The Labour and Employment Disputes Review: Portugal

Introduction

Employment relationships in Portugal are extensively regulated by the statutory law and regulations that constitute the Labour Code2 and its complementary legislation on labour and employment matters.

Collective bargaining agreements also play an important part in the Portuguese labour regime. These instruments can even bind an employer that did not sign or is not a member of the employers' organisation that concluded the agreement, if the government decides to extend its provisions to a certain field of business. In addition, employment agreements remain a relevant source of labour law.

In general, employees in Portugal enjoy a comparatively high level of protection, with a special emphasis given to the constitutional principle of stability of the employment relationship. Portuguese law does not recognise the concept whereby the employer terminates the employment simply by giving notice, except in cases of the employment agreement being terminated within the trial period or the expiry of fixed-term employment agreements. Thus, dismissals without cause are forbidden and shall be deemed null and void.

There are several government agencies whose competence includes, or who are connected with the enforcement of, employment law. The two most important regulatory entities are the Directorate-General for Employment and Labour Relations and the supervisory Working Conditions Authority, with the latter having powers to conduct inspections and sanction breaches of employment and labour law.

Individual disputes between employers and employees arising from an employment agreement fall under the jurisdiction of the labour courts, incorporated in the public legal system. Alternative dispute resolution mechanisms, such as arbitration, are irrelevant and hardly enforceable. However, conciliation within judicial lawsuits, before a judge or a prosecutor from the Public Attorney's Office, is mandatory in nearly all types of employment dispute and is of paramount importance in employment litigation.

As happens in civil court litigation, employment litigation covers three levels of jurisdiction: first instance courts (often specialising in labour and employment matters), courts of appeal and the Supreme Court. Access to superior instances, however, depends on the value of the lawsuit.

Legal provisions governing dispute resolution on employment matters are mainly set out in the Labour Procedural Code (LPC), dated 9 November 1999 and amended seven times since then, the most significant reforms being in 2009 and recently in 2019. However, the LPC is not as extensive regarding procedural provisions as the Portuguese Civil Procedural Code, which is the base framework for all litigation. Where the LPC does not provide a specific rule, the civil litigation provisions will apply, meaning that any reform of civil procedural rules will have a direct effect on labour and employment litigation. The Portuguese framework for employment dispute resolution mechanisms has, for several years, faced a slight incompatibility with the default civil procedural rules, as a result of the approval of a new Civil Procedural Code in 2013. The new Civil Procedural Code introduced a few significant changes to proceedings, but the much-needed harmonisation of the LPC only occurred in 2019.

The labour procedural law sets out an extensive list of 'special proceedings' (as opposed to common proceedings), which are often considered urgent procedures and consequently have a significant impact on the rules for determining procedural deadlines (particularly as they are not suspended during judicial holidays), and which benefit from shorter judicial deadlines. Bearing in mind that the main problem that arises in dispute resolution – in general – is the length of time proceedings usually take, the truth is that labour and employment procedures, as a rule, are faster than civil procedures, particularly because of the urgent nature of most of the lawsuits.

Procedure

The Portuguese framework for resolving disputes in employment matters provides for two types of procedures: the common and the specific.

The common procedure basically follows civil litigation rules, with a few minor differences. Where an employee is seeking to obtain outstanding payment from an employer or challenge the validity of the term of an employment agreement or a verbal dismissal, an initial claim must be filed with the labour court with territorial jurisdiction over the dispute – as a rule, the court of the defendant's place of residence. The counterparty will then be notified of the claim and the court will schedule a conciliatory hearing. If conciliation fails, the court will immediately notify the defendant (at the hearing) to present within 10 days its written statement of defence, in which all arguments against the claim should be laid out. Both the claim and the statement of defence must be articulated. Having analysed both the claim and the statement of defence, the court will either schedule another hearing – the preliminary hearing – with a view to the conciliation of the parties and a discussion of any procedural irregularities (e.g., the parties' capacity, legitimacy and representation, the court's jurisdiction) or, if the matter can be easily resolved and the facts are clearly and comprehensibly laid down in the claim and in the statement of defence, simply issue a preliminary order clearing the process of all irregularities and identifying the main issue of the dispute and the facts to be proven in the trial. Finally, a trial hearing will be scheduled.

The trial hearing will mainly focus on the production of evidence of the facts, notably witness hearings. When all evidence has been offered and the trial is to be concluded, the parties are invited to present their final allegations and legal conclusions.

There is also a considerable number of specific procedures that cannot be summed up in one basic set of proceedings. These specific procedures often include the intervention of the Public Attorney's Office as a mediator in the first stage of the process.

In some specific procedures, such as the procedure for challenging a written dismissal, the parties' position is actually inverted: the employee files a very simple written application form with the court and the employer is notified to present a justification for the dismissal and explain to the court why the dismissal proceeding brought against that employee was conducted regularly and lawfully; to which, in turn, the employee will present its statement of defence. This means that although the lawsuit was filed by the employee, he or she will actually be taken as a defendant in the process.

One thing almost all labour litigation proceedings have in common is the various attempts to conciliate the parties, from the point when the claim has been filed all the way to the beginning of the trial hearing. Judicial conciliation is an important part of labour and employment litigation and judges tend to be quite persistent when trying to reach that goal in the successive hearings that take place throughout the process. Some judges may prove to be more interventionist than others, offering the parties their views on the legal aspects of the claims and arguments, to make the parties reach a settlement.

Types of employment disputes

Employment litigation comprises all disputes that may arise, albeit not exclusively, from:

  1. employment relationships, or relationships initiated with a view to the conclusion of employment agreements;
  2. work-related accidents and occupational diseases;
  3. contracts that are assimilated by law into an employment agreement;
  4. annulment or interpretation of collective bargaining agreement provisions;
  5. civil disputes related to strike proceedings; and
  6. disputes arising from the constitution of trade unions and their relationship with unionised workers.

The most common types of disputes in Portugal include unfair dismissal, damages for outstanding payment arising from the employment relationship, breach of contract and work-related accidents.

Unfair dismissal disputes may arise not only from individual or collective redundancy procedures and dismissals with cause, but also from unlawful expiry of fixed-term employment agreements that should actually be deemed to be open-ended employment agreements.

In cases of individual or collective redundancy, or cases of dismissal with cause, if an employee wishes to challenge his or her dismissal, the LPC sets out a specific type of procedure to be followed: the special procedure for challenging the regularity and lawfulness of a dismissal. This procedure is considered urgent, which means that it is not suspended during judicial holidays3 and is expected to be concluded within one year (although it can, and often does, take longer). The court will ascertain and rule on the validity of the dismissal (i.e., whether the proper legal proceedings were followed and whether there was an actual cause, be it objective (e.g., redundancy) or subjective (e.g., disciplinary), for the dismissal).

In cases where a fixed-term employment agreement was terminated upon expiry, the employee may claim before the court that his or her fixed-term employment agreement was invalid, and for a number of reasons (e.g., because the employer had no valid temporary need that would legally warrant a fixed-term employment agreement). Hence the employee may claim that his or her employment agreement should be deemed an open-ended or permanent one and, as a result, should not have been terminated by expiry. For this type of dispute, the case will follow a common procedure, as described in the previous section. In these cases, the court will have a preliminary query to resolve concerning the validity of the fixed-term employment.

When an employee is claiming unfair dismissal, it is common for him or her also to petition for damages for outstanding payment arising from the employment relationship, such as working overtime, professional training hours or seniority allowances. When these payments are being claimed separately (i.e., not in connection with a claim for unfair dismissal), the case should follow the common procedure rules.

Common claims made by employers are related to breaches of contract, notably non-compete or confidentiality clauses. These disputes will also fall under the common procedure rules.

Disputes concerning work-related accidents play a leading part in labour litigation. Official data from the Ministry of Justice shows that, in 2019 alone, 39,380 of the 52,311 cases filed in first instance labour courts were work-related accident claims.4 The reason for this substantial percentage of cases is not that employees, employers and insurance companies are particularly litigious in these matters, but simply that all serious work-related accidents, including those that result in the employee's death, must be notified to the court and will automatically give rise to a special procedure provided for in the LPC. The first phase of this type of procedure is carried out by the public prosecutor's office, with the employer, the insurance company and the injured employee, or his or her beneficiaries, being called for a conciliatory hearing, at which a detailed description of the amounts the injured employee or his or her beneficiaries are entitled to receive for the employee's incapacity or death will be laid down. The large majority of work-related accident cases shall be concluded and closed in that same conciliatory hearing, with only a few residual cases giving rise to a full judgment before a labour court (namely, when the insurance company or the employer takes the view that the accident was not work-related).

On the offset, preliminary injunction proceedings still play a rather residual role within labour litigation, representing less than 1 per cent of the overall number of cases filed with first instance labour courts.

Year in review

The year 2019 was marked by the approval and implementation of two long-promised labour and employment reform statutes – one with respect to the LPC and the other amending the Labour Code – while the Labour Inspectorate's inspection actions kept going, in respect of false self-employment relationships.

However, those long-promised reforms and their impacts soon became secondary, as the outbreak of the covid-19 pandemic in the first quarter of 2020 led to the rushed approval of emergency legislation, notably with a view to protecting employees' rights, employment in general and safeguarding the economy. Thus, it is not possible to review 2020 without putting a substantial emphasis on the pandemic and the labour and employment mitigating measures that were implemented, not only in Portugal, but throughout the world.

The covid-19 pandemic has had a huge impact on labour relationships in Portugal since March 2020 and has caused a substantial decrease in employment litigation in light of the confinement measures implemented by the Portuguese government (notably suspension of court formalities and procedural deadlines during a significant part of the year). Nevertheless, some interesting (and long-awaited) case law was still produced last year, as the virus did not stop our superior courts from taking a stand on some issues that had been pending a court decisions since 2018.

i Covid-19 emergency labour and employment measures

The pandemic has forced governments all over the word to rethink and enact legislation that would help countries face the emergent health crisis. Portugal was no exception and the Portuguese government has approved several measures since March 2020 to tackle the impacts of the pandemic, with particular emphasis on labour-related emergency legislation to protect employment while ensuring the economy's recovery after the health crisis.

The first state of emergency was declared in Portugal on 18 March 2020 (effective as of 23 March 2020) and was successively renewed until 2 May 2020. Throughout this period, several extraordinary measures to prevent and contain the spread of the coronavirus were put in place, such as a general duty of home confinement, closure of establishments and suspension of activities, as well as various restrictions on industrial or trade businesses that were allowed to continue functioning or open to the public. It was clear from the start that extraordinary labour measures and state aids were required to help companies overcome the enforced shutdowns and the critical revenue drop.

In this regard, the following measures should be noted:

  1. The generic obligation to telework whenever the employee's duties and functions could be performed remotely, without the need for the parties to enter into any sort of written teleworking agreement or addendum: this generic obligation remained in force while the state of emergency was in force and for an additional period of one month (i.e., until 31 May 2020). As of that date, teleworking would remain recommendable, but the general rule of the Labour Code was once again effective, which meant that the employer should enter into a written agreement with each employee who would be working remotely. From then on, there were some exceptional circumstances where teleworking could be unilaterally enforced by the employer (i.e., when physical spaces and the organisation of working schedules did not allow for the guidelines of the Portuguese health authorities and the Labour Inspectorate to be complied with) or the employee (e.g., disabled employees with a degree of disability of at least 60 per cent or, during school closure periods, employees with children or other dependants under the age of 12).
  2. Financial aid for employees who needed to be absent from work to care for their children owing to the closure of educational establishments: specifically, since the government decided to close down schools between April and June 2020, absences from work to care for children under the age of 12 (or, regardless of their age, who were disabled or had a chronic disease) were deemed justified and employees were entitled to two-thirds of their base salary (being this amount supported by the employer and social security in equal parts), provided that the employees were unable to telework.
  3. Simplified lay-off procedures: approved in March 2020 and used extensively between April and July 2020, the simplified lay-off procedure was a labour measure (adapted from the regular temporary lay-off set forth in Article 298 et seq. of the Labour Code) enacted by the government to rapidly and efficiently assist companies that were struggling because of the shutdowns, and help trade, industrial, tourism and food sectors that were facing a substantial decrease of their revenues, while encouraging employers to protect jobs. The simplified lay-off procedure allowed employers to suspend employment agreements or reduce their employees' working times and, under such suspension or reduction measures, employees maintained the right to at least 66 per cent of their normal remuneration (currently, these measures allow employees to receive 100 per cent of their remuneration), up to the limit of three national minimum wages (€1,905 in 2020 and €1,995 as of 1 January 2021). Employers received financial support paid by social security, corresponding to 70 per cent of the compensation paid to employees while their contracts were suspended or working times reduced, and they were not required to pay their share of social charges (usually 23.75 per cent). These labour measures came with some offset obligations for employers, such as no distribution of profits, by any means; no increase in the remunerations of the members of the corporate bodies; and no initiation of any collective dismissal or individual redundancy procedures. The simplified lay-offs were mostly in place between April and July 2020 (although they could still be applied by some residual companies pursuing activities that remained suspended until the end of the year). Since September 2020, and particularly with the reinstatement of lockdown measures in January 2021, simplified lay-off procedures have been possible for companies that are dedicated to activities totally or partially suspended or shut down by a governmental or legislative Act.

