Year in reviewi Fixed-term employment regulation
During the past year, the new government and parliament decided to intervene on fixed-term employment regulation through two laws:
- Decree No. 87 of 12 July 2018, known as the Dignity Decree; and
- Law No. 96 of 9 August 2018, which was converted, with amendments, from Decree No. 87 of 12 July 2018.
The purpose of the new regulations is to discourage fixed-term employment contracts in favour of the open-ended mode. Indeed, the intent is to prevent the 'stop and go' that is a stable alternation between employment period, fixed-term or staff leasing, and periods of unemployment. Thus, the new legislation has amended the Jobs Act regulation with regard to fixed-term employment agreements.
The most relevant innovations implemented by Decree No. 87/2018 and Law No. 96/2018 are the following:
- The maximum duration of fixed-term employment agreements, with extensions and renewals, has been reduced from 36 to 24 months (Article 19, Section 1, Legislative Decree No. 81/2015).
- Fixed-term agreements may be signed without a specific cause (acausale) solely for the first 12 months instead of 36 months pursuant to the old regulation (Article 19, Section 1, Legislative Decree No. 81/2015).
- Renewals must always be justified by an acausale, even in the case of first renewal and if the whole duration of the agreement does not exceed 12 months (Article 19, Section 4; Article 21, Section 1, Legislative Decree No. 81/2015).
- Renewal costs: for each renewal, the employer shall pay an additional 0.5 per cent NASPI (unemployment social security measure) contribution. For example, in the case of four renewals, the employer shall pay an increasing additional contribution up to 2 per cent; this additional contribution applies solely to renewals and not to extensions (Employment Ministry Note No. 17 of 2018).
- The maximum number of extensions has been reduced from five to four during the entire employment relationship between parties (Article 21, Paragraph 1, Legislative Decree No. 81/2015).
- Extensions may be without a specific cause if the whole relationship duration (extensions included) does not exceed 12 months; however, if the fixed-term agreement duration exceeds 12 months, the extension shall have a specific justification clause (Article 21, Section 1, Legislative Decree No. 81/2015).
- The employee may challenge the fixed-term validity within 180 days, instead of 120 pursuant to the old regulation, from the termination date (Article 28, Section 1, Legislative Decree No. 81/2015).
The new regulation provides for specific causes that may justify fixed-term agreements, renewals and extensions of more than 12 months:
- temporary and objective needs, not connected with the regular activity;
- the need to replace employees; and
- needs related to the temporary, substantial and unpredictable increase of the regular activity (Article 19, Section 1, Legislative Decree No. 81/2015).
With regard to additional contribution, it is an accessory of the additional contribution provided by the Fornero Law (Law No. 92/2012); consequently, the same rules apply to both additional contributions. Specifically, additional contributions may be (1) entirely reimbursed if the employee is hired with an open-ended employment agreement immediately after the termination of the fixed-term employment agreement, or (2) reimbursed by 50 per cent if the employee is hired with an open-ended employment agreement within six months of the termination of the fixed-term employment agreement.
The new regulations provide for more explicit sanctions for violations:
- In the case of fixed-term employment agreements of more than 12 months without specific cause or of fixed-term employment agreements of more than 24 months, the agreement automatically becomes permanent after 12 months (Article 19, Section 1-bis, Legislative Decree No. 81/2015).
- In the case of extensions or renewals of more than 12 months without specific cause, the agreement automatically becomes permanent (Article 21, Section 1, Legislative Decree No. 81/2015).
Furthermore, unless CBAs provide different regulations, fixed-term employment agreements for each employer may not exceed 20 per cent of the permanent workforce already hired by the employer on 1 January of the year of the fixed-term employment agreement stipulation. Moreover, fixed-term agreements plus fixed-term staff leasing percentages may not exceed 30 per cent of the permanent workforce already hired by the employer on 1 January of the year of the fixed-term employment agreement stipulation or fixed-term staff leasing utilisation.
Moreover, pursuant to new regulations, the above-mentioned fixed-term employment agreement rules shall apply to fixed-term staff leasing, with the exception of the 'stop and go' rule in the case of renewal (stop for a minimum of 10 days if the duration of the first agreement was less than six months, or a minimum of 20 days if the duration of the first agreement was more than six months). This means that, for example, a fixed-term staff leasing agreement with a duration of more than 12 months shall need a specific justification cause from among the above as provided by the law.ii Jobs Act amendment: indemnity in case of unlawful dismissal
Decree Law No. 87/2018 and Law No. 96/2018 amended Legislative Decree No. 23/2015 (one part of the Jobs Act) with regard to regulations for the dismissal of permanent employees.
Before the new law, the Jobs Act introduced a whole innovative frame of sanctions for unfair dismissal: indemnity instead of reinstatement, except in cases of discriminatory, retaliatory or verbal dismissal. Indeed, pursuant to the Jobs Act regulations, in cases of unfair dismissal, the judge would order the employer to pay the dismissed employee an indemnity equal to 2/12 of the annual salary per year of employment, within a range of a minimum of 4/12 of the annual gross salary to a maximum of twice the annual gross salary.
The Dignity Decree maintained the indemnity regime but amended the indemnity quantification. Pursuant to the new regulations, in the case of unfair dismissal, the judge shall order the employer to pay the dismissed employee an indemnity equal to 3/12 of the annual salary per year of employment, within a range from a minimum of 6/12 of the annual gross salary to a maximum of three times the annual gross salary.
Nevertheless, the new regulations and the old Jobs Act were judged to be non-compliant with the Italian Constitution by the Constