Changes to labour laws to be pushed through in July

Controversial new labour laws aimed at freeing up the labour market and making redundancies easier will be pushed through by the new PSD government in July.

The measure, which will make Portugal’s labour legislation more flexible and conditions less favourable for employees, is one of the cornerstone policies introduced by the IMF/EU/ECB ‘troika’ last month in Lisbon.

The ideas on the table are also in line with the European Union’s policy on flexi-security which was part of the Treaty of Lisbon which came into force on December 1, 2009.

It means that employers will no longer have to cite ‘just cause’ (justa causa) in order to dismiss an employee.

At the same time the amount of compensation and duration of severance payments in redundancy cases will be significantly reduced.

Compensation for termination of contracts will now be brought in line with fixed-term contracts (a termo) rather than indefinite full-time contracts (sem termo) as they are now.

Under the new regulations, the total amount of compensation for termination of employment contract for new full-time contracts will be reduced from 30 to 10 days for each year of service, with a maximum limit of 12 months.

For fixed-term renewable contracts, compensation will be reduced from 36 to 10 days, to be paid for from a fund set up by employers.    

At the same time the new government will also push forward with legislation changes to the rent laws, laws pertaining to the real estate sector, and sweeping reforms in justice and health.

One of the measures affecting the Portuguese National Health Service will increase moderate charges for hospital treatment. Another change will bring rents in line with market values and make it easier for landlords to serve notice on tenants.

The new government will in practice have less than a month to begin applying the measures set down by the ‘troika’ in their memorandum dated May 3.

But there are other measures which the new government will have to finalise before the end of July.

One of them is to present a phased in new set of charges for electricity bills which will bring prices in line with current VAT levels or at least levels up to 18%.

The government will also have to get rid of the so-called ‘golden shares’ that it retains in some privatised utility and communications companies that had been state-owned in the 1970s and 1980s.

This effectively means that the Government is being forced to end its public participation in companies like Energias de Portugal (EDP) and Portugal Telecom (PT). It has been estimated that the wholesale privatisation of REN (the electric grid system), EDP and national airline TAP will bring in €3 billion.

With regards to the justice system, a comprehensive audit of pending legal processes must be drawn up and measures introduced to speed up the legal system by reducing the time taken for cases to go through the courts to a maximum of two years.

A notorious child abuse case at the Lisbon children’s home Casa Pia took six years to get to court.

There are sweeping new changes to be enacted in August too.

Top of the list is the publication of a complete dossier of outstanding payments owed to the Government but also Government payments owed to suppliers.

In other words the State is being encouraged to run itself as though it were a business.

Interest rates of unpaid tax debts owed to the Government will also increase to around 12% while a new tax arbitration law will be introduced for contested cases.

Also in August a budget strategy document will be published for public sector departments, while 20 significant Public-Private Partnerships (PPPs) will be carefully analysed, including that of the national road company Estradas de Portugal (EP) which is heavily in debt.

The state-run television company may have to privatise one of its channels or introduce more advertising to plug a multi-million Euro black hole.

It has been made clear to the political parties, the outgoing government and the incoming government that the ‘troika’, the markets, and foreign investors are watching closely what is going on in Portugal and will not brook any delays in implementing the structural reforms because of the elections.