Portugal, a country with a population of over ten million people, like many European countries, has suffered a serious economic crisis that has resulted in a 15% unemployment rate across the country and a 78 billion-euro bailout in 2011 from the European Union and the International Monetary Fund.  Portugal, a European Union member since 1986, and a founding member of the euro zone¹, was the third country, following Ireland and Greece to require a financial bailout. As a result of the growing financial crisis and in order to comply with the terms of the financial bailout, over the last year the Portuguese government, lead by Prime Minister Pedro Passos Coelho, has implemented various amendments (“Law No. 23/2012” or “Amendments”)  to the Portuguese Labour Code (“Labour Code” or “Law No. 7/2009”) aimed at reducing labor costs, increasing employment and improving Portugal’s overall economic performance.

Portugal’s Labour Code governs mandatory time off for holidays, sets forth requirements applicable to individual and collective redundancies, severance pay requirements, and wage and hour regulations. The Amendments passed by the Portuguese government directly impact each of these areas of employment law in that country. This article will provide a brief summary of the most critical aspects of the Amendments and discuss the current status of the proposed newest austerity measures relevant to severance pay and social security.

First, the number of minimum paid annual holiday entitlement for employees has been reduced by the Amendments from twenty-five (25) days to a total of twenty-two (22) working days. Additionally, time off for four (4) of the mandatory twelve (12) public holidays has been eliminated.

Second, Portuguese employers now have greater flexibility in implementing individual redundancies. Prior to the Amendments, employers were not permitted to terminate an employee if the grounds for the individual redundancy were caused by the employer or if it was possible for the employer to transfer the employee to another open comparable position within the organization. Rather, employers were only permitted to implement an individual redundancy if the employer could demonstrate specific changes in the workplace such as the introduction of technological innovations that required the employee’s lay-off. However, as the result of the Amendments, employers are permitted to decide the criteria for an individual redundancy and are permitted to implement individual redundancies as the result of an employee’s inability to meet company goals or comply with new work procedures and rules. The Amendments permit the employer to determine the criteria as long as the reasons for the redundancies are objective, relevant and non-discriminatory.  Additionally, in cases of position elimination, employers are no longer required to transfer an employee to another suitable position within the organization.

Third, the amount of required severance pay to separated employees was reduced to twenty (20) days from thirty (30) days per year of service. This change does not affect employees who entered into contracts prior to November 1, 2011. Notably, the Portuguese government is considering further reducing the amount of severance to a time period which would be more comparable with the euro zone average of seven (7) to thirteen (13) days.  The decrease in job protection created by the reforms, although opposed by many, is expected to encourage hiring and decrease unemployment.

Fourth, the amount of compensation for overtime has been significantly reduced. Employees are now paid 25% extra for the first hour of overtime and 37.5% extra for each subsequent hour and 50% for each hour worked on a weekly rest day or public holiday. Additionally, employees are no longer entitled to additional break time as the result of working overtime.

The Portuguese government continues to consider additional amendments to the Labour Code in order to improve the economy and reduce costs to employers. For example, on September 7th  of this year, the government proposed to reduce employer social security costs by raising employee contributions from 11% to 18%. Such a change would have effectively resulted in the reduction of a month’s salary for most employees. However, after immense backlash by the public and labor unions and dozens of protests, Prime Minister Coelho agreed to abandon this latest proposed austerity reform and consider other alternatives to reduce labor costs and spur the economy such as alternative income tax and capital tax measures. The Portuguese government is expected to make a final decision regarding the additional measures in the weeks to come.

¹“Euro zone” refers to the collective group of countries which use the Euro as their common currency.

In the face of a growing economic crisis, a 23% unemployment rate and an unemployment rate of 50% affecting the youth, the Spanish Parliament recently passed drastic reforms relevant to Spanish labor law known as Royal Decree Law 3/2012 (“Spanish Labor Reforms”). The enactment of these reforms will make it easier and cheaper for employers to lay off workers, will provide incentives for employers to hire younger workers, and is expected to increase employer confidence.  This article will provide some basic information relevant to labor law in Spain and introduce some of the more critical provisions of the reform law.