After the first wave of the pandemic, the government retracted some of the emergency measures, focusing instead on the economy's recovery. Therefore, regarding the second half of 2020, the following measures should be highlighted:

  1. Progressive recovery support: the progressive recovery support entered into force in August 2020 and was meant to replace the simplified lay-off procedure. Under this exceptional measure, companies with a fall of at least 40 per cent in invoicing (and, as of October 2020, with at last a 25 per cent fall) were able to unilaterally reduce employees' working hours up to a given percentage (depending on the percentage of the decrease in invoicing) and receive a compensation from social security to pay part of the employee's salaries. It also entitled employers to full or partial exemptions regarding the payment of social charges for the period during which the measure was in place. The progressive recovery support was meant to be in place only between August and December 2020. However, with the outbreak of the second wave, in November 2020, the government extended the limits of working hours' reduction and, in January 2021, the progressive recovery support was redesigned and extended until the end of June 2021. Similar to the simplified lay-off, the progressive recovery support entailed, for employers, the obligation not to distribute profits, by any means; not to increase the remunerations of the members of the corporate bodies; and not to initiate any collective dismissal or individual redundancy procedures.
  2. Exceptional incentive to support the company's commencement of activity: following the simplified lay-off, and as an alternative to the progressive recovery support, companies could apply, as of August 2020, for the exceptional incentive to support the commencement of their activity. This support could be requested as a one-off payment (corresponding, in a nutshell, to one national minimum wage per each employee that was included in the lay-off measures, which corresponded to €635 in 2020) or two payments made in a six-months period (corresponding to two national minimum wages per employee included in the lay-off, namely €1,270), plus partial exemptions regarding the payment of social charges. Apart from hindering companies from starting any collective or individual redundancy procedures, the second type of incentive (i.e., the one paid in two instalments for a period of six months), entailed the obligation to maintain a given level of employment.

ii Impacts on labour and employment litigation

The covid-19 emergency labour legislation has somehow blocked labour conflicts throughout 2020, given that most companies were under the obligations not to carry out dismissals (except with just cause) and with strong and repeated recommendations from the government to protect jobs and ensure employment.

Additionally, the pandemic and the restrictive measures enacted to contain the spread of the coronavirus also affected litigation and judicial procedures. In fact, a bill was approved establishing a special regime that would suspend the majority of procedural deadlines and actions, effective as of 9 March 2020 (Law 1-A/2020, of 19 March). Two weeks later, Law 1-A/2020 was amended (by Law 4-A/2020, of 6 April), so as to clarify some of the rules included therein and to ensure that urgent proceedings would be carried out regardless of the suspension.

Under this statute, deadlines for the performance of procedural acts in non-urgent proceedings pending before judicial, administrative and tax courts, the Constitutional Court and other judicial bodies were suspended until the parliament deemed the exceptional situation resulting from the first wave of the pandemic to be controlled. This suspension did not preclude the processing of proceedings and performance of non-urgent acts when all parties were considered to be in a position to attend the hearings through computer platforms or through appropriate means of remote communication (e.g., teleconferences and video calls). It also did not preclude a final decision being taken where the court and other entities considered that no further steps were necessary.

This suspension rule did, without any doubt, delay many proceedings that were pending before judicial courts, particularly considering that, in most cases, the parties were not willing to carry out the necessary acts by electronic and remote means.

