Employment protection legislation (EPL), i.e. regulations on the hiring and dismissal of employees, affects people’s job security and hiring opportunities, as well as the ability of companies to adapt to fluctuations in demand and structural changes in a fair and effective manner.
The OECD has updated its EPL database to 2025. The OECD indicators of Employment Protection Legislation measure job termination regulations for open-ended and fixed-term contracts, as well as constraints to the ease with which temporary employment (both fixed-term contacts and temporary work agency assignments) can be used.
Most EPL reforms implemented since the onset of the COVID‑19 crisis have focussed on: i) harmonising regulation among dismissals of workers on open-ended contracts – mostly by limiting the discretionary power of courts in the event of dispute and by aligning protection for blue‑collar workers with that for white‑collar workers; and ii) strengthening regulation of temporary contracts.
These reforms marked a break with the trend toward relaxing dismissal regulations for workers on open-ended contracts, while keeping regulations on temporary contracts approximately unchanged, observed in many countries over the decade following the 2008‑2009 global financial crisis.
These recent reforms could help reduce labour market dualism, in particular by making dismissal regulation for workers on open-ended contracts more predictable and temporary contracts less easy to overuse.
Recent reforms of other types of work and workers, such as variable hours (or “on-call”) contracts or vulnerable self-employed people, could also reduce labour market dualism.
Recent trends in employment protection legislation
Regulations governing the hiring and dismissal of employees – i.e. employment protection legislation (EPL) – are widely debated. They play a key role in helping countries navigate fluctuations in demand and structural changes in a fair and effective manner. This policy brief provides an overview of the main reforms implemented recently in OECD countries in this area. It relies on the OECD EPL indicators, updated from 2019 to 2025, which measure job termination regulations for open-ended and fixed-term contracts, as well as constraints to the ease with which temporary employment (both fixed-term contacts and temporary work agency assignments) can be used.
During the period 2019-2025, many countries substantially strengthened regulation of temporary contracts, while virtually no country significantly reduced protection for workers on open-ended contracts (Figure 1 and Figure 2). This marks a break with the previous trend, which had been to relax dismissal regulations for workers on open-ended contracts, while keeping regulations on temporary contracts approximately unchanged – an approach followed in many countries over the decade following the 2008‑2009 global financial crisis.
OECD unweighted average
Note: Range of indicator scores: 0 to 6 from least to most restrictive. The OECD unweighted average is taken across the 32 OECD countries with data available over the whole observation period (not including Colombia, Costa Rica, Iceland, Israel, Latvia and Lithuania). Panel A: OECD indicator of employment protection of regular workers against individual and collective dismissals (EPRC), Version 3. Panel B: OECD overall EPL indicator for temporary contracts (EPT), Version 3. The spike in the EPRC indicator in 2021 (Panel A) is due to the ban on dismissals in Italy and Türkiye (only for economic reasons, both individual and collective, in Italy) that was implemented following the COVID‑19 pandemic.
Source: OECD (forthcoming[1]), OECD Employment Outlook 2026, https://doi.org/10.1787/7e710f54-en.
Note: Range of indicator scores: 0‑6 from least to most restrictive. Panel A: OECD indicator of employment protection of regular workers against individual and collective dismissals (EPRC), Version 4. Panel B: OECD overall EPL indicator for temporary contracts (EPT), Version 4. Countries for which the indicator changed between 2019 and 2025 are shown in red.
Source: OECD (forthcoming[1]), OECD Employment Outlook 2026, https://doi.org/10.1787/7e710f54-en.
If not too strict, dismissal regulation can smooth labour market adjustments and help labour markets navigate ongoing job transformations. Dismissal regulation aims to protect workers from arbitrary dismissals and to make companies bear part of the social costs of their dismissals (e.g. higher expenditure on income replacement programmes and lower fiscal revenues) (OECD, forthcoming[1]). It also promotes efficient worker reallocation by helping workers transition to their next job. These effects of dismissal regulation are particularly important at a time of cyclical labour market turbulence – e.g. repeated disruptions in the global value chain – and profound labour market transformations – whether driven by global megatrends or policy changes such as tariff increases. Dismissal regulation can also make these transformations more equitable by supporting a balanced distribution of their costs and benefits between workers and firms. Finally, dismissal regulation can prevent discriminatory practices against older workers and ensure that firms internalise some of the significant social costs of dismissing them.
