Following a fall in profits for three consecutive years, an Italian company decided to reorganise its workforce to reduce labour costs and increase its productivity and profitability. Pursuing this objective, the company proposed reduced working hours for all employees as well as changing their employment contracts from full-time to part-time, with a corresponding reduction in their remuneration.
All employees accepted the proposal, with the sole exception of one worker, who rejected it and was unwilling to change his full-time employment relationship into a part-time employment relationship.
The company acknowledged the employee's unwillingness to reduce his working hours, but decided that maintaining a full-time employment relationship was no longer consistent with its reorganisation and was unfavourable to its aim of increased productivity. As the company was unable to reduce the employee's working hours and salary, it dismissed him based on Article 3 of Law 604/1966. According to this provision, an employer may dismiss a worker for "justified objective reasons" relating to production, work organisation and the proper operation of a business.
The employee challenged the dismissal before the competent local court, claiming unlawful dismissal and reinstatement or compensation for damages suffered.
Both the first-instance court and the court of appeals decided in favour of the employee and declared that his dismissal had been unlawful.
The employer appealed this decision before the Supreme Court of Cassation, which repealed the lower court decisions, stating that the dismissal had been incorrectly found to be unlawful.(1)
The employee argued that his dismissal had been unlawful based on the following arguments (which the local court and the court of appeals had accepted):
- Although the company had seen a reduction in profits in recent years, it had nonetheless closed the fiscal year preceding the dismissal with a profit and a reduction in liabilities.
- Therefore, the company's operating results had remained positive and its fall in profits was not enough to:
- demonstrate that the company's unfavourable economic situation was due to anything other than market volatility; and
- justify the business decisions taken and the claimant's dismissal for justified objective reasons.
- The company had already remedied its financial difficulties by making its other employees part-time, thus reducing its labour costs.
Conversely, the company supported the legitimacy of the dismissal, arguing that:
- Italian law does not require an employer that wants to dismiss an employee on objective grounds to demonstrate a crisis situation, a loss of budget or a long-lasting unfavourable economic situation;
- an individual dismissal for objective reasons can be legitimately based on a company's decision to change its organisational structure in order to improve management efficiency or increase profitability; and
- in this specific case, the employee's dismissal was determined by a reorganisation of this kind – while the company continued to make some profit, it wanted to reduce labour costs and increase business productivity and the claimant's dismissal was part of this process.
The Supreme Court of Cassation found the company's legal arguments to be valid and stressed the following points:
- Even if case law had previously deemed an individual dismissal for justified objective reasons to be acceptable only either to remedy unfavourable economic situations which were non-accidental or extraordinary expenses, this approach has been superseded.
- Since 2016, the Supreme Court of Cassation has repeatedly found that employers can dismiss individual employees for justified objective reasons when there are changes to a company's organisational structure which render a particular job obsolete, regardless of the company's aims (which could be to deal with an unfavourable economic situation or extraordinary expenses, but also to increase the company's efficiency, productivity and profits).
- Judicial examinations of the legitimacy of an individual dismissal for objective justified reasons must be limited to verifying:
- that the objective reason which the employer stated in the dismissal letter is real and not misleading (without interference by the courts in the company's management choices, which are always its prerogative); and
- the existence of a causal link between the objective reason stated by the employer and ascertained to be valid and not specious and the elimination of the dismissed employee's job.
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