As for urgent proceedings (which cover most of the labour 'special proceedings'), Law 1-A/2020, in its original wording, established a general suspension of deadlines as well. However, with the amendments introduced by Law 4-A/2020, urgent proceedings should continue to be processed, without suspension or interruption of deadlines, acts or steps. To ensure that this did not affect the overall goal to contain the pandemic, several rules were established in relation to urgent proceedings, such as:

  1. Where a procedural act required the physical presence of the parties, their representatives or other individuals, the performance of such act would be carried out through means of remote communications (e.g., teleconferences and video calls). For these purposes, the Portuguese judicial court system has widened the use of Webex platforms.
  2. When it was not possible to carry out the procedural act by means of remote communications and the life, physical integrity, mental health, freedom or immediate subsistence of the parties involved was at stake, the relevant act could be carried out in person, provided that it did not involve a number of people above the recommendations of the Portuguese health authority and as long as it was carried out in accordance with the approved guidelines. This rule had hardly any application to labour proceedings, as it was mostly designed for criminal and family law proceedings.
  3. When it was not at all possible or appropriate to perform the procedural act in any of the ways described above, the suspension regime of non-urgent proceedings was applicable.

In addition to the above, Law 1-A/2020 also established a suspension of limitation and expiration periods for all kinds of proceedings and procedures. Accordingly, maximum limitation and expiration periods were extended for the period of time during which this extraordinary regime remained in place.

Law 16/2020, of 29 May, came to revoke the above-mentioned exceptional regime as of 3 June 2020 (with some exceptions concerning insolvency and special eviction proceedings). With a 'transitional period' in place, several rules and guidelines were approved to deal with situations where any participants to a procedural act were under an obligation to self-isolate owing to the risk of spreading the coronavirus. Accordingly, as of 3 June 2020, self-isolation statements issued by health authorities constituted justified impediment to the performance of proceedings and procedural acts when such acts needed to be performed in person or when such person did not have access to remote means of communication.

According to the rules in force as of 3 June 2020, trial hearings and other procedural steps involving the examination or hearing of witnesses should be performed, as a rule, in person, in compliance with the maximum number of people and other safety, hygiene and health rules defined by the health authorities or, when they could not be performed in person, by appropriate means of remote communication, provided that it did not harm the purposes of justice. In contrast, for other procedural acts that required the presence of the parties or their representatives (which would be the case for most of the preliminary hearings existing in labour proceedings), the rule was to perform the acts by means of remote communication platforms and only perform them in person where remote performance was not possible. This transitional regime remained in place until February 2021 (when the exceptional suspension regime was once again reinstated).5

iii Case law

The past year has been marked by substantial restrictions on employment litigation, owing to the coronavirus emergency legislation. In fact, with the suspension of most judicial proceedings (particularly the non-urgent ones) that took place essentially in April 2020 and May 2020, and the judicial holidays between 16 July 2020 and 31 August 2020, courts lost two months of judicial activity in respect of several proceedings and, throughout the year, many hearings were postponed because of coronavirus infections or self-isolation obligations of judges, parties or witnesses. Nevertheless, some decisions of the upper courts were enacted and are worthy of note.

Although they have only a limited impact on employment dispute resolution (because of the absence of a precedent rule, with a few exceptions), decisions of the higher courts often serve as guidelines in those areas where there is no relevant employment regulation or where the law is ambiguous enough to leave the ultimate interpretation to the courts.

One ruling worth mentioning was the one issued by the Court of Appeal of Guimarães6 that was called to decide on the definition of 'serious harm' allegedly suffered by an employee who was invoking his right to terminate the contract with the transferee, following a transfer of an undertaking, pursuant to the changes to the Labour Code that entered into force in March 2018. Issuing what is most likely the first decision on this recent topic, the Court highlighted that it was up to the employee to demonstrate (and prove) concrete facts showing a real possibility of harm and not a mere possibility of such harm existing in the future. Additionally, given that the employee grounded the alleged serious harm on the lack of confidence or trust in the transferee's work organisation policy, the Court ruled that it is not sufficient to allege such lack of trust without demonstrating it with facts. This is something that shall also be assessed by the Court and, accordingly, the employee is bound to demonstrate circumstances that, following objective and reasonable criteria, are able to uphold that the work organisation policy is, in fact, unreliable, taking into account the perspective of an average employee in the possession of the same information and put in the same situation as the claimant.

