Outsourcing and employment rights – two changes in the Portuguese employment regime and their implications

Joana Brisson Lopes
SRS Legal, Lisbon
Joana.brissonlopes@srslegal.pt

In the current economic and organisational environment, we support the continuing and cumulating increase in the number of multiple services providers – outsourcing companies.

Although the matter and the context are much more complex, this derives, among other factors, from the universalisation of access and the possibility of developing more activities previously only accessible to a few due to the necessary levels of funding and the size of the workforce required.

Globalisation and technology have contributed most significantly by exponentiating the possibilities of connection to service providers everywhere, therefore increasing the access to (maybe all) the existing offers. Consequently, this pressures such offers and affects and diminishes prices.

This context has brought – and is bringing – increasing pressure on companies and employers, making them look to the market for less expensive and more efficient ways of carrying out their business, optimising their resources and increasing their income.

This is of course reflected in the labour market, affecting two groups of employees at the same time: (1) the employees of the companies providing the services, who, under market pressure, tend to offer lower working conditions and benefits than their potential clients do with their employees; and (2) the employees of the companies that are potential clients, who are exposed to internal measures of reorganisation, redeployment and, ultimately, their own redundancy.

With these two groups of employees in mind, in May 2023 the Portuguese legislature introduced two new sets of rules into the Labour Code, as part of the implementation of the Portuguese Dignified Work Agenda, with the purpose of protecting workers’ rights and minimum standards.

The first, contained in Article 498-A of the Labour Code and aimed at employees of companies providing services, states that ‘in the case of the acquisition of external services from a third party for the performance of activities corresponding to the corporate purpose of the acquiring company, the collective labour regulation instrument that binds the said beneficiary of the activity company shall apply to the service provider if it is more favourable to its employees’.

It is also specified that the third party providing the service may be either a company or an individual contractor, irrespective of the actual formal legal instrument binding the provider and the beneficiary of the activity.

This rule only applies if the activity in question is developed for the beneficiary company for more than 60 days.

The purpose of this measure is to extend the social protection of employees of outsourcing companies and individual service providers, thus protecting them from abuse and dumping through lower wages and fewer benefits. This will have the natural effect of increasing the cost of outsourcing services, making them less competitive and attractive, which will certainly lead to changes in the market.

In addition, this new set of rules has also raised several internal questions from the point of view of legal interpretation. For example, it is not yet clear the scope of what should be considered the company’s corporate purpose, or what should be considered the most favourable regime or collective instrument for employees, taking into account that these instruments regulate various aspects of the employment relationship (this implies a vast and complex assessment of what should be considered the most favourable set of rules overall and therefore brings uncertainty to the process).

The second measure implemented, aimed at protecting employees in companies that could potentially use outsourcing services, is more controversial and raises issues of interpretation that are also extremely important, putting the interests and rights of employer companies in conflict with the rights of workers to safety at work.

The new rule, titled ‘Prohibition of Outsourcing’, now states that ‘it is not permitted to purchase external services from a third party in order provide response to the needs that were met by a former employee whose contract has been terminated in the previous 12 months [in a] collective dismissal or individual extinction of job position’.

With the introduction of this new rule, employers are no longer allowed to use external services (outsourcing) to meet needs previously met by former employees made redundant in the previous 12 months.

The consequence of violating this rule is that a company that resorts to outsourcing commits a serious offence, which may result in the payment of an appropriate fine, the amount of which depends on and is calculated according to the financial results of the company.

However, this new legislation does not clarify, at least directly, two crucial issues: what happens to the dismissal that has taken place, and should it be considered unlawful or not? Do employees have the right to be reinstated if they so wish? And what about the new person(s) providing the services – should their contract be considered null and void?

The fact that these aspects have not been directly addressed makes this new rule very controversial. The doctrine is not unanimous on its application, and while some consider that the earlier dismissal must be considered unlawful in a systematic interpretation of the law, others consider that this deferred unlawfulness is not defensible.

There are no court decisions yet that allow us to better assess and determine the real impact of these new rules, but we are eagerly awaiting them.

Law is not economics, and its purpose is to balance the rights and interests at stake, and this is particularly true in the case of employment regulation, since the protection and safeguarding of minimum employment standards is crucial not only for an economically strong society, but also for the guarantee of human dignity, which should always be the ultimate goal.

It is therefore imperative that the measures taken not only have a clear objective, but are also formulated in such a way as to ensure certainty of interpretation, ease of implementation and, above all, protection of the rights concerned.