After a long and suspenseful awaiting, eventually on June 27, 2012, after months of discussions and shilly-shallying, the Italian Parliament approved the Monti-Fornero reform of employment law which will come into force on July 18, 15 days after its publication on the Official Gazette which took place on July 3 with serial number 92/2012 (hereinafter, in short, the "Law").

This Law ambitiously aims at shaking up the job market and is driven by 3 essential objectives: (I) clamping down on certain widespread abuses of what is generally referred to as "flexible" work contracts; (ii) liberalizing individual lay-offs for economic reasons, partly compensated by (iii) introducing a more generalized system of unemployment benefits.

The Law is a complex document of 4 articles made of hundreds of commas, and contains several sweeping provisions affecting many key areas of employment law.

The following is a brief overview including the highlights of the most relevant areas of intervention of the Law, with a view to our corporate clients' interest in their day-to-day HR management needs.

Hereunder we shall concentrate our attention on the following four main topics:

  1. the new regulation of flexible contract types and promotion of "apprenticeship" agreements;
  2. the reform of individual dismissals in mid- or big-sized companies;
  3. the new regulation of resignations and mutual termination"; and
  4. the introduction of a brand new unemployment social benefit system.

Clampdown on Flexible Contract Types and Promotion of "Apprenticeship" Agreements

  1. The apprenticeship contract, for a minimum period of 6 months and associated with generous social security discounts, is strongly favored by the Law as the main gateway for youths to enter the job market; however, and to avoid the risk of possible abuses, companies shall only be allowed to hire apprentices (also through temporary agencies) within a ratio of 3 for every 2 skilled employees; also, no further hirings shall be allowed if less than 30% of existing apprentices have not been confirmed as permanent employees at the end of the apprenticeship contract (the percentage shall be increased to 50% after 36 months of the Law coming into force).
  2. Hiring of an employee on a fixed-term basis is currently possible only for a maximum period of 36 months including all renewals and extensions:
  • the new Law includes in the calculation of the mentioned term any time spent at the employer's site as a temporary worker, if performance relates to the same or equivalent duties;
  • as a partial balancing on the restriction above, the first fixed-term contract, for a period of maximum 12 months and not renewable, shall no longer need the specific indication of an objective business need;
  • the same employee could no longer be hired on two consecutive fixed-term contracts unless a period of at least 90 days have elapsed since the expiry of the first contract (60 days if the first agreement was entered for no longer than 6 months);
  • finally, an increase of 1,4% of social costs shall apply to fixed-term contracts, partly recoverable if the employee is eventually confirmed on a permanent basis.
  1. Job on call: the Law contemplates some restrictions on the use of this type of contract, essentially in two ways: (i) it will be admissible only for those who are more less than 24 years of age (25 today) and more than 55 (50 today) (ii) a specific communication to the labor authorities shall be required for each "call to work", under penalty of heavy monetary sanctions; (iii) restrictions for job-on-call work during week-ends and holiday periods apply. For all job-on-call contracts already in place at the time when the Law comes into force, the new limitations shall apply with a 12-month delay.
  2. Project workers: this type of semi-subordinate working relationship (project workers are in fact contractors and not employees) shall suffer a severe turn of the screw, effected in many ways:
  • the Law introduces a more severe definition of "project", which from now on shall need to be tied to a specifically identified "final result";
  • the duties performed by the project worker cannot be low-skilled and repetitive ones (collective agreements may better define these concepts);
  • termination before the fulfillment of the identified project shall only be possible for cause or professional unsuitability of the project worker to the task;
  • project workers shall no longer be hirable to perform a job in ways that are similar to the ones used by a regular employee, exception only made for high-skilled working activity as identified in the collective regulation.

Lack of compliance with any of the above new requirements shall turn the project workers into permanent employees from the beginning of the relationship.

  1. Individual contractors (VAT-holders): the Law introduces a presumption of law that such individual contractors should be actually classified as "project worker" (if they met the conditions under previous point), or else as "permanent employees", if at least two of the following conditions are met:
  • the relationship is longer than 8 months in a solar year;
  • the contractor derives more than 80% of his total income in a solar year from the same principal (or more principals related to one another by a mutually shared interest, such as in the case of working activity rendered in the interest of a number of companies belonging to the same group);
  • the contractor has a working station (pc, table, landline phone etc.) at the principal's premises.