Sources of Spanish Labor Law

The basic sources of labor law in Spain are the Constitution of 1978, treaties such as the International Labour Organization Agreements No. 87 (Agreement on Trade Union Freedom and Protection of the Right to Form Trade Unions of 1948) and No. 98 (Agreement on the Right to Form Trade Unions and Right to Collective Bargaining of 1949), the 1995 Labor Act, Parliament Acts, Royal Decrees, the government regulations that implement the 1995 Labor Acts, collective bargaining agreements, individual labor contracts and case law.

General Requirements of Employment Contracts

Although not required in all situations, it is recommended that employers utilize written employment contracts with their employees. The Spanish government has created model form contracts; however, additional clauses may be added.  At a minimum, all employment contracts should include the name of the employer and employee, the domicile and work location of the employer, the date of commencement of employment, a summary of the job position, amount of base salary and any additional compensation, work hours and schedule, the amount of vacation time permitted, and if applicable, prior notice relevant to termination.

The duration of an employment contract is presumed to be entered into for an indefinite period of time unless the contract sets forth a specific term of employment.  Employers should review current collective bargaining agreements prior to executing definite term contracts in order to ensure that the definite term contracts are in compliance with such agreements.

Employers should note that pursuant to the Spanish Labor Reforms, employers may now deviate from the provisions of a collective bargaining agreement for certain economic, technical, organizational or production reasons.

Contract Termination and New Rules Applicable to Severance Payments

The Labor Act provides a list of various reasons that an employment relationship can be terminated, including but not limited to: mutual agreement of the employer and employee;  reasons set forth in the contract to the extent permitted by law; disciplinary reasons; constructive dismissals (for economic reasons, technical reasons, organizational reasons, and production reasons); resignations and death; or disability of the employee.  Collective bargaining agreements typically set forth in detail the various permissible grounds for terminating employment and required procedures to be followed by the employer.

Prior to the Spanish Labor Reforms, the Labor Act required, under certain circumstances such as unjustified dismissals, that employers make severance payments to the terminated employee computed on the basis of 45 days’ gross salary per year of employment with a maximum of 42 months’ salary. The reform law reduces the required severance payments to 33 days per year of employment and caps payments at a maximum of 24 months.  Additionally, if an employer can demonstrate three consecutive quarters of losses, the employer will now only be required to pay 20 days of severance per year of employment.

Additionally the Spanish Labor Reforms have eliminated the need to obtain official authorization prior to proceeding with collective dismissals and, as a result, the reasons for and procedures applicable to the dismissals are monitored exclusively by the labor courts.

Leave Entitlement and New Rules Applicable to Paternity Leave

Leaves of absences pursuant to Spanish law include short-term paid leaves of absences to which employees are exceeding their vacation and holiday time. Paid leaves of absences are typically governed by the employment contracts or collective bargaining agreements. Types of paid leave include, but are not limited to: leave for marriage (a minimum of fifteen days); maternity or adoptions (sixteen weeks for a single child); paternity (two days); leave for serious illness of a relative (two-to-four days depending upon the circumstances); and leave to perform public duties.  The time permitted depends on the purpose of the leave. Pursuant to the recent reforms, an employee seeking to take paternity leave must give fifteen days notice prior to commencing leave and specify a start and end date for the leave.

New Incentives Created by the Spanish Labor Reforms for Employers to Hire More Employees

The Spanish Labor Reforms create various incentives for employers to employ more staff, including  providing  tax incentives to employers with fewer than 50 employees and providing a reduction to employer’s social security payments for hiring employees 45 years and over, women in sectors which traditionally employ few women and individuals under the age of 30.

South Africa, a country with over 50 million people, has the largest economy in Africa.  Among its major sources of business are tourism, agriculture and mineral resources.  Many U. S. and multi-national companies have locations in South Africa.  This article will provide some basic information about employment law in South Africa for companies who already employ workers in South Africa or who are considering hiring employees in that country.

The Basic Conditions of Employment Act, 1997 (“the Act”) is South Africa’s current employment law governing an employer’s duties and obligations to most workers in the country.  This law applies to all employees and employers except members of the National Defence Force, National Intelligence Agency, South African Secret Service and unpaid volunteers working for an organization with a charitable purpose.  The basic conditions of employment as set forth in the Act form part of the contract of employment with each covered employee.  However, some of the employment conditions enumerated in the Act may be revised by individual or collective agreement.

