throughout the employment cycle. A proper contract ensures clarity, predictability and compliance, avoiding the financial and reputational risks associated with informal agreements.
Although open-ended contracts (contratos sem termo) do not require written form, it is good practice to reduce all employment relationships to writing.
In many situations, the law expressly requires a written contract. This includes fixed-term and uncertain-term contracts, part-time work, intermittent work, temporary agency work, teleworking agreements, and contracts with foreign employees, all of which must be in writing. Moreover, employers are required to furnish written details concerning the essential terms of the employment relationship, irrespective of the contract type. Failure to observe the written-form requirement results in the contract being treated as open-ended, and in the case of part-time arrangements, it is presumed to be full-time.
A well-drafted employment contract should clearly identify the parties, outline the role and duties, specify the workplace, include remuneration (including benefits and allowances), define working hours, stipulate the duration and probationary period, and specify any applicable collective agreements. While allowances such as meal vouchers are not universally mandatory, they are customary and play an important role in remuneration packages.
Clear contractual terms help to prevent misunderstandings and establish the framework for day-to-day management.
Portuguese law offers several types of contracts, each serving different business needs:
- Open-ended contracts are the default and provide the highest degree of stability and protection for both the employee and the employer.
- Fixed-term contracts, which may be used to meet objective and temporary needs such as replacing an absent employee or delivering a specific project, must specify an end date and may be renewed up to three times. In general, their maximum duration is two years.
- Uncertain-term contracts are used where the exact endpoint cannot be anticipated; they are subject to a maximum duration of four years, after which the relationship becomes permanent if the need persists.
- Part-time contracts must be in writing and clearly define the weekly work schedule; otherwise, the law presumes a full-time relationship.
- Contracts of very short duration are intended for exceptional, short-term needs in any sector. They may not exceed 35 days per contract and 70 days per year, are non-renewable, and are subject to simplified formalities.
Beyond choosing the appropriate contract, employers must comply with several administrative obligations, which include registering the employee with the Portuguese social security system before the start of work, taking out occupational accident insurance, and, in some cases, notifying the Authority for Working Conditions (Autoridade para as Condições do Trabalho - ACT).
Working time is strictly regulated. The normal working week is limited to 40 hours, usually spread over five days. Overtime is permitted only within defined limits and must be compensated at higher rates: 25% for the first hour, 37.5% for subsequent hours on working days, and 50% on weekly rest days or public holidays. Employees are entitled to daily and weekly rest periods, as well as paid annual leave of 22 working days. However, in the first year of employment, the employee accrues two working days per month, up to a maximum of 20 days. Non-compliance can lead to fines and compensation claims.
The Labour Code also contains detailed rules on termination. Dismissal requires a lawful ground, such as disciplinary misconduct, redundancy or unsuitability, and must follow prescribed procedures involving consultation, notice and, where appropriate, severance payments. Unlawful dismissal may result in reinstatement or significant compensation.
Properly drafted contracts, including appropriate probationary periods (typically 90 days for most open-ended contracts, 15 or 30 days for fixed-term contracts, 180 days for roles of high complexity, trust or responsibility, and up to 240 days for management and executive roles), can provide flexibility at the start of the employment relationship.
Modern employment practices, including teleworking and cross-border work, must also be addressed. Teleworking requires a written agreement that specifies working hours, the equipment provided, and the allocation of responsibilities. Importantly, employers are obliged to cover all additional and proven costs arising from teleworking.
When employees work both in Portugal and abroad, European Union rules on social security coordination and conflict of laws must be considered to avoid double contributions or gaps in coverage.
Employers must withhold income tax and social security contributions from salaries and make their own contributions. Non-compliance carries heavy penalties and, in some cases, personal liability for directors.
Routine inspections by the ACT and potential claims by employees, such as conversion of fixed-term contracts into open-ended contracts or claims for unpaid allowances and unlawful dismissal, underscore the importance of getting it right from the outset.
In summary, employment contracts in Portugal are not merely administrative documents but essential legal instruments that define rights and obligations, carrying significant consequences if not properly drafted.
For businesses entering or operating in the Portuguese market, careful selection of the contract type, meticulous attention to form and content, and strict compliance with employment, social security and tax requirements are critical.
Engaging experienced legal counsel can help ensure that contracts are robust, compliant, and tailored to the business's needs, thereby reducing risk and laying the foundation for productive employment relationships.