Lack of compliance with any of the above new requirements shall turn the project workers into permanent employees from the beginning of the relationship.

The presumption above does not apply to the activities performed by professionals who are members of a compulsory professional society (such as architects, lawyers, journalists, payroll providers etc.) or for duties performed at a very high level of competence acquired through experience or training. For all contractors already in force at the time when the Law comes into force, the new provisions shall apply with a 12-month delay.

The Reform of Individual Dismissals in Mid- or Big-sized Companies

The previous regulation in Italy contemplated a drastic remedy in case of unlawful or unfair dismissal of an employee working in a business unit employing more than 15 employees or for an employer who overall employs more than 60 employees at national level: the employee could have actually claim his job back, and was also entitled to be paid full damages for all the salaries missed from the date of the (unlawful or unfair) dismissal up to forced reinstatement ordered by a labor court, without any cap. In case the employee refused reinstatement (typically in a situation where he had found another job in the interim of the court proceeding, that could last for 1 year or longer), he could unilaterally opt for payment of an indemnity equivalent to 15 months of his global salary, thus automatically relinquishing his right to get his job back.

This protection, colloquially named "Article 18" under the article of the Labour Statute which first introduced it back in 1970, has been a real taboo of Italian employment law for several decades and previous attempts to reform it have been vehemently fended off by Italian unions.

The Monti Law introduces a completely new perspective in this set of protection, and rewrites altogether Article 18. The new formulation has been regarded by many commentators not as revolutionary as originally intended (or needed), and clearly suffers the compromise reached with CGIL, the major Italian national trade union association, who strongly opposed to the new provision, even by calling several hours of national strike. Altogether, we believe that the reform of this area of the law constitutes, 40 years after the enactment of the Labor Statute, a step towards a modern employment regulation in line with the European scenario.

Basically, the new Article 18 provides different regulations for different types of dismissal, which we may break down in 4 categories as follows.

  1. Dismissal for discriminatory reasons

Protection in this case does not change: the employee who is dismissed for discriminatory reasons shall always be entitled to claim his job back plus damages with a minimum of 5 months of full salary and no cap. This is (and shall remain) the only case in which Article 18 applies also to employees with less than 15 employees (or 60 at national level) and to those classified as executives (dirigenti). Within 30 days from the order of reinstatement, the employee may unilaterally opt for payment of an indemnity equivalent to 15 months of his global salary and give up his right to reinstatement.

  1. Dismissal for subjective (disciplinary) reasons (specific cases)

Employees who are dismissed on subjective (disciplinary) reasons (such as poor performance, insubordination and breach of duties up to and including offences such as fraud or serious conflict of interest), can claim their job back (and damages) only in 2 cases (which in practice cover 90% of ordinary cases): the charge does not exist or the fact is contemplated by the disciplinary code or the collective regulation as punishable with a lesser sanction (typically a fine or suspension from duties). In this scenario, and unlike the previous Article 18, where damages did not suffer any cap, the maximum awardable damages are assessed by the court at a maximum of 12 months plus social security contributions, deducted what the employee may have earned by some other job in the interim of the court proceeding.

  1. Dismissal for subjective (disciplinary) reasons (default case)

In any other case not contemplated under the previous point, the labor court shall no longer be able to order forced reinstatement, but only award an indemnity (in case dismissal is deemed nonetheless unfair for reasons other than those listed in previous point), ranging between 12 and 24 months, taking into account factors such as the total number of the workforce of the employer, the seniority of the employee, the behavior and conditions of the parties.