Employment contracts

In South Africa, employment agreements must be in writing.  The employer is required to provide workers the following information in writing when employment begins:  the employer’s full name and address; the employee’s name and occupation or a brief description of the work; the various locations of work; date of employment; ordinary hours of work and days of work; wage or the rate and method of calculating compensation; rate for overtime work; any other cash payments; any payment in kind and the value of such payment; frequency of remuneration; any deductions; leave entitlement; period of notice or period of the employment agreement; description of any council or sectoral determination which covers the employer’s business; period of employment with a previous employer that counts towards the period of employment; and a list of any other documents that form part of the contract, indicating a place where a copy of each may be obtained.

Affirmative action requirements

South Africa’s Employment Equity Act requires employers with more than 50 employees, as well employers in certain other categories, to develop employment equity plans.  The purpose of these plans is for employers to show reasonable progress in the workforce pertaining to certain “designated groups”, defined by the Act as “black people” and “women and people with disabilities”, and to identify barriers adversely affecting individuals who are members of these “designated groups”.

Regulation of working time

South Africa’s laws regulate working time for both ordinary hours of work and overtime.  This section of the Act, however, does not pertain to senior management employees, employees engaged as sales staff who travel and employees who work fewer than 24 hours a month.  For ordinary hours of work, employers may not require or permit an employee to work more than 45 hours in any week; nine hours in any day if an employee works for five days or less in a week; or eight hours in any day if an employee works on more than five days in a week.  An employer may not require or permit an employee to work overtime except by an agreement, or require permit an employee to work more than ten hours’ overtime a week.  An agreement may not require or permit an employee to work more than twelve hours on any day.  However, a collective agreement may increase overtime to fifteen hours per week for up to two months in any period of up to twelve months.  Overtime must be paid at 1.5 times the employee’s normal wage or an employee may agree to receive time off.  The Act also provides rules for a compressed work week, averaging of hours of work, meal intervals, daily and weekly rest periods, pay for work on Sundays, night work and public holidays. 

Leave Entitlement

South Africa’s law on leave entitlement does not apply to employees working fewer than 24 hours a month for an employer, or to leave granted in excess of the leave entitlement under the statute.  For all other employees, the law guarantees annual leave (21 consecutive days’ annual leave or by agreement, one day for every seventeen days worked or one hour for every seventeen hours worked); sick leave (six weeks’ paid sick leave in a period of 36 months); maternity leave (four consecutive months’ maternity leave); and family responsibility leave (full-time employees are entitled to three days paid family responsibility leave per year, on request, when the employee’s child is born or sick, or in the event of death of the employee’s spouse or life partner, or the employee’s parent, adoptive parent, grandparent, child, adopted child, grandchild or sibling).

Collective Bargaining Agreements

A collective bargaining agreement negotiated by a bargaining council replaces or excludes the basic conditions of employment as set forth in the Act except for the following employer obligations:  a) the duty to arrange working time with regard to the health and safety and family responsibility of employees; b) protection afforded to employees who perform night work; c) annual leave entitlement of at least two weeks; d) maternity leave entitlement; e) sick leave entitlement; and f) the prohibition of child and forced labor.  The Minister of Labour may make a determination to vary or exclude a basic condition of employment upon application by an employer or employer organization.

Separation of Employment

The section of South Africa’s law governing termination of employment does not apply to an employee who works fewer than 24 hours in a month for an employer.  For all other employees, a contract of employment may be terminated on notice of not less than:  a) one week, if the employee has been employed for more than six months or less; b) two weeks, if the employee has been employed for more than six months but not more than one year; and c) four weeks, if the employee has been employed for one year or more, or if a farm worker or domestic worker has been employed for more than six months.  A collective agreement may shorten the four weeks’ notice period no less than two weeks, and notice must be given in writing, unless such notice is provided to an illiterate employee.  The fact that an employer has provided the notice of employment termination does not prevent the employee from challenging the fairness or lawfulness of the dismissal in terms of any applicable law.

Severance Pay

An employee dismissed for operational requirements or whose employment agreement contract is terminated is entitled to one week’s severance pay for every year of service under the terms and conditions of the Act.