Portugal's Labour Reform Takes Another Turn: Government Drops Extra Holidays, Expands Fixed-Term Contracts

Portugal's marathon labour reform negotiations took yet another turn this week when the government circulated a revised draft of its Trabalho XXI package to employers' confederations and the UGT trade union. The new version, obtained by ECO and confirmed by Expresso, walks back one of the few sweeteners that might have secured union support: the return of a 25th holiday for workers with perfect attendance.

The change signals that the government of Prime Minister Luís Montenegro is betting it can push the reform through parliament without a formal social pact — a gamble that would mark the first major labour legislation passed without tripartite agreement in over a decade.

What Changed This Week

The draft that landed on negotiators' desks differs from November's version in three key areas.

Holidays reverted to 22 days. In November, the Ministry of Labour proposed reinstating three extra annual leave days for workers with clean attendance records — a provision abolished in 2012 during the troika era. That offer is now gone. An earlier July proposal allowing workers to convert two justified absences into holiday days has also been shelved. Portugal's statutory minimum remains at 22 days, among the lowest in Western Europe alongside Germany and the Netherlands.

Fixed-term contracts extended. Maximum durations for fixed-term contracts rise from the current two years to three years, and open-ended fixed-term contracts from four years to five. The government also added a new justification for temporary hiring: situations of formally declared calamity, responding to employer demands after the 2025 storms. For younger workers entering the job market for the first time, the rules have been tightened slightly — the new text limits fixed-term hiring to those who have never held any employment contract, rather than those who merely lack a permanent one.

Dismissal compensation nudged upward. When a court excludes reinstatement after an unlawful dismissal, the minimum compensation rises from 30 to 45 days of base pay per year of seniority. The UGT had demanded 90 to 120 days. The government's proposal to allow all employers — not just micro-enterprises — to request that a court block reinstatement remains unchanged, a provision the UGT has repeatedly called a red line.

Why the UGT Is Running Out of Leverage

The withdrawal of the holiday concession strips the UGT of one of its strongest selling points to members. General secretary Mário Mourão now faces an April 9 national secretariat meeting where he must either recommend acceptance of a deal that delivers very little for workers or walk away from the table entirely.

Minister of Labour Rosário Palma Ramalho has publicly stated she is willing to send the package to parliament without union endorsement. The next negotiation round is set for April 6, but sources close to the talks say positions have hardened on both sides. The CGTP, Portugal's more combative union confederation, has been excluded from negotiations entirely.

What This Means for Expats and Foreign Workers

For the roughly 400,000 foreign workers now registered in Portugal's social security system, the revised Trabalho XXI has practical implications.

Longer probation via fixed-term contracts. The extension of fixed-term limits to three years means employers can keep workers on temporary contracts longer before offering permanence. This disproportionately affects immigrants, who are concentrated in sectors like hospitality, agriculture, and construction where temporary hiring is standard.

Weaker reinstatement protections. If you are dismissed and a court finds it unlawful, your employer can now argue that bringing you back would be "gravely prejudicial" to the company. Previously, only micro-enterprises with fewer than ten employees could make this argument. For expats whose residency depends on an employment contract, losing reinstatement rights makes job security more precarious. Those on time-limited residence permits are especially vulnerable.

No holiday bonus. The dream of 25 annual leave days — common in countries like France (25 statutory) and Austria (25 after 25 years) — remains just that. Portugal's 22 days, combined with 13 public holidays, puts total paid time off at 35 days, roughly on par with Germany but below the Scandinavian average of 37 to 38.

The Bigger Picture

This is the sixth iteration of the Trabalho XXI proposal since July 2025. Each revision has narrowed the gap between government and employer positions while widening it with unions. The pattern suggests the government is building a text it can defend in parliament rather than one that secures consensus.

The political calculation is straightforward. Montenegro's PSD holds 80 seats. With Chega's 50, the coalition commands a majority. A parliamentary vote could pass without PS or union support, though it would come at the cost of social legitimacy — a currency the government may need if it faces a presidential veto.

For workers and expats watching from the sidelines, the message is clear: Portugal is moving toward a more flexible labour market that favours employers on fixed-term hiring and dismissal, while offering nothing new on leave or working conditions. Whether that flexibility translates into more jobs or merely more precarious ones remains the central, unanswered question of this reform.

Sources: ECO (Mar 26), Expresso (Mar 26)

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