  1. Dismissal (and lay-offs) for objective (economic) reasons

This is the most revolutionary part of the reform of Article 18. In fact, if the labor court ascertains that no "justified objective reason" supports the dismissal, the employee can no longer claim his job back and may be awarded only an indemnity assessed by the same court between 12 and 24 months, taking into account the factors listed under point # 3 above as well as the initiatives taken by the employee to search another job and the behavior of the parties during the special (and compulsory) conciliatory procedure, to be carried out in front of the local Labour Office, also introduced anew by the Law. This compulsory procedure is another big novelty of the Law, aimed at slashing disputes in court, and must be initiated by the employer before notifying an individual dismissal for economic reasons. The Labor Office summons the parties within the next 7 days and by the next 20 days, if no agreement has been found for a separation by mutual consent, the employer is free to notify dismissal (while facing most likely a dispute in court over the following months). The new Article 18 on dismissals for economic reasons contemplates only one exception, that according to some commentators and the employers' associations risks to become the Trojan horse that generates uncertainty in an otherwise pretty clear-cut review: the employee may still claim his job back if the labor court ascertains that the alleged "economic reason" is "manifestly non-existent", which in the intention of the Law is aimed at fending off possible abuses of dismissals motivated by disciplinary (or worse, discriminatory) reasons but passed under an apparent economic pretext.

The same protection above (without reinstatement) applies in case of violation of the procedural requirements of collective lay-offs, with a notable exception: in case the employer violates or misapplies the selection criteria agreed with the unions or (absent any such agreement), the criteria set forth by the law: in this latter case in fact, affected employees shall be entitled to seek reinstatement into their job positions.

  1. Other provisions on dismissals

Employers must, in all cases, provide the reasons at the basis of the decision to termination the employment agreement directly in the termination letter. In case of ineffective termination of employment, due to the absence of written reasons in the termination letter or breach of procedural aspects (such as in case of disciplinary procedures), forced reinstatement shall no longer apply but a Labour Judge will assess an indemnity ranging from 6 to 12 months of salary, without prejudice for the application of stronger protection in case the alleged reasons of dismissal are deemed unfair or unlawful on the merit of its alleged reasons.

The new protection of employees in case of resignation or termination by mutual consent

The Law contains new provisions also in case of resignation and of termination by mutual consent of the employment relationship, which shall be effective only after a validation by the competent Labor Office.

As an alternative to the above mentioned procedure, resignations and termination by mutual consent shall be effective also following a subscription of a statement by the employee at the bottom of the transmission receipt of the communication of the termination of the employment relationship done by the employer.

If the employee has neither executed the validation procedure nor the subscription of the statement mentioned above, the employment relation may be considered terminated if the employee does not accept the invitation to execute one of the two procedures, within seven days from the receipt of this invitation.

The resignation and the termination by mutual consent may be considered ineffective also if the employer has not invited the employee to execute one of the two procedures within 30 days from the resignations date or from the termination date or if the employee has not revoked his resignation or the termination by mutual consent within seven days from the receipt of the invitation described above.

The new Law reinforces also protection for both mother and father employees until the time their child is 3 years of age, whereby termination of the employment contract by mutual consent or unilateral resignations must be validated by the competent Labor Office in order to be enforceable.

The New Unemployment Social Benefit System

The Law introduces a new (and universal) unemployment social benefit system for those involuntarily losing their jobs as of January 1, 2013, called "ASPI" (Assicurazione Sociale per l'Impiego).

ASPI, to be paid on a monthly basis to the unemployed, will be managed by the National Social Security Agency (INPS) and will replace the ordinary unemployment allowance as of 2013 and the Mobilità allowance as of 2017.

The unemployed will receive the unemployment allowance, but for a shorter period of time: 12 months for those under 55 and 18 months for more senior employees. The Aspi has be paid in the amount of 75% of the monthly salary if, in 2013, the latter was not higher than 1.180 €, if higher, the amount shall be equal to 75% increased of an additional 25% calculated on the difference between the actual monthly salary and 1.180€.

The unemployed will have access to ASPI provided that they have accrued two years of previous contributions and at least 52 weeks over the last 2 years. Therefore, the new requirements are definitely more stringent than those provided for the Mobilità allowance.

The unemployed not meeting the above requirements will have access to the so called mini-ASPI, provided that they have at least 13 weeks of contributions over the last 12 months.