In the context above, the Court of Appeal of Guimarães concluded – contrary to the position assumed by some Portuguese scholars – that the alleged lack of trust of an employee must be grounded and proved with facts that need to be considered by the court, adding that if that was the intention of the lawmakers, it would have been sufficient to simply grant employees the right to terminate their contracts owing to the mere existence of a transfer, without any cause, which was not the case.

Another ruling that should be highlighted was issued by the Court of Appeal of Lisbon,7 which confirmed the disciplinary dismissal of an employee who, among other infractions, sent several communications to the company's board of directors making multiple accusations and insulting the directors. In this case, the employee tried to allege that his accusations were made under his constitutional right of free speech, being entitled to protest and criticise the company and the company's board of directors as a part of his own human dignity. However, the court decided against this line of argument, following prior decisions of the Supreme Court of Justice of 2018, by concluding that the employee's freedom of expression is not unlimited and cannot supersede the employee's duty to respect and treat the employer with probity.

Finally, a note should be given to a decision of the Court of Appeal of Évora8 where the court confirmed the lawfulness of a disciplinary dismissal of an employee who had been unjustifiably absent from work for multiple non-consecutive days. This decision is noteworthy because the court concluded that it becomes impossible for an employment relationship to be maintained (a requirement set forth by the Labour Code for a dismissal with cause) when the employee reveals a clear lack of interest and diligence in the performance of his or her duties, overloading his or her colleagues and causing disruption in the normal functioning of the employer's business, causing service delays.

Outlook and conclusions

The employment relationship and the legislation governing it are constantly mutating, influenced by the rotational change in government policies.

In 2020, the coronavirus outbreak and emergency legislation took over the lawmakers' agenda, as protecting employment arose as the most important goal during the pandemic.

As regards dispute resolution, considering the recent reform of the LPC (in 2019), no specific amendments to labour and employment procedural law are expected to occur in the next 12 months.

On labour and employment matters, legal practitioners and labour and employment professionals in general have not yet been able to see what the effects of the changes made to the Labour Code (in 2019) will be in practice. The pandemic has, however, reactivated the discussions surrounding changes to the teleworking legal regime and the employee's right to disconnect from work and 2021 may bring some amendments in this regard.

The changes in social security provisions that we had anticipated were somewhat put on hold because of the pandemic and the extraordinary tax rate to discourage the hiring of employees under fixed-term employment agreements that was announced in 2019 has not yet been implemented. The pandemic and teleworking have, however, raised specific concerns regarding nomad remote workers and how to apply social security legislation to these employees. This will most likely be a hot topic among legal practitioners in 2021, although no specific legislative changes are expected to occur on a national level before action is taken at EU level.

In the coming months, as a result of the emergency legislation, we expect to see a rise in social security dispute resolution procedures, as many companies were denied the right to benefit from social benefits and incentives during the pandemic while other companies that were granted public aid did not observe or comply with all applicable requirements and obligations.

Overall, 2021 is expected to be a transition year, enabling the government and Parliament to progressively return labour legislation to a normal standard and, hopefully, be done with the approval of emergency legislation by the end of the year.

Footnotes

1 André Pestana Nascimento is a partner and Susana Bradford Ferreira is an associate at Uría Menéndez – Proença de Carvalho.

2 Law No. 7/2009 of 12 February 2009.

3 There are three periods of judicial holidays in Portugal: (1) between 22 December and 3 January (inclusive); (2) between Palm Sunday and Easter Monday (inclusive); and (3) between 16 July and 31 August (inclusive).

4 Data available at https://estatisticas.justica.gov.pt/sites/siej/pt-pt/Paginas/Movimento-de-processos- nos-tribunais-judiciais-de-1-instancia.aspx. Official data for the whole year 2020 is not yet available for consultation. However, in the first three quarters of 2020, 18,473 out of 27,581 labour judicial disputes filed in first instance courts were occupational accident claims.

5 The suspension regime has been replaced, as of 6 April 2021, by a new transitional regime.

6 Case No. 5670/18.0T8BRG-A.G1; the ruling by the Court of Appeal of Guimarães is available, in Portuguese, at www.dgsi.pt.

7 Case No. 14266/19.9T8LSB.L1-4; the ruling by the Court of Appeal of Lisbon is available, in Portuguese, at www.dgsi.pt.

8 Case No. 100/19.2T8FAR.E1; the ruling by the Court of Appeal of Évora is available, in Portuguese, at www.dgsi.pt.

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