However, if too strict, dismissal regulation can excessively hinder labour market adjustments and replace open-ended contracts with temporary contracts (OECD, forthcoming[1]). Dismissal regulation can excessively hinder job and worker flows, and thus adaptation to new market conditions and technology adoption, thereby hampering productivity growth. Strict dismissal regulation can also induce firms to replace permanent contracts with temporary ones or other forms of employment, thereby segmenting the labour market between a small number of very protected jobs and many jobs that can be easily terminated, especially in countries where restrictions on hiring under temporary contracts are weak or poorly enforced. By reducing aggregate employment protection, the widespread use of temporary contracts can reduce training incentives, decrease the labour share, worsen working conditions, increase wage inequality, and leave a disproportionate share of the social costs of transitions on workers and governments.
Therefore, strict dismissal regulation for workers on open-ended contracts typically calls for strict hiring regulation for temporary workers. Empirical analyses of reforms aimed at strengthening restrictions on the use of temporary contracts in three countries with strict dismissal regulations – Italy (2018), Portugal (2009) and Spain (2022) – indeed suggest negative impacts on the incidence of temporary employment in these three countries, with generally a positive impact on the incidence of open-ended employment and limited overall employment effects (OECD, forthcoming[1]; Adrjan, Jessen and Victoria-Lanzon, 2026[2]; Cahuc et al., 2023[3]; Grasso and Tatsiramos, 2023[4]; OECD, 2024[5]).
However, restrictions on the use of temporary contracts may be difficult to enforce, and even with strict hiring regulation for temporary workers, overly strict dismissal regulation for workers on open-ended contracts can lead to labour market dualism that is then hard to tackle. Although restrictions on hiring under temporary contracts are now strict in Italy, Portugal and Spain, these contracts remain widespread, accounting for around 15%‑16% of dependent employment in 2024 in these three countries, compared with 13% in the EU overall. In fact, restrictions on the use of temporary contracts were already relatively strict in Spain before the 2022 reform (Figure 2 Panel B), while the incidence of temporary employment was among the highest in the OECD (between 24% and 27% over the 2015-2021 period). Substantial non-compliance with temporary contract regulations can be explained by the lack of clarity of the regulatory framework, challenges concerning collective representation (permanent workers form the core of trade union membership), as well as temporary workers’ vulnerability – in particular, workers have little incentives to challenge the misuse of temporary contracts in court, given their limited employment opportunities (Bosmans, De Moortel and Vanroelen, 2021[6]; Eurofound, 2017[7]).
During the period 2019-2025, three countries harmonised protection against dismissal by limiting the discretionary power of courts in the event of dispute. In June 2021, Greece introduced a compensation scale for unfair dismissal: at the request of either the employer or the employee, the court may award the employee a compensation ranging from three monthly wages to double the severance payment, instead of reinstating the employee and paying back pay. This led to a significant decrease in the EPL indicator of protection against dismissal for regular workers (EPRC) (Figure 2, Panel A). Since October 2022 in Sweden, if an employee files a complaint for unfair dismissal before the date of dismissal, the court can no longer issue a provisional ruling. Until the reform, employers had to wait for the court’s provisional decision to dismiss the employee. This change harmonised and simplified the notification procedure, but also increased the risk of subsequent complaints for unfair dismissal. As a consequence, the reform led to two moderate and offsetting changes in the EPRC. In New Zealand, since May 2019, reinstatement must be offered to the employee (whether on a permanent contract or before the end of a fixed-term contract) following unfair dismissal, where possible and reasonable. Prior to the reform, the authority could order reinstatement but was not required to do so. This reform led to a substantial increase in the EPRC.
