The Portugal Cabinet has submitted a comprehensive labor reform bill to the Assembleia da República, a move that fundamentally shifts the balance between employer flexibility and worker protection. If approved, the "Trabalho XXI" proposal will make it procedurally easier for companies to dismiss staff, extend temporary contract durations, and reinstate individual banking hours agreements—changes that legal experts warn may test constitutional boundaries.
Why This Matters
• Dismissal procedures: Simpler processes for collective layoffs, though constitutional protections against unjust dismissal remain formally intact.
• Severance pay: Increases from 14 to 15 days per year worked, but remains below the pre-2019 benchmark of 20 days—your existing tenure stays at the old rate.
• Temporary contracts: Maximum durations jump from 2 to 3 years (fixed-term) and 4 to 5 years (open-ended), with fewer restrictions on renewals.
• Parliamentary timeline: Debate likely postponed until the autumn session, with the Socialist Party already pledging to vote against.
What Changes for Workers on the Ground
For employees in Portugal, the practical impact divides into three layers, according to labor law specialists José Mota Soares and Joana de Sá from Andersen, an independent tax and legal consultancy.
1. Procedural streamlining: Employers gain faster, less complex dismissal pathways. The law maintains the constitutional ban on dismissal without just cause, but it reduces the paperwork burden and tightens timelines for objections.
2. Employer discretion: Companies receive broader latitude in selecting which employees to let go during restructures, with less stringent criteria for proving economic necessity.
3. Judicial oversight: Courts will find it harder to scrutinize management decisions. Workers challenging dismissals face higher procedural hurdles, including a mandatory bond equal to the severance payment received if they request reinstatement.
"Essential safeguards remain on paper," the lawyers note. "In practice, however, the proposal makes these mechanisms more accessible to employers and correspondingly less agile for workers to contest."
Severance Compensation: A Partial Recovery from Earlier Cuts
The collective-dismissal compensation framework reflects a complex history. The current rate stands at 14 days of base pay and seniority allowances per year. The "Trabalho XXI" reform increases this to 15 days per year—a modest improvement. However, this increase remains below the pre-2019 benchmark of 20 days per year, meaning workers are recovering only part of what was previously available.
The 15-day rate applies exclusively to the portion of your employment beginning the day the law enters force. If you've worked 10 years already and stay another 5, you'll receive 14 days × 10 years plus 15 days × 5 years. This pro-rata calculation approach mirrors the document the Portugal Government delivered to the UGT union confederation in November 2025, attempting unsuccessfully to avert the December 11 general strike called by the CGTP. The Assembleia da República submission confirms this structure, closing a loophole some workers hoped would apply retrospectively.
In practical terms, while the increase to 15 days represents improvement over the current 14-day rate, it does not fully restore severance levels from before 2019—an important distinction for workers evaluating the reform's true impact on their job security and financial protection.
Temporary Contracts and the Return of Individual Banking Hours
Fixed-term contracts now stretch to 3 years instead of 2, with up to three renewals and no aggregate cap on renewal periods. Open-ended temporary contracts extend to 5 years. New categories include hiring workers who have never held a permanent position or who qualify as long-term unemployed—contracts that can last up to 2 years with minimal justification.
The group-based banking-hours system, abolished in 2019, disappears entirely. In its place, employers at firms without a collective bargaining agreement can now negotiate individual banking-hours arrangements directly with employees. Under this regime, you may work extra hours one month and fewer the next, with annual caps adjustable by agreement. Critics describe it as "unpaid overtime disguised as flexibility," pointing out the imbalance when a single employee negotiates against a legal department.
Supplementary work limits rise to 300 hours annually if a collective agreement permits. Micro-enterprises gain a 20% overtime allowance when absences exceed 20% of the workforce.
Outsourcing Ban Lifted and Reintegration Blocked
The Portugal Ministry of Labor repeals the rule that barred companies from hiring external contractors for 12 months after a collective dismissal or role elimination. Employers regain full discretion to reorganize functions immediately through subcontractors—a shift labor attorney Mota Soares calls "a recovery of flexibility in post-dismissal reorganization."
Perhaps most contentious: any employer, regardless of size, can now petition a court to exclude reinstatement following an unlawful dismissal, citing operational disruption. Previously this veto applied only to micro-firms or executive roles. Coupled with the bond requirement—paying back your severance upfront to pursue reinstatement—the amendment creates a financial and procedural gauntlet that discourages litigation.
