Why does the automatic renewal of contract clauses raise so many questions?
The renewal of an employment contract remains a topic that often creates uncertainty for both employees and employers.
For many, it is not entirely clear when an automatic renewal applies, how it works, what legal deadlines must be respected, or what changes when neither party formally communicates the intention to end the employment relationship.
Understanding this mechanism is essential to avoid unexpected situations, ensure legal certainty, and guarantee that both rights and obligations are respected.
In this article, we explain the key points you should be aware of so that you know exactly what to expect when the automatic renewal of your employment contract takes place.
How does the automatic renewal of a fixed term contract work?
The automatic renewal clause is established in Article 149 of the Portuguese Labour Code (Law No. 7/2009) and applies exclusively to the fixed term contract.
In practice, the automatic renewal of the employment contract occurs for the same duration as the initial agreement if:
- neither party submits a written communication expressing the intention not to renew (for example, through a letter of non-renewal of employment contract);
- the communication is not sent within the legally required notice period..
Example:
If the initial contract lasts 6 months and neither party sends a letter of non-renewal of the employment contract within the required notice period, the agreement is automatically renewed for another 6 months under the automatic renewal of contract clause.
This mechanism provides continuity and helps prevent unexpected interruptions in the working relationship. However, if the legal deadlines are not respected, it may also lead to unintended situations for both the employer and the employee.
Types of Employment Contracts
In Portugal, there are several types of employment contracts.
Below, we highlight the three most common types, explained in a simple and practical way so you can easily understand what sets each one apart:
Fixed term contract
A fixed term contract has a defined start date and end date, and is used to meet specific and temporary needs within a company (for example, seasonal reinforcement or staff replacement).
It is the most common type of contract used by temporary work agencies such as Timing.
Open-ended contract
An open-ended contract ( also referred to as a permanent employment contract) has no defined end date. It only ends by decision of either party (within the legal rules) or on grounds of just cause.
Fixed term contract with uncertain duration
A fixed term contract with an uncertain end date does not specify exactly when it will finish, although it cannot exceed four years in total.
It is used when a company needs someone for a period whose end cannot yet be predicted, but where there is a clear and justified reason for hiring – for example, replacing an employee on sick leave or supporting a temporary project with an undefined duration.
The duration of the contract depends directly on the reason that justifies it.
In which situations is the contract renewed automatically?
In fixed term contracts, the automatic renewal of a contract clause applies when two key conditions are met:
- There is no prior written agreement between the parties excluding renewal;
- Neither party submits a letter of non-renewal of employment contract within the legal deadline.
If these conditions remain in place, the contract is automatically renewed for a period equal to the initial duration.
To avoid unwanted renewals or the contract being converted into an open ended contract (or permanent employment contract), it is essential to:
- understand the applicable notice periods;
- put all communications in writing;
- keep an up-to-date record of the contract’s start and end dates.
Managing these deadlines carefully provides legal certainty for both the employee and the employer.
What are the legal limits?
Fixed term contracts exist mainly to cover temporary business needs, such as staff replacements, seasonal demands or short-term projects.
To ensure these contracts do not become permanent without justification, the Labour Code sets strict limits on both the total duration and the number of renewals allowed under a fixed term contract renewal.
If you want to explore the full set of rules in more detail, you can check this article.
Below, we outline the main legal limits you should keep in mind
What is the maximum duration?
A fixed term contract may last for a maximum of two years in total, including every fixed term contract renewal.
If this limit is exceeded, the contract is automatically converted into an open ended contract (also referred to as a permanent employment contract).
How many renewals are allowed?
Under the Labour Code, a fixed term contract may be renewed up to three times.
In addition, the law requires that the total duration of all renewals must not exceed the length of the initial contract.
Practical example:
If the initial fixed term contract is 6 months, the total duration of all fixed term contract renewal periods cannot exceed a further 6 months, whether this happens in one single renewal or across several shorter renewals.
