"EMPLOYMENT PROTECTION: MOVING CLOSER TO A SINGLE CONTRACT?

Differences in the level of EPL between open-ended and fixed-term contracts have led to increasing labour market segmentation in some European countries. In France, Italy and Spain there were debates on proposals for a single open-ended contract. Although the single open-ended contract was specific to each one of these countries, the common underlying goal of each proposal was to create a new contract of employment to help overcome the legal asymmetry between open-ended and fixed-term contracts. However, these debates have not yet led to the implementation of an open-ended single contract.

The main features of a single contract are: (i) the absence of a clear distinction between a fixed-term and an open-ended contract from the viewpoint of workers' protection and (ii) a gradual continuous increase of rights with tenure. The exact design of the contract may differ across countries. The flexibility of the entry phase encourages job creation on open-ended contracts as the employer is given more time to learn about the quality of the job match. Since workers' entitlements to job protection rise with tenure, they are at a lower risk of precariousness than they would be with a fixed-term contract. A major issue with the implementation of the single contract is its co-existence with the other labour contracts. The suppression of other current contracts is largely opposed. But the single contract will be less effective if it has to co-exist with current contracts.

The asymmetry between open-ended and fixed-term contracts is large in Portugal. A partial approach to reforms of the EPL is at the origin of the problem. While legislation regulating fixed-term contracts was eased, a parsimonious approach was followed to reduce the strictness of open-ended contracts. This led the proportion of employees on temporary contracts to increase from 10 percent in 1995 (below the EU average) to 23 percent in 2010 (the third highest share in the EU). In the current legal framework, two main elements make temporary contracts more attractive to the employer. The first is the level of severance pay that is higher for workers on open-ended contracts. The second is the narrow definition of fair dismissals that increases the risk for employers to enter into open-ended contracts.

The recommendations in the Memorandum of Understanding tackle the issue of labour market segmentation in such a way to create a system closer to the principles of the single contract. In a first stage, building upon the Portuguese March 2011 Tripartite Agreement with social partners, the severance payment of open-ended contracts will be fully aligned with those of fixed-term contracts. In a second stage, the definition of fair
dismissal for open-ended contracts will be eased and the level of severance payment will be reduced in line with the EU average. A full and timely implementation of this reform is a key element to redress the critical labour market situation in Portugal."

in "The Economic Adjustment Programme for Portugal", 2011, Directorate-General for Economic and Financial Affairs, EUROPEAN COMMISSION, p.26.

http://ec.europa.eu/economy_finance/publications/occasional_paper/2011/pdf/ocp79_en.pdf