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Portugal’s Constitutional Court has rejected a bill that would have effectively allowed the state to fire public sector workers deemed surplus to requirements.

The legislation had been approved by parliament, as part of the country’s austerity drive.

“The court never said that the number of public employees can’t be reduced by justified sackings. We never said that and we don’t say that in this agreement,” said Joaquim de Sousa Ribeiro, President of the Constitutional Court.

“What we say is that it can’t be done in this way. These workers would lose their job security.”

The government of Prime Minister Pedro Passos Coehlo is attempting to make 4.7 billion euros worth of savings, as part of the country’s massive bailout deal.

While the rejected bill would have had a relatively low direct impact on on the budget deficit, it was seen as important because of its potential longer-term structural effect on spending cuts.

The court’s decision may well spook investors who are closely watching Portugal’s belt tightening.

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