What’s new about Italy’s employment regulation?

The labour market reform that came into force in 2012 had a new regulation for dismissal and non-standard working contracts – fixed-term employment contracts, temporary agency work (TAW), apprenticeship and project work.

In June 2013 and in March 2014, the Italian government changed aspects of the 2012 reform and introduced economic incentives to hire young workers. Several court decisions were also issued, applying the new dismissal law.

The recently appointed Italian government is planning new reforms concerning a ‘single work contract’ whereby dismissal will be easier.

What are the economic incentives to hire young workers?

The Italian government set up an incentive for employers who hire, under an open-ended employment contract, young workers between 18 and 29 years old, who meet one of these requirements:

  • they were not regularly employed in the previous six months;
  • they don’t have a high school diploma; or
  • they live alone with dependants.

Another condition for the employer is the duty to increase employment for the average rate from the previous year within the company and group of companies.

The incentive equals one-third of gross pay, subject to social security contribution. The monthly incentive cannot be more than €650 per employee.

The incentive will last for the first 18 months of open-ended employment, or 12 months if the employer enters an open-ended contract with a worker previously hired under a different working contract.

Financial resources funding the incentives are limited: the social security body will grant the incentive in chronological order, based on the earliest date of hiring, according to the receipt of the submissions.

The decree says that the incentive will not be available for hirings made after 30 June 2015.

What’s new about fixed-term and TAW contracts?

Before the 2012 reform, every fixed-term contract and TAW contract had to be justified with specific reasons. This is no longer a requirement for the first fixed-term or TAW contract up to 36 months long.

The 2012 reform did not allow any extension to this term. But the 2014 amendments make extensions legitimate, provided that they are justified with objective reasons. No more than eight extensions are possible. The employer also no longer has to notify the Employment Office that the fixed-term employment contract will continue after the original term has expired.

The interruption between the previous fixed-term employment contract expiring and a new one with the same employee beginning has been decreased to:

  • 10 days for contracts under six months; and
  • 20 days for contracts over six months.

Under the 2012 reform, these terms were 60 and 90 days.

What’s new about apprenticeship?

Apprenticeship is the main way for young people (15- to 29-year-olds) to enter the labour market. A minimum duration of six months for an apprenticeship has been established, and the number of apprentices to be employed is subject to certain dimensional parameters of the employer’s workforce.

Before March 2014, the employer was able to enter into a new apprenticeship contract, subject to hiring as permanent employees a minimum quota (at least 50 per cent) of the apprentices used in the previous 36 months. This is no longer a requirement.

How do the new regulations affect self-employment?

The biggest change to self-employment regulation affects the resignation and the mutual termination of project workers.

The 2012 reform suspends resignation and mutual termination of employees until:

  • they are validated before public bodies;
  • they are confirmed in writing on the receipt of the ‘communication of termination’ that the employer had sent to public bodies; or
  • the employer summons the employee before the public bodies or formally asks the employee to confirm his or her resignation or mutual termination in writing, and the employee does not reply or revoke the resignation and mutual termination within seven days.

According to the 2013 decree, these provisions will also apply to resignation or mutual termination of project workers.

Is it actually easier to dismiss in Italy?

The 2012 reform has changed the system of remedies against unfair dismissal in larger firms and work units, to reduce the cases in which reinstatement of dismissed employees can be ordered in court.

Before the 2012 reform, reinstatement was always due if there had been unfair dismissal. This was on top of uncapped damages equal to the employee’s monthly salary between the dismissal and the employee’s reinstatement.

These remedies are now only given if there is discriminatory or retaliatory dismissal.

Will employees be reinstated if there is unfair disciplinary dismissal?

Reinstatement and damages of up to 12 months’ salary only apply if the dismissal was for disciplinary reasons based on facts that did not occur. They also apply if the collective bargaining agreement has a sanction for the misconduct that is less severe than dismissal.

In any other case of unfair disciplinary dismissal, the employer will have to pay an indemnity of between 12 and 24 months’ salary, without the risk of reinstatement.

The qualification of a ‘disciplinary reason as a fact that did not actually occur’ is problematic and there are contradicting court decisions on the matter.

