Portuguese Court Rules Dismissal Under International Hiring Model Was Unlawful

Porto Court Rules Dismissal of Employee Hired Under International Employment Model Was Unlawful

In statements to the Lusa news agency, Eduardo Castro Marques, the employee's lawyer, highlighted that the decision—issued in early July—"confirms that the use of international contractual structures does not place companies beyond the reach of Portuguese labour law."

"Regardless of the designation adopted by the parties, what matters is determining who benefits from the employee's work, who directs that work, and who makes the fundamental decisions concerning the employment relationship," emphasised the lawyer from Dower Law Firm.

According to the lawyer, the employee had entered into an open-ended employment contract with Deel Portugal but worked exclusively for the US technology company Turing Enterprises. The dismissal was justified on the grounds of an alleged redundancy.

However, the court concluded that "the grounds presented were generic and did not enable the employee to understand or challenge the reasons relied upon, nor to verify whether there was any connection between the alleged restructuring and the termination of the employment contract."

As a result, the court declared the dismissal unlawful, ordering the employee's reinstatement (without prejudice to the employee's right to opt for compensation instead) and the payment of salary arrears accrued since November 2024.

Eduardo Castro Marques noted that the case "highlights an increasingly common reality in the international labour market." He added that the decision—issued at the preliminary stage of the proceedings without the need for a full trial—"may be of particular significance at a time when international remote work and cross-border hiring have become common practice, particularly in the technology and artificial intelligence sectors."

The Employer of Record (EOR) model is increasingly used by foreign companies to hire employees in Portugal without establishing a traditional employing entity in the country. Under this model, one company formally enters into employment contracts on behalf of another entity that, in practice, organises, directs, and benefits from the employee's work.

In recent years, hundreds of international companies have hired Portuguese workers for remote roles through specialised EOR platforms, enabling them to recruit talent without the need to establish local subsidiaries.

Despite its growing adoption by multinational companies, particularly in the context of remote work, the EOR model is not recognised as a standalone legal concept under Portuguese labour law.

According to the Dower Law Firm lawyer, the ruling sends "an important signal to companies that rely on these international structures" and demonstrates that the use of international contractual models does not exempt employers from complying with Portugal's employment protection rules.

"The increasing internationalisation of the labour market does not mean that there is no employer for the purposes of Portuguese legislation. The courts will continue to examine who effectively directs the work, who benefits from the employee's activities, and who makes the key decisions concerning the employment relationship," he argued.

As the use of global hiring platforms continues to grow, Castro Marques expects further disputes to arise over the true nature of these employment relationships, meaning that this issue "is likely to become increasingly significant in the coming years."