Constitutional Questions and Political Resistance
Legal specialists flag multiple constitutionality concerns that will likely surface during parliamentary review and subsequent judicial oversight. Key flashpoints include:
• Proportionality of the reintegration veto: The Portuguese Constitution forbids dismissal without proven just cause. Allowing employers to block the primary remedy for an illegal dismissal—even with higher compensation—may contradict that principle.
• Right to strike: Expanding mandatory minimum services during strikes and transferring operational responsibility to unions is seen as diluting collective bargaining power.
• Equal treatment: The new category of temporary contracts for first-time permanent workers or long-term unemployed risks creating a two-tier system.
The Socialist Party has announced it will oppose the bill in the general debate. Chega, a right-wing opposition party, criticizes several provisions but signals willingness to negotiate if the government lowers the retirement age and increases annual leave. With parliamentary summer recess approaching, debate is expected to resume in the autumn session, giving unions and business groups additional months to lobby.
Union and Employer Reactions
The CGTP (Confederação Geral dos Trabalhadores Portugueses) has denounced the proposal as a "genuine setback" for workers and called a general strike on December 11, 2025. Secretary-General Tiago Oliveira accuses the government of siding with employers and calls the individual banking-hours clause "unpaid overtime by another name."
The UGT (União Geral de Trabalhadores) rejected earlier drafts in April but claims 12 of the 50+ amendments in the final text originated from its negotiations. Despite the "no" vote, UGT remains open to further talks, provided the government presents substantive revisions.
Four business confederations—CAP, CCP, CIP, and CTP—expressed "profound disappointment" with UGT's rejection, arguing the union reneged after more than 200 hours of bargaining. They maintain the proposal balances competitiveness with fundamental rights and are unwilling to reopen closed items.
Seven Core Changes at a Glance
Fixed-term contracts: 3-year maximum (up from 2), renewable three times with no cumulative cap.
Open-ended temporary contracts: 5-year ceiling; new categories for first-time hires and long-term unemployed.
Collective dismissal compensation: 15 days per year (up from current 14 days, but below pre-2019 benchmark of 20 days).
Reintegration: Mandatory bond; employers of any size can request court exclusion.
Outsourcing: 12-month post-dismissal ban eliminated.
Banking hours: Individual agreements replace group referendums.
Exemption from fixed schedules: Expands to roles of "technical complexity" beyond management.
The European Context
Portugal ranks among the OECD's most protective labor markets for permanent employees—fourth highest in the EU for contract security—yet simultaneously exhibits one of the bloc's highest rates of temporary work. Roughly 16% of all employees hold fixed-term contracts, climbing to 37% among workers under 30. This "dual market" shields insiders with decade-long tenure while cycling outsiders through precarious roles.
Nordic countries—Denmark, Sweden, Austria—operate "flexicurity" models that pair liberal hiring and firing rules with robust unemployment insurance, continuous retraining programs, and active job-placement services. Denmark's "golden triangle" allows swift layoffs but ensures dismissed workers receive generous benefits and rapid reskilling, maintaining low long-term unemployment.
Portuguese employers argue the current system's rigidity discourages hiring and drives talent abroad. Critics counter that importing Danish-style flexibility without Denmark's €25,000-per-year unemployment stipends and universal vocational colleges will simply entrench precarity. The government frames "Trabalho XXI" as an adaptation to digital-economy realities, pledging no erosion of core rights. Unions see procedural changes as substantive rollbacks delivered through the back door.
What Residents Should Watch
• Effective date: No timeline announced; assume implementation within the coming months following parliamentary debate.
• Transitional clauses: Existing group banking-hours arrangements expire within 1 year of enactment.
• Court challenges: Expect Constitutional Court referrals on reintegration and strike provisions.
• Negotiation leverage: If you're renewing a contract or discussing flexible hours, legal advice becomes critical—individual agreements lack the collective-bargaining safeguards that previously applied.
For anyone employed in Portugal or considering a move, this reform represents the most significant labor-law overhaul in a decade. Whether it delivers the government's promised productivity gains or accelerates the precarity unions fear will depend on implementation details still being negotiated behind closed doors in Lisbon.
