The Portugal Cabinet has delivered its long-awaited labour reform package to the Assembly of the Republic, a sweeping overhaul of the Labour Code that will touch nearly every aspect of employment—from hiring practices and contract durations to the role of artificial intelligence in the workplace. The move has drawn sharp criticism from trade unions, with the Confederação Geral dos Trabalhadores Portugueses (CGTP) calling the proposal damaging to worker rights and reaffirming its call for a general strike on June 3, 2026.
After nine months of negotiations that ended without consensus, the Government pressed ahead, incorporating more than 50 amendments to its original draft—12 of which came from the União Geral de Trabalhadores (UGT). Yet the lack of agreement with both major union confederations underscores the political and social challenges the reform now faces in parliament, where the ruling coalition lacks an absolute majority and will need opposition support to pass the bill.
Why This Matters
• Contract flexibility expands: Maximum duration for fixed-term contracts rises from 2 to 3 years (certain contracts) and from 4 to 5 years (uncertain-term contracts), a change unions warn will extend job uncertainty.
• Individual working-time bank returns: Employers may require up to 2 extra hours per day (150 hours per year) without immediate overtime pay, a mechanism abolished in 2019 and now reinstated.
• AI oversight mandated: Workers gain the right to challenge recruitment, evaluation, or dismissal decisions made solely by algorithms, with employers required to provide human supervision and written justification within 30 days.
• Severance pay rises—but only prospectively: Redundancy compensation increases from 14 to 15 days' pay per year of service, applicable only to tenure accrued after the law takes effect.
What the Reform Entails
The 80-page legislative proposal, approved by the Council of Ministers on May 15, 2026 and submitted to parliament the following day, targets what the Portugal Ministry of Labour, Solidarity and Social Security describes as the country's "second most rigid labour legislation in the OECD." The Government argues that outdated regulations hamper productivity, suppress wages, and fail to accommodate the realities of the digital economy.
Key provisions include expanded grounds for hiring on fixed-term contracts, allowing employers to recruit job-seekers and first-time entrants without prior staff history. The minimum contract duration rises to one year, and the maximum stretches to three years for certain-term agreements and five years for uncertain-term agreements—up from two and four years, respectively.
The reform also repeals the one-year ban on outsourcing following collective redundancies or the elimination of positions, a safeguard introduced under the previous administration. Critics contend that this opens the door to replacing permanent staff with external contractors immediately after layoffs, weakening job security across sectors.
On the compensation front, workers dismissed in collective redundancies will receive 15 days' base pay and seniority allowances per year of service, up from the current 14 days. Crucially, this increase applies only to service accumulated after the law enters into force, meaning existing tenure remains compensated at the old rate.
Artificial Intelligence and Algorithmic Accountability
One of the more significant elements of the package addresses the rising use of algorithms and AI in human-resources decisions. Employers must now ensure that decisions on recruitment, task allocation, performance reviews, sanctions, and dismissal are not taken without human intervention. A human supervisor must have the power to confirm, alter, or reverse any AI-generated recommendation.
Workers, in turn, gain a statutory right to challenge algorithmic decisions within 30 days, and employers must respond in writing—also within 30 days—with a clear rationale. Companies must also maintain a five-year record of recruitment processes, including details on the use of AI tools, expanding transparency requirements beyond the current focus on candidate numbers and test results.
These provisions stem from the UGT's contributions to the negotiation process and reflect the European Union's broader push to regulate AI in the workplace. Portugal is simultaneously transposing elements of Directive (EU) 2024/2831, which aims to improve conditions for platform workers and data protection in digital labour environments.
The Individual Working-Time Bank Returns
Perhaps the most contested measure is the reintroduction of the individual working-time bank, a mechanism that permits employers to require up to two extra hours per day, 10 per week, and 150 per year without paying overtime rates immediately. Accumulated hours must be taken as time off within six months or paid with a 25% premium.
Tiago Oliveira, general secretary of the CGTP, described the arrangement as equivalent to unpaid overtime and a way to reduce effective wages. "When we talk about pressuring labour costs downward, this is what we mean," he told reporters, accusing the Cabinet of prioritising cost reduction over worker protections.
The individual bank of hours was abolished in 2019 as part of the Agenda for Decent Work, introduced by the previous Socialist administration. Its return aligns Portugal with practices in Spain, Germany, France, and the Netherlands, where similar arrangements exist. Yet the timing—amid high living costs and stagnant real wages—has amplified union resistance.
Breastfeeding Dispensation: Balancing Competing Requirements
The Government has clarified requirements for breastfeeding leave, positioning them as a middle ground between earlier and later draft versions. Under the submitted bill, mothers must present a medical declaration confirming breastfeeding at the outset and renew it every six months.
Earlier Social Concertation discussions had proposed softening this requirement, mandating renewal only if breastfeeding continued beyond the child's first birthday. The July 2025 version had called for a medical certificate every six months from day one. The current approach seeks a balance between administrative simplification and verification.
The Ministry of Labour clarified that mothers must notify employers 10 days before starting the dispensation period and submit the medical proof at that time. Some critics argue the administrative requirements add complexity for working mothers, though the Government frames them as verification measures consistent with social support systems across Europe.
