1.1 In what circumstances does the employee transfer law apply?
The employee transfer law applies to:
- the transfer of a business
- the transfer of an economic entity which retains its identity
- a service provision change.
An ‘economic entity’ is defined as ‘an organised grouping of resources which have the objective of pursuing an economic activity, whether as its main or merely an ancillary activity’.
In practice one must identify the undertaking and then consider whether it has transferred and retained its identity. Retention of identity after transfer depends on various factors that must be identified on a case-by-case basis.
1.2 Does the employee transfer law apply to (a) a sale of a business or (b) outsourcing?
(a) Sale of a business
The provisions cover ‘any transfer’. This includes sale, merger, splitting-up, nationalisation and privatisation. The law applies to all public and private undertakings engaged in economic activities whether or not they are operating for gain.
Thus, in principle, the rules on transfer apply to leases, or rentals, as well as to the sale of specific assets within a given business, such as premises, equipment, customers, staff and goodwill, provided that the business retains its identity upon transfer.
The employee transfer law applies to an assignment or even a re-assignment to the transferor of the company’s activities.
1.3 In outline, what are the implications of the employee transfer law?
If the employee transfer law applies:
- Employees can object to certain consequences of the transfer, such as collective dismissals or relocation.
- All rights and obligations in relation to transferring employees will pass to the transferee, including pension rights.
- Applicable collective agreements will transfer and remain in force for a minimum of one year, unless a new agreement has been entered into beforehand.
- Dismissals by reason of the transfer itself will be unfair.
The employee transfer law protects employees, but does not apply to employees who have already been moved or are to be moved prior to the transfer to another undertaking that is considered separate.
The law does not define ‘employee’, but an employment contract is a contract by virtue of which an individual is bound to work for other(s) for payment. Secondees are not generally covered since they are not employees. Whether other professionals (e.g. self-employed people) are covered depends on whether an employment relationship exists.
To assess whether an employee who is only partly allocated to the transferred business should transfer, the following factors may be considered:
- the proportion of time spent within the entity transferring as compared to other parts of the business;
- the value given to each part by the employee;
- the employee’s job description; and
- how the employer allocates the costs of the employee’s services.
2.2 Can employees object to transferring?
Employees cannot object to the transfer but can object to its consequences. If, for example, collective dismissals or the transfer of employees to other premises are proposed, employees can oppose this.
However, outright refusal to work may be considered a breach of the employment contract and the employee may be subject to disciplinary action, including dismissal (which will be deemed fair in these circumstances). A simple refusal to work will be understood as resignation and the employee will not be entitled to any severance pay (except amounts due by virtue of termination of employment – notably holidays and Christmas allowances pro-rata).
2.3 What happens to terms of employment contracts?
Upon transfer, the transferee becomes the employer and all rights and obligations under the employment contract transfer to the new employer. Liability for breaches of employment law is also transferred to the new employer.
2.4 What about other employee benefits?
Because the employer’s position is transferred, the transferee continues to be bound to pay all benefits agreed with employees or set out in collective bargaining agreements or law. Continuous employment will be preserved. If the transferee is unable to provide a benefit that the transferor used to provide, it must either provide an equivalent benefit or compensate employees. If it fails to do so it will be in breach of contract.
Some benefits such as occupational pension schemes or stock option plans may be difficult to transfer. It is commonly accepted that equivalent benefits may be provided as an alternative.
2.5 What happens to pension rights?
All contractual terms of employment are preserved upon transfer. Therefore, the transferee inherits all the transferor’s obligations towards employees, including obligations regarding pension rights, of whatever type.
Since pensions are largely covered by the State borne social security system, this is still a question with little importance within the context of labour relations and transfers in Portugal.
2.6 What liabilities transfer?
Responsibility for the payment of fines for breaches of labour law is transferred to the transferee, as well as any other obligations that arose before the transfer. This includes liabilities towards employees who have already been dismissed or whose employment has terminated other than by dismissal. The transferor is jointly liable for a period of one year for obligations that have arisen until the transfer date.
2.7 Do collective agreements transfer?
Rights and obligations under any applicable collective agreement will transfer. The transferor’s collective agreement applies until it expires (if the agreement provides for this) or for a minimum 12 months after the transfer, unless a new collective agreement becomes applicable to the transferee during this time. The transferee cannot unilaterally alter the terms of an agreement: it must be negotiated with the trade unions.
2.8 How does the transferee obtain information on transferring employees?
Usually the transferee must retain all employees from a transferred business. In the case of transfer of part of a business, a due diligence may be carried out to identify the employees affected by the transfer and their terms of employment.
If there is any doubt as to which employees transfer a negotiated agreement may take place, in which the transferor will usually commit to having complied with all obligations regarding the transfer and to have transferred all employees who should legally be transferred.