For instance, the employment court of Bologna held that the employee must be reinstated not only if the facts did not occur or are non-existent, but also if the dismissal is a disproportionate measure for the misconduct.

On the other hand, the employment courts of Voghera and Milan held that when the facts on which the disciplinary dismissal is based exist, reinstatement does not apply and the employer should only have to pay an indemnity. This is even if the dismissal was not a proportionate sanction against the employee’s misconduct.

How does the 2012 reform affect dismissal of poor performers?

The 2012 reform will affect disciplinary dismissals against poor performers if most courts hold that no reinstatement is due if the dismissal is justified but not proportionate.

Under the previous regime courts always had to reinstate the employee if a dismissal was deemed disproportionate, which was a hurdle to dismissing poor performers.

Will employees be reinstated if there is an unfair dismissal for economic reason?

Since the 2012 reform, the court can issue reinstatement when the dismissal is for an economic or redundancy reason that is clearly non-existent.

Instead of reinstatement, an indemnity of between 12 and 24 months’ salary will be payable to an employee in other cases of unfair or unjustified economic dismissal.

Case law on the 2012 reform shows that of the three requirements needed to justify an economic reason – listed below – only not having the first two imply that the court will issue reinstatement.

The requirements are:

  • the effectiveness of the economic reason;
  • a connection between the reason and the dismissal; and
  • that there are no other compatible positions to offer the employee.

According to two recent decisions of the employment courts in Milan, when the requirement under the third point is not fulfilled, reinstatement will not be issued.

How does the 2012 reform affect dismissal?

The practical impact of the 2012 reform can be seen in out-of-court settlements. The limit of reinstatement has lowered the amounts to be paid in consideration to settle the dismissal.

Before the 2012 reform the consideration was around 24 months’ salary in the Milan area; it is now around 18 months’ salary in the same area.

Any further potential changes?

Italian Prime Minister, Matteo Renzi, has suggested on several occasions that he intends to reform the Italian labour market. He has suggested introducing an open-ended employment agreement, whereby dismissal will be easier (particularly in the first period of employment).

In Italian political discourse, this open-ended employment agreement is often labelled a ‘single work contract’. This is because one of the rationales of the reform would be simplifying employment regulation by introducing this new contract, which is meant to replace other non-standard work contracts.

What is the ‘single work contract’ about?

This is still uncertain. Different bills have been presented in parliament in recent years concerning single work contracts. These proposals show material differences among them.

  • Some bills provide for the exclusion of reinstatement, in cases of economic dismissal (stricter regulation would apply to disciplinary, discriminatory and retaliatory dismissals); an indemnity would be applied instead, increasing on the basis of the relevant length of service.
  • Pursuant to other bills, in case of dismissal, no reinstatement would be possible for the first two to three years of employment (save for discriminatory or retaliatory dismissal) and an indemnity would be applied instead, increasing on the basis of the relevant length of service; after this period, the ordinary protections against unfair dismissal (including potential reinstatement) would apply.

The Prime Minister did not endorse a specific bill and it is not yet clear which of the several proposals concerning the single work contract the government will support. We will update you as soon as reliable news is available.

What else you should know

It is important to note:

  1. the ‘single work contract’ will not be ‘single’ at all. It would probably be the ‘main’ way to hire personnel but all the existing bills and proposals on this point maintain the possibility to enter into fixed-term employment contracts, temporary agency work and self-employment/consultancy agreements and (in this latter case, according to the different bills, a minimum remuneration of €30–40K gross p.a. will be required); and
  2. the single work contract legislation may be potentially in breach of European and international obligations providing for the need to specify the reason(s) for dismissal and adequate redress in case of unfair dismissal; this could lead to the repeal of the single work contract and – potentially – to the reclassification of personnel hired under single work contracts as ordinary employees, with ordinary protections against unfair dismissal applying.

With these in mind, it will be pivotal to evaluate carefully whether to hire personnel via a single work contract’ and to seek proper advice in order to assess the potential risks connected to this hiring, particularly because – contrary to what the mainstream narrative on the issue will probably report – other forms of hiring people alternative to the single work contract will, in all probability, still be available.