Important note: This rule applies to most fixed term contracts. There are exceptional situations (for example, very short-term contracts, seasonal activities or specific legal justifications) that follow their own rules, but they do not change the general legal limits of 2 years and up to 3 renewals set out in the law.
What should you do if you do not want to renew the contract?
Both the employee and the employer may decide not to proceed with the renewal of an employment contract before the automatic renewal takes effect.
This decision must always be communicated in writing (ideally by registered letter) and within the legal notice period:
For the employee
If the employee does not wish to renew the fixed term contract, they must communicate this intention at least 8 days before the contract ends.
There is no obligation to give a reason. What matters is respecting the notice period, as failing to do so may affect certain rights, such as proportional holiday pay or allowances.
For the employer
The employer must communicate the non-renewal in writing and at least 15 days in advance, in order to prevent the automatic renewal from taking effect.
The communication should include:
- a clear statement that it is a non-renewal of the employment contract;
- the date on which the contract is expected to end;
- the identification of the employer;
- the date and signature.
What happens if there is no communication?
When neither party communicates, within the legal deadline, the intention to end the contract, the automatic renewal takes effect and the agreement is extended under the same previously agreed conditions.
If the successive renewals cause the contract to exceed the maximum duration of two years or the limit of three renewals, it automatically becomes an open-ended contract (permanent employment contract), even if that was not the intention of either the employee or the employer.
What are the effects of the automatic renewal of a contract clause for each party?
For the company:
The automatic renewal may lead to a more stable employment relationship and increased responsibilities.
If the company later decides to end the agreement, it may face additional costs, such as compensation. There is also the risk of the contract becoming an open-ended contract (permanent employment contract) if the legal limits on duration or the number of renewals are exceeded.
For the worker:
Automatic renewal ensures continuity, greater security and more predictable employment.
If the contract goes beyond the permitted duration or renewal limits, the worker may acquire open-ended contract status, gaining stronger rights and greater employment protection.
Common mistakes that lead to conversion into an open-ended contract
Several frequent situations increase the risk of a contract being automatically converted into an open-ended contract (permanent employment contract).
Some of the most common include:
- failing to communicate the intention not to renew within the legal deadline (via a proper letter of non-renewal of employment contract);
- exceeding the maximum number of renewals permitted under fixed term contract renewal rules;
- allowing the worker to continue performing duties after the official end date without a new fixed term contract being formalised;
- using fixed-term contracts for roles that are, in practice, permanent and lack appropriate legal justification.
Best practices for managing the renewal of employment contracts safely
To ensure clear and legally compliant management of any renewal of employment contract, it is essential to adopt practices that minimise the risk of errors and provide greater security for both employers and workers.
These recommendations serve as a practical guide for safer and more effective contract management:
Keep an up-to-date record of deadlines and contracts
It is crucial to have a system that tracks the start and end dates of each fixed term contract. This monitoring allows you to act in advance and helps prevent unplanned renewals, including an automatic renewal being triggered inadvertently.
Formalise all communications in writing
Any intention not to proceed with the renewal of employment contract should always be communicated in writing, preferably by registered letter or by email with proof of delivery. This reduces ambiguity and protects both parties in matters related to the automatic renewal of contract clause.
Use appropriate communication templates
Using standard templates such as a letter of non renewal of employment contract helps ensure that all required elements are included, namely the end date, identification of the parties and the necessary signatures.
Seek specialist support when needed
Whenever there are doubts about procedures, deadlines or the legal framework, it is advisable to seek legal guidance or support from professionals specialised in human resources management.
Timing has dedicated teams that assist companies at every stage of contract management — from fixed term contract arrangements to matters involving temporary work and temporary work agencies.
– Did this topic help you?
The automatic renewal of contracts is a straightforward mechanism, but it does require close attention to deadlines and legal rules.
If you are an employer, keep your processes clear and ensure all communications are properly documented.
If you are an employee, make sure you understand your rights and keep written records at every stage.
At Timing, we support companies and professionals daily in managing the renewal of employment contract processes, ensuring transparent, lawful and secure working relationships.
Find out how Timing can support you.