3.1 Can employers make changes to employment contracts?
The transferee has the same right to reorganise its workforce as any employer does, in other words, the normal rules apply to changes to the employment contracts. This means that agreements with employees to make certain arrangements are considered valid, provided that mandatory rules set out in law (e.g. on the maximum length of working hours and safety rules) or in the applicable collective bargaining agreement (e.g. the minimum wage) are not breached. There are no special time constraints in relation to making changes after transfer.
In the same way as any employer, the transferee may make changes for economic, technical or organisational reasons, within the limits of employment law.
Terms of employment between existing employees of the transferee and ones admitted following transfer should be harmonised within a reasonable timeframe. The time frame is not specified in law, but may be set, for example, at two full years after the transfer.
3.2 When can employers safely dismiss employees before or after a transfer?
The transfer itself is not a valid reason for dismissal. Often, employers will try to reach agreement about the termination of employment, but if the employees do not agree, collective dismissals and redundancies (dismissals for objective reasons) are the only way to terminate the employment.
Dismissals for objective reasons include terminations for economic, technical or organisational reasons, including lack of financial balance in the company, restructuring or replacement of products.
‘Objective reasons’ means that dismissal must not be the result of the employee’s behaviour, but caused by external reasons which influence the employer’s decision to dismiss. A change of control is not such a reason.
Redundancies may be declared void and there is no safe time to dismiss upon transfer.
Upon termination, the employee is entitled to one month’s base salary and ‘diuturnidades’ (seniority allowances) for each full year of service, with a minimum of three months’ pay for seniority accrued by 31 October 2012. For fractions of years of service, compensation is paid pro rata, subject to the above minimum. For seniority accrued as of 1 November 2012, entitlement is to 20 days’ base salary and ‘diuturnidades’ for each full year of service, up to the maximum of 12 months’ pay.
For employment contracts executed as of 1 November 2011, employees are entitled to 20 days’ base salary and ‘diuturnidades’ for each full year of service, with no minimum pay guaranteed. A maximum severance of 12 months’ pay is now the limit for these employees.
4.1 Who must employers consult?
The employee representatives for the purposes of information/consultation are the works council and trade unions. If neither of these exists, employees must be consulted directly.
If the transferring entity maintains autonomy after the transfer, then the duties of the representatives of affected employees remain unchanged.
If the transferred entity is incorporated into the transferee’s company, and this company has no works council, the works council of the transferor will continue to exist for two months after transfer, or until a newly elected works council becomes effective.
If there are no employee representatives, elections under the normal legal rules should take place.
4.2 What information must they provide?
Both the transferor and the transferee must inform employee representatives (or the employees themselves when there are no representatives) of:
- the date of the transfer
- the reasons for it
- the legal, economic and social consequences of the transfer for affected employees
- any intended measures.
This information must be given in writing, prior to the transfer and with reasonable notice, i.e. a minimum of ten days before the start of the consultation process.
4.3 What does consultation involve?
Both the transferor and the transferee must consult employee representatives prior to the transfer to obtain agreement on the measures to be taken in relation to the employees affected by the transfer. There are no rules as to how this must be done, but it is good practice to ensure that consultations are recorded in writing and written replies are made to any reasonable queries.
Even if there is no agreement regarding the intended measures, this has no impact on the transfer, and it will go ahead in any event.
4.4 How long does consultation last?
Depending on the type of measures to be taken, if any, consultation may consist of one or more meetings with the employee representatives. There is no set time frame for this.
4.5 What happens if an employer fails properly to inform or consult?
Failure to comply with the information and/or consultation procedure does not jeopardise the transfer itself, but may attract fines by the Labour Inspection Authority (Autoridade para as Condições do Trabalho – ‘ACT’) for breach of employment law.
The ACT may intervene on its own initiative or if anyone (either an employee or a trade union) informs it that employment laws are not being complied with.
There is no impact on the transfer if the rules on information and consultation are breached. Nor is there any criminal penalty or compensation for employees.
5.1 Identify up to three issues in this country of which employers should be aware?
It is important to obtain the transferor’s warranty that all employees that are due to be transferred will be effectively transferred. It is also important to ensure when acquiring an undertaking or part of one that all terms of employment, as well as outstanding credits that employees may have are properly transferred.
5.2 Would the employee transfer law apply on a cross-border transfer into or out of this country?
Where a transfer has an impact in Portugal, particularly in terms of the employment contracts of employees working in Portugal, the employer must comply with Portuguese law on the transfer of undertakings. However, for transfers of businesses out of Portugal, Portuguese law does not apply.
6.1 What are the main national laws protecting employees upon transfers of businesses?
The national provisions implementing the Acquired Rights Directive are contained directly in the Portuguese Labour Code.