The possibility to group in a single year all the working hours together in partial retirement cases

Written on 24 Nov 2017

The National Social Security Institute (INSS) has issued a consultation which approves the possibility for partial retirees of concentrating in a single uninterrupted period all of the remaining working hours until their ordinary retirement.

When an employee has access to partial retirement after reaching an agreement with the employer, his/her working hours are reduced during the last years of working life and he/she receives a proportional part of the salary and pension until the access to the ordinary retirement.

It has been common practice in many companies to concentrate the pending working hours up until the moment of ordinary retirement in an uninterrupted period of time, generally in the first months of contract. By means of this practice, the employee would work for full-time uninterrupted period, and would stop working before the date of the ordinary retirement. This practice had already been admitted by the Supreme Court in its Judgment on March 29, 2017, in which the Supreme Court confirmed the doctrine that had already been indirectly established in its judgment of January 19, 2015.

However, despite the doctrine established in the judgment issued by the Supreme Court in 2015, the INSS had been only admitting the concentration of working hours in annual periods, as this is explicitly foreseen in Article 65.3 of the General Regulation on Contribution. That is, that the percentage of the working hours to be carried out in each of the years remaining until full retirement could only be accumulated in an uninterrupted period each of the years. What was not allowed was the possibility that this concentration was extended to periods longer than one year, accumulating all the pending working hours until the total retirement in a single period. Both the INSS and the Labour Inspectorate considered that the full accumulation, for its full realization in the first year of the contract, was constitutive of fraud since it was in fact an early retirement.

The above interpretation of the INSS generated great legal uncertainty for companies and employees. It also had important consequences since it entailed the declaration of the termination of partial retirement situations and the claim to the employee to return all the amounts received as partial retirement benefits. The declaration of termination implied in some cases the reduction of the employee’s regulatory base for future pensions and the consequent claim of the amounts unduly received once the employee fully retired. As for the company, it could sometimes be obliged jointly and severally to reimburse those amounts.

The change of the INSS criteria was expected after the ruling of the Supreme Court in march 2017. Thus, in its consultation nº 92/2017 of October 10, the INSS finally admits the criteria of the Supreme Court and approves the accumulation of all the partial retiree´s pending working hours until the full retirement in a single uninterrupted period of time.

Without prejudice to this new interpretation of the INSS, it will be necessary to prove, in any case, the fulfilment of all legal requirements during the partial retirement situation, in particular, the registration at the Social Security of the partial retiree and the payment of all the Social Security contributions during the whole period between the partial retirement and the total retirement.

This new interpretation applies since October 10, 2017, not only to the pending administrative proceedings but also to the previous claims made against the INSS’ resolutions issued and based on its previous criteria.

This consultation and the two rulings of the Supreme Court, priced a greater legal certainty regarding the validity and legality of the practice consisting of subscribing with partial retirees, part-time contracts that provide for the accumulation of the total pending working hours in the first months of contract.

Despite the fact that the Labour Inspectorate has not been admitting the accumulation of working hours of the partial retiree over more than one year as regulated in its Technical Criterion nº 95/2015, we expect that after the consultation of the INSS discussed herein, the Inspection will also adapt its criteria and will not impose any penalties due to this practice.