Kristin Depression and State of Calamity: Impacts on Labour Law and the Use of the Lay-off Scheme

One of the measures adopted by the Government, after the state of calamity was declared by the Council of Ministers on 29 January 2026, was the reinstatement of the simplified lay-off scheme, previously used to mitigate the negative effects that the COVID-19 pandemic had on Portuguese companies.

The current context once again requires the executive to find mechanisms which, without sacrificing jobs, balance the need to ensure business continuity with the protection of workers’ income.

What Is the Lay-off (Business Crisis Situation)?

The lay-off scheme is provided for in Articles 298 et seq. of the Labour Code and allows the employer to temporarily reduce normal working hours or suspend employment contracts due to market, structural or technological reasons, catastrophes, or other events that seriously affect the company’s normal activity.

Naturally, companies cannot resort to lay-off for any reason; it must be used as a tool aimed at ensuring the company’s viability and the preservation of jobs, ultimately avoiding the need to file for insolvency or resort to other corporate recovery mechanisms.

Requirements for Access to the Simplified Lay-off and Measures Implemented

Access to the simplified lay-off is subject to certain requirements, although less stringent than those imposed by labour law under normal conditions, thus providing a faster route for employers affected by the catastrophe to reduce costs. The requirements that are waived mainly concern the obligation to notify workers of the intention to reduce or suspend work and the negotiation phase between the employer and the affected employees, as provided for in Articles 299 and 300 of the Labour Code.

The access conditions are those laid down in Article 22 of Decree-Law no. 31-C/2026, of 5 February, namely:

• The employer must be in a situation of business crisis, meaning companies facing economic, financial, or technical difficulties affecting their normal operations — a request must be submitted on the relevant online platform and via Segurança Social Direta;

• The company must have been affected by the storm, with the applicable geographic scope defined by Council of Ministers Resolution no. 15-B/2026, of 30 January, and Resolution no. 15-C/2026, of 1 February.

The employer’s request must include the following information:

• Economic, financial, or technical grounds for the measure;

• Staffing structure, broken down by sections;

• Criteria for selecting the workers to be covered;

• Number and professional categories of the workers to be covered.

Another measure approved, in the form of extraordinary financial support, provides that workers of affected companies receive 100% of their remuneration, up to a limit of two national minimum wages (approximately €1,840). However, the granting of this support is subject to additional eligibility conditions.

What Obligations Apply to Companies Using the Simplified Lay-off?

Under the regime for the temporary reduction of normal working hours or suspension of employment contracts due to business crisis, employers are subject to a set of legal duties and restrictions.

While benefiting from the simplified lay-off scheme, the employer is subject to the general restrictions contained in Article 303 of the Labour Code, namely:

• Prohibition on distributing profits or dividends, in any form;

• Prohibition on increasing remuneration or granting any other patrimonial benefit to members of corporate bodies, in the case of companies;

• Prohibition on hiring new employees for positions that could be filled by workers covered by the reduction or suspension.

A Reflection

The Kristin depression represents an exceptional challenge for the Portuguese economic landscape, much like the COVID-19 pandemic did. The use of the lay-off scheme — particularly the simplified version, with the exceptional waiver of formalities — emerges as an important legal instrument to mitigate the effects of this crisis on employment. Its application, however, requires a careful assessment of compliance with legal requirements, in order to preserve job stability and safeguard workers’ rights, while also preventing abusive use of the mechanism.