After having been empowered by the Parliament in December 2014 to introduce modifications to Italian Employment Law according to legislative guidelines, the Italian Government is now taking action, starting with one of the most delicate aspects of the Law: remedies for unlawful dismissal.

The Official Decree covering this topic will be issued by the end of January 2015. It may contain some changes as compared to the current draft, on which this note is based. Updates will be provided in due course.

1 | Who benefits

The new rules regarding remedies for unlawful dismissal are more favorable to employers than employees, but they also introduce important incentives for new hiring. In the end, they are designed to benefit both employees (with more job opportunities) and employers (with more lenient contract choices and more lenient dismissal options).

2 | Size of the employer

Under Italian Employment Law, a “large company” is defined as any business having more than 60 total employees or more than 15 employees in a particular “unit,” as defined by statute. Any business not meeting these thresholds is considered a “small company.”

The new rules regarding remedies for unlawful dismissal are applicable only to employees who are hired after the date of enforceability of the same, regardless of the size of the company. However, if, subsequent to the date of enforceability, a “small company” becomes a “large company,” then the new rules will also be applicable to employees hired prior to the date of enforceability of the new rules.

In addition to applicability, the size of the employer also has an affect on the size of the remedy for unlawful dismissal, as indicated in Points 3 and 4 below.

3 | Number of years of service of the employee

If neither “just cause,” such as gross misconduct, or “justified reason,” such as redundancy or other condition relating to the employee’s behavior or performance, can be demonstrated, then the “large company” employer will be liable to pay to the employee a monetary compensation equal to two months’ salary for each year of service, with a minimum of four and a maximum of 24 months, as indicated in Table A below. The “small company” employer, by contrast, is liable to pay only half of the compensation indicated in Table A, which in any event has a six month cap.

Table A

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4 | Infractions of procedural or formal requirements

If the dismissal has legal grounds, but the employer committed an infraction of the procedural rules or formal requirements regarding lawful dismissal, then the “large company” employer’s liability to compensate the employee is reduced to one month for each year of service, with a minimum of two and a maximum of 12 months compensation, as indicated in Table B below. The “small company” employer, by contrast, is liable to pay to pay only half of the compensation indicated in Table B, which in any event has a six month cap.

Table B

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5 | Special companies

The new rules will apply to non-profit and non-entrepreneurial entities, such as political parties, unions, and cultural or religious institutions.

6 | Right to reinstatement

The new rules eliminate some of the grey areas regarding the right to reinstatement which were inherited from the Employment Law reforms of 2012.

Under the new rules, reinstatement will be available only in the most serious cases of unlawful dismissal, including: mere verbal dismissals, dismissals due to discrimination or retaliation, or dismissals which are “null and void” by statute, such as dismissal during maternity leave or sickness leave.

In addition, a different type of reinstatement, with capped and mitigated compensation for the period of time between the dismissal and the reinstatement, will be applicable in case of disciplinary dismissal grounded on  false accusations or due to an alleged physical unfitness that is proven to be untrue.

7 | Quick settlement

The most innovative feature of the proposed decree is the introduction of a new solution for the employer and the employee to enter into a quick settlement agreement after the dismissal.

The quick settlement agreement consists of an offer, by the employer to the employee, within 60 days from the date of dismissal, to pay compensation from two to 18 months’ salary, as indicated in Table C below. If the offer is accepted by the employee, all rights to object to the dismissal in a court of law are waived. The monetary settlement offer is not subject to social security payments or taxes.

Table C

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8 | Collective dismissals for redundancy

The new rules will be applicable in the case of single dismissals or collective dismissals for redundancy, the latter defined by statute as at least five dismissals over a period of 120 days. In the case of collective dismissals, (i) if the dismissal was not communicated in writing, then the employee will have the right to demand reinstatement, whereas (i) non-compliance with other procedural requirements or mistakes in the application of the selection criteria will trigger liability on the part of the employer as indicated in Table A above. In addition, in this case, the employee will have the right to demand reinstatement if his or her dismissal was not communicated in writing.

9 | Help in finding new employment

An employee who is dismissed under the new rules will receive a voucher from his or her local governmental Job Centre in order to receive help in finding new employment from private job agencies. The employee is required to cooperate with the Job Centre and provide a profile in order to facilitate his reintroduction to the work force.

10 | Litigation

A dismissal under the new rules that is not resolved with a quick settlement, as described in Point 7 above, will be decided in a court of law. The “special procedure dismissal trial,” created by the Employment Law reforms of 2012, will not be available for dismissals under the new regime. However, this is not expected to create a significant back-log in the courts, since the caseload is expected anyway to lessen considerably due to the alternative quick settlement option.