Two countries strengthened protection for blue‑collar workers against dismissal by aligning certain aspects of EPL applicable to blue‑collar workers with those applicable to white‑collar workers: the notice period in Austria (October 2021) and both the notice period and severance pay in Greece (January 2022). These changes led to a substantial increase in the EPRC in both countries (Figure 2, Panel A).
In January 2020, as part of the Balanced Labour Market Act, the Netherlands harmonised the rules for calculating severance payment between different job tenure levels, removing the exemption before two years of tenure and a specific restrictive rule applying for tenures longer than 10 years. The reform strengthened the protection of workers with short tenure while reducing that of workers with long tenure, with no overall effect on the indicator (these two aspects of the reform offset each other). This harmonisation effort followed the 2015 Work and Security Act, which made the two available dismissal procedures (via the Public Employment Service or the Sub-district Court) more comparable and determined solely by the reason for termination, rather than by the worker’s choice (OECD, 2020[8]).
In October 2019, Portugal extended the period between notification of dismissal and actual dismissal by five days, so that more workers can adequately prepare for dismissal (e.g. by seeking legal advice or asking the Ministry of Labour to verify the validity of the dismissal). This led to an increase in the EPRC (Figure 2, Panel A).
In June 2019, EU directive 2019/1152 on transparent and predictable working conditions introduced a maximum duration of six months for the probationary period – with possible deviations justified by the nature of employment or the interests of the worker – inducing a substantial reduction in the probationary period in Ireland (from 12 to 6 months in December 2022). In fact, the probationary period was already six months or less in virtually all OECD EU countries. The Directive specifies that the probationary period can remain longer than six months in countries where its duration is set by collective agreements, as is the case, for example, in Denmark (where the probationary period is generally nine months) and France (eight months for white‑collar workers under some collective agreements).
Over the period 2019-2025, seven countries strengthened restrictions on the use of temporary employment (whether fixed-term contracts or TWA assignments), resulting in a significant increase in the indicator for temporary workers (EPT) in about half of them (Australia, Mexico, Norway and Spain) (Figure 2, Panel B).
From March 2022, Spain limited the use of temporary contracts to temporary staff needs (OECD, 2024[5]). More specifically: i) the very flexible and widely used contract for work and service (Contrato por obra o servicio) was abolished; ii) the maximum duration of the two training contracts (contrato de trabajo en prácticas and contrato para la formación y el aprendizaje), of two and three years respectively, was reduced to one year (contrato para la obtención de la práctica profesional) and two years (contrato de formación en alternancia); and iii) the requirements to justify the temporary nature of needs was strengthened.
In December 2023, Australia introduced legal limitations on the number and cumulative duration of consecutive fixed-term contracts for the same role, which cannot exceed two contracts and two years respectively. In Norway, in July 2022, the possibility for firms to use fixed-term contracts without justification for a maximum period of 12 months – and within the limit of 15% of their workforce – was removed, while the maximum cumulative duration of (standard) fixed-term contracts was reduced from four to three years in January 2024. In Portugal, since October 2019, fixed-term contracts can no longer be used without justification to hire a worker looking for their first job, and their maximum cumulative duration is two years instead of three (four years instead of six in the case of contracts of uncertain duration). Sweden also reduced the maximum cumulative duration of the most common fixed-term contracts (Special fixed-term employment or SÄVA) from 24 to 12 months in October 2022, alongside the simplification of the notification procedures for dismissal of workers on open-ended contracts discussed above.
Two reforms were aimed exclusively at tightening restrictions on the use of TWA employment. In Mexico TWA employment was banned in April 2023. In Ontario (Canada), since July 2024, owners of temporary work agency need an authorisation to operate, as is the case in six other Canadian provinces and territories (Alberta, British Columbia, Manitoba, Yukon, Nunavut and the Northwest Territories).
Equal treatment between employees and TWA workers can now be required in Australia in terms of pay (since December 2023, as with the additional hiring restrictions mentioned above on fixed-term contracts, and if the labour court issues an order of equal pay at the request of the employee, employee organisation or user firm), and is now mandatory in Japan in terms of pay and non-monetary working conditions (since April 2020 – before April 2020, Japanese TWA agencies were only required to consider the working conditions of employees when setting those of TWA workers). These two reforms led to a substantial increase in the EPT (Figure 2, Panel B).
