Terminating Employment in Portugal: Notice and Compensation

No. A Portuguese employer can end an open-ended contract only where it has just cause based on the employee’s conduct, or where it follows one of the objective procedures written into the Código do Trabalho. There is no dismissal at will, and offering a sum of money instead of running the correct procedure does not make the exit lawful.

Article 340 of the Código do Trabalho lists every route by which a contract can come to an end.

• Expiry (caducidade), which covers a fixed-term contract reaching its term
• Mutual agreement in writing (revogacao)
• Dismissal for the employee’s own fault, which is the just cause route
• Collective dismissal
• Redundancy of a single post (extinção do posto de trabalho)
• Dismissal for unsuitability (inadaptacao)
• Resignation by the employee with cause (resolucao)
• Resignation by the employee without cause (denuncia)

The route decides three things: which procedure has to be run first, how much notice is owed, and whether compensation is payable. A mutual agreement is the quickest exit because the parties record the terms themselves, but it needs genuine agreement on both sides and cannot be used to paper over a dismissal the employer would otherwise have to justify. The full text of the Code sits on the official consolidated version at the Diario da República.

Just cause means culpable conduct by the employee that makes it immediately and practically impossible to carry on the working relationship, under article 351 of the Código do Trabalho. The bar is high, and the Code gives worked examples: five consecutive days of unjustified absence, or ten separate days in the same calendar year, is one of them.

The procedure carries as much weight as the facts.

• A written statement of charges, the nota de culpa, setting out the alleged facts in detail
• Time for the employee to answer in writing and ask for evidence to be heard
• A written decision with reasons, issued within 30 days

Where a dismissal for just cause stands up, no notice and no compensation are due. Conduct cases that fail in a Portuguese court usually fail on the paperwork rather than the behaviour: charges drafted too vaguely to answer, a decision issued outside the 30 days, or facts raised at trial that never appeared in the nota de culpa.

Portugal recognises three objective grounds, and each rests on the business rather than on anything the employee has done. Collective dismissal under article 359 applies where two or more employees in a micro or small company, or five or more in a medium or large company, are dismissed within three months for market, structural or technological reasons. Worker representatives have to be consulted, and the decision cannot be issued earlier than 15 days after the notice of intent.

Redundancy of a single post covers the closure of one role. It is lawful only where the reason is nobody’s fault, no fixed-term employee is doing equivalent work, no other suitable post is open, and the numbers are too small for a collective dismissal. Where several identical posts exist, the employer has to choose between them in the order the Código do Trabalho sets: worst performance review, then lowest qualifications, then highest cost to keep, then least experience in the role, then shortest service.

Dismissal for unsuitability (inadaptacao) is the narrowest ground. It covers a continuing fall in output or quality, repeated damage to equipment, or safety risks, and for technical and management roles it extends to missing objectives that were agreed in writing.

One consequence catches employers out after the event. For 12 months after a collective dismissal or a redundancy, the employer may not buy in outside services to cover the work the dismissed employees were doing.

Employer notice for the objective grounds runs on a seniority scale: 15 days below one year of service, 30 days from one to under five years, 60 days from five to under ten years, and 75 days at ten years or more. Notice that falls short has to be paid in money. Where two spouses or partners lose their jobs in the same collective dismissal, the next band up applies to them.

An employee resigning without cause gives 30 days’ notice with up to two years of service, and 60 days with more than two years, so exactly two years still sits in the 30-day band. A contract or a collective agreement can stretch that to as much as six months for directors, managers and senior specialists. On a fixed-term contract the employee gives 30 days, or 15 days where the contract runs for less than six months. An employee who leaves without working the notice owes the employer base pay for the days missed.

Notice is counted in calendar days rather than working days, so a 60-day period starting in mid-December ends in mid-February, public holidays included. Booking that date into payroll early matters, because the final payment is tied to it.

Compensation for the objective grounds is 14 days of base pay plus seniority payments (diuturnidades) for each full year of service, with part-years counted pro rata. The daily rate is the monthly figure divided by 30. Where a fixed-term contract reaches its term and the employer lets it expire, the rate is 24 days for each full year instead.

Two caps apply in 2026. The monthly pay used in the calculation is capped at 20 times the national minimum wage, which is €920 a month, giving €18,400. The total is capped at 12 times monthly base pay, or at 240 times the minimum wage, €220,800, where the first cap applies.

Take an employee on base pay of €3,000 a month with four full years of service, all of it completed after 1 May 2023, no seniority payments in the contract and a figure comfortably below both caps. The daily rate is €100, each year earns €1,400, and the compensation is €5,600. Payment falls due by the end of the notice period. Accepting the full amount is treated as accepting the dismissal, unless the employee hands the money back.

Service completed before 1 May 2023 is a separate layer. The 14-day and 24-day rates apply only from that date, and earlier service is calculated at the older transitional rates, which depend on when the contract was signed. For anyone hired before 2023 the final figure is assembled from more than one period, so the bands that apply to that particular contract need checking before any number is put in front of the employee.

An unlawful dismissal obliges the employer to compensate the employee for all loss, material and non-material, and to reinstate them. Back pay runs from the dismissal to the final judgment, which is why a slow case gets more expensive rather than safer.

The employee can take an indemnity instead of the job. The court sets it at between 15 and 45 days of base pay and seniority payments for each year or part-year of service, with a floor of three months’ pay. In micro-companies, and for directors and managers, the employer can ask the court to rule out reinstatement; the indemnity then rises to between 30 and 60 days a year with a floor of six months. Where the grounds are proven and only the procedure was defective, the indemnity is halved.

The deadlines are short. An individual dismissal has to be challenged within 60 days of the employee receiving the decision, or from the end date if that falls later, using a set court form. A collective dismissal can be challenged within six months of the contract ending, and only a court can declare one unlawful.

The provider is the legal employer, so it runs the procedure, issues the documents and pays what the law requires, while the client decides that the role is ending and supplies the facts behind that decision. Employer of Record Portugal employs people through its own Portuguese company, so the contract being ended is a Portuguese employment contract governed by the Código do Trabalho rather than a services arrangement with a freelancer.

A clean exit usually turns on a handful of practical points.

• Deciding at the outset which route applies, because the procedure differs at every step
• Writing the reasons down while the evidence is still fresh
• Pricing compensation in layers where service started before May 2023
• Putting the notice period into the payroll calendar so the final payment lands on time
• Keeping proof of every document sent to the employee

Cost is straightforward to state in advance. Our fee is a flat €499 per employee per month, and statutory compensation is passed through at the amount the law sets. Our team works on Portugal every day, and the detail behind each stage is set out in our Portugal EOR services, in the wider guide to employing in Portugal, and in our guide to Portuguese employment contracts, which covers what the contract has to say about notice before anyone needs it.