Employment issues in M&A transactions in Portugal

There are no consequences on employment conditions in this case and no notifications are necessary as there is no change of employer.

Although there is no obligation arising directly from the transfer of undertakings, the employees’ committee is entitled to request information regarding any project which involves changes to the share capital.

• an employees’ representative committee exists;
• a share option plan exists;
• a pension scheme exists;
• employment contracts and provision of services agreements
• Collective bargaining agreements and/ or works agreements apply, as well as the specific conditions laid down in these agreements.

In the event of a transfer of undertakings according to the Portuguese Labour Code, the seller must inform the employees’ representatives and, where applicable, the employees themselves (cumulative duty of information), of the following:

1. the date of the transfer;
2. the reasons for the transfer;
3. the legal, economic and social effects of the transfer on the employees;
4. any planned measures regarding the employees;
5. the content of the transfer of undertakings contract executed between transferor and transferee

The information referred to above should be provided in writing in good time before the transfer, at least 10 (ten) business days prior to the mandatory consultation with the employees’ representatives – in an attempt to obtain an agreement on the measures that the seller and purchaser intend to adopt in relation to the employees as a result of the transfer, in order, inter alia, to adapt the employees’ working conditions.

There is also the obligation to immediately inform the employees covered by the transfer of undertaking where reaching an agreement or at the end of the consultation with the employees’ representatives (where the representative committee has not intervened).

The employees’ representatives must be consulted at least ten days before the transfer takes place.

Companies must inform the Portuguese Authority for Working Conditions (‘AWC’) of the content of the contract between the transferor and transferee and all the elements which constitute the economic unit (if this is the case).

Information to the AWC:

• Mandatory: for medium and large companies; and
• At the request of the AWC: in case of micro or small enterprises.

At the request of either party, the competent department of the Ministry of Employment shall intervene in the negotiations between the transferor and the transferee with the employees’ representatives under the same terms as those established for the procedure of a collective dismissal – in other words, this entity is now assigned the following functions: (i) promoting the regularity of the substantive and procedural negotiation instructions ; (ii) reconciling the parties’ interests; and (iii) upholding the employees’ rights.

As of 5 (five) working days (from receipt of the information regarding the transfer of undertakings), a representative committee may be designated (with a maximum of 3 members if the transfer includes up to 5 employees, and a maximum of 5 members if it includes more employees) in the absence of the employees’ representatives.

See section 3 above.

Implementation following proper information/notification.

Transfer may only take place at least 7 (seven) working days as of the agreement or the end of the consultation period with the employees’ representative.

Please note that in practical terms a longer period may be required for the implementation of specific employment changes such as those affecting the pension scheme, etc.

The employees included in a transfer of undertakings may exercise the right to oppose the transfer of their employment contracts, maintaining the employment contract with the transferor, if invoking serious impairment, namely due to the transferee’s patent lack of solvency, difficult financial situation, or if its work organisation policy does not inspire their confidence.

The employee has 5 (five) working days to exercise in writing their right of opposition (as of the end of the period for the appointment of the representative committee, if such appointment has not been made; after reaching an agreement; or upon the termination of the consultation of the employees’ representative’s period).

The transfer of undertakings is considered as just cause for the termination of the employment contract by the employee.

The grounds shall be the same as those established for the right of opposition.

In case of termination of the employment contract under just cause, the employee is entitled to compensation in the same terms as those legally foreseen for a collective dismissal.

The rules described in Section B. ‘Asset Deal – I. Obligations of the seller’, above also apply to the obligations of the purchaser, since under Portuguese employment law, both the seller and purchaser must combine the information and consultation to be given to the employees’ representatives or employees involved.

Please note that in the event of a transfer by any means or form of the company’s ownership, or of an establishment of part of the company or establishment constituting an economic unit, the seller is jointly and severally liable for all obligations due on the date of transfer and for a period of 2 (two) years after the transaction has occurred.

The rules mentioned in Section B. ‘Asset Deal’ also apply in the event of a merger.