On the other hand, two countries relaxed regulations on temporary contracts, but did so simultaneously, or shortly after, implementing reforms going in the opposite direction (i.e. reducing the opportunities and incentives for firms to use temporary contracts). In July 2023, Italy reinstated the possibility, which had been removed in July 2018, of using temporary contracts (fixed-term contracts and TWA assignments) for any technical, organisational or production needs for a cumulated duration exceeding 12 months. In January 2020, the Netherlands increased the maximum cumulative duration of fixed-term contracts from two to three years, albeit as part of a broader set of reforms aimed at reducing employer’s incentives to use such contracts (OECD, forthcoming[1]).
Most EPL reforms implemented since the onset of the COVID‑19 crisis have focussed on harmonising regulation among dismissals of workers on open-ended contracts and strengthening regulation of temporary contracts. This marks a break with the previous trend, when dismissal regulations were often relaxed for workers on open-ended contracts, while keeping regulations on temporary contracts approximately unchanged – an approach followed in many countries over the decade following the 2008 2009 global financial crisis. The recent reforms could help reduce labour market dualism without weakening regulation, in particular by making dismissal regulation for workers on open-ended contracts more predictable and fixed-term contracts somewhat less easy to overuse.
Policy actions aimed at addressing labour market dualism also extend beyond open-ended and temporary contracts. For example, recent years have seen the emergence of regulations and court rulings aimed at improving the working conditions for other types of workers, such as those on variable‑hour (or “on-call”) contracts, or self-employed workers on digital labour platforms, who are particularly vulnerable to “false self-employment” – i.e. being hired as self-employed despite working arrangements similar to those of employees in order to avoid regulations, taxes and unionisation (OECD, forthcoming[1]).
To make the most of EPL in today’s changing labour markets, it needs to be carefully co‑ordinated with complementary labour market policies. In particular, well-designed unemployment benefits and active labour market policies are essential of employees’ protection and can limit the consequences of job displacement while accelerating the transition to new jobs and activities. Collective bargaining systems also have a role to play in ensuring a fair distribution of the costs and benefits of labour market transformations between workers and employers.
References
[2] Adrjan, P., J. Jessen and C. Victoria-Lanzon (2026), Restricting Temporary Contracts Increases Firm-Provided Training: Evidence from Spain, https://ssrn.com/abstract=6540441.
[6] Bosmans, K., D. De Moortel and C. Vanroelen (2021), “Enforceability of rights in the temporary agency sector: The case of Belgium”, Economic and Industrial Democracy, Vol. 43/4, pp. 1519-1538, https://doi.org/10.1177/0143831x211017227.
[3] Cahuc, P. et al. (2023), “Spillover Effects of Employment Protection”, SSRN Electronic Journal, https://doi.org/10.2139/ssrn.4321142.
[7] Eurofound (2017), Fraudulent contracting of work: Abusing fixed-term contracts (Belgium, Estonia and Spain), Eurofound, Dublin.
[4] Grasso, G. and K. Tatsiramos (2023), “The Impact of Restricting Fixed-Term Contracts on Labor and Skill Demand”, SSRN Electronic Journal, https://doi.org/10.2139/ssrn.4608815.
[5] OECD (2024), Reviving Broadly Shared Productivity Growth in Spain, OECD Publishing, Paris, https://doi.org/10.1787/34061b21-en.
[8] OECD (2020), OECD Employment Outlook 2020: Worker Security and the COVID-19 Crisis, OECD Publishing, Paris, https://doi.org/10.1787/1686c758-en.
[1] OECD (forthcoming), OECD Employment Outlook 2026, OECD Publishing, Paris, https://doi.org/10.1787/7e710f54-en.
Contact
Stéphane CARCILLO (✉ stephane.carcillo@oecd.org).
Alexandre GEORGIEFF (✉ alexandre.georgieff@oecd.org).