Impact on Residents and Expats
For employees living in Portugal—whether Portuguese nationals or foreign workers—the reform represents a significant shift in job security and working conditions.
Fixed-term and platform workers face the most immediate change. The longer contract ceilings and expanded hiring grounds mean companies can keep staff on temporary terms for up to five years, delaying or avoiding permanent employment. Younger workers and recent immigrants, who often enter the labour market on temporary contracts, may find the path to permanent status lengthened.
Expats and visa holders should be aware of how these changes interact with residence and work permits. Many expat workers rely on permanent employment contracts to satisfy visa renewal requirements or D residence permit conditions. The expansion of fixed-term contracts to five years means that visa applicants and renewal candidates may now face requirements to demonstrate longer employment stability or face complications in their residence permit applications. Workers should verify with their employer and the Immigration and Borders Service (SEF) how their specific contract terms affect their visa or residence permit timeline.
Parents and caregivers gain ground. The Government strengthened parental leave provisions, extending full-pay leave to six months and increasing mandatory paternity leave from 14 to 30 days. Workers with children under 12 or dependent grandparents may request continuous working days, allowing earlier finish times without a midday break—a practical benefit for those managing school schedules and elder care.
The AI accountability rules offer a new layer of protection, especially in tech-driven sectors and gig platforms. Workers can now formally contest algorithm-based decisions, from performance scores to dismissal notices, and demand human oversight. For non-Portuguese speakers and migrants, this transparency could help expose potential bias in automated systems.
Severance terms improve marginally, but the prospective-only application means existing employees gain no benefit for years already worked. Those hired under the new regime will accrue slightly more redundancy pay, yet the reinstatement guarantee for unfair dismissal—currently available to smaller firms—will extend to all companies, albeit with a higher indemnity in lieu of reinstatement.
Union Mobilisation and Strike Action
The CGTP has mobilised a coalition for the June 3, 2026 general strike, with participation confirmed from multiple sectors. The SMAQ (National Union of Railway Drivers) filed notice covering CP, Fertagus, Metro do Porto, Metro Sul do Tejo, Continental Rail, Captrain, Medway, and Infraestruturas de Portugal. The SFRCI (Railway Commercial Inspection Union), representing ticket and onboard staff at CP, will halt all work between midnight June 2 and midnight June 4, including rostered shifts that span those dates.
Public transport in Lisbon will be heavily affected, with Carris and Carristur workers voting in a general assembly to join the strike. Union representative Manuel Leal told reporters that all representative structures endorsed the decision, demanding wage increases of at least €70 per month and €0.82 daily meal allowance—matching last year's gains.
Air traffic will also be affected. The SITAVA (Air Traffic Controllers' Union) confirmed a work stoppage, though minimum services will cover emergency flights, medical evacuations, state and military flights, and essential island links. In the Azores, the first two departures and arrivals in São Miguel and Terceira, one connection per remaining island, and the first mainland link will proceed. In Madeira, the first Funchal–mainland and Funchal–Porto Santo flights are protected.
The UGT has not formally joined the strike call, despite seeing 12 of its proposals embedded in the reform. General secretary Sérgio Monte stated the confederation did not know which specific suggestions were adopted and expressed disappointment that none of the "structural pillars" it championed made the final cut. The divergence between the two main union bodies has granted the Government a tactical opening, with Labour Minister Rosário Palma Ramalho attempting to align the Socialist Party's position with that of the CGTP—a charge Tiago Oliveira dismissed as a negotiating tactic.
Parliamentary Battleground
The reform now enters its legislative phase. The ruling Aliança Democrática (AD) coalition holds a plurality but not a majority in the Assembly of the Republic, requiring support from opposition benches to pass the bill intact. The Socialist Party (PS), led by José Luís Carneiro, has signalled strong reservations. Speaking in Matosinhos, Carneiro accused the Government of proposing changes that weaken worker protections and removing guarantees that wrongful dismissals result in reinstatement.
Debate is scheduled to begin shortly, with committee hearings likely to stretch into June. The CGTP is banking on street mobilisation, parliamentary scrutiny, and high turnout on June 3 to force amendments. Tiago Oliveira framed the strike as a response to labour reform provisions he views as harmful to workers.
The Government defends the package as essential to convergence with European norms and economic competitiveness. It points to comparable working-time flexibility in Germany, Spain, and France, and notes that the individual bank of hours already operates across much of the EU.
Outlook: A Summer of Uncertainty
With the general strike scheduled for June 3, 2026, Portugal's labour landscape is entering a period of significant change and debate. Transport, aviation, and public services will face disruption on the strike date, and the political path forward in parliament remains open. If the strike draws substantial participation and public sentiment favours unions, moderate legislators may demand concessions—particularly on contract durations, the individual working-time bank, and outsourcing restrictions.
Conversely, if turnout is lower or economic conditions shift, the Government may advance the reform with fewer modifications. The incorporation of UGT proposals—however selective—gives the Cabinet a basis for claiming broad consultation, even if the confederation ultimately did not endorse the final package.
For workers, employers, and investors, the coming weeks will clarify whether Portugal's labour code is set for significant transformation—or whether union resistance and parliamentary dynamics produce a negotiated middle ground. Either outcome will shape hiring practices, wage discussions, and the working lives of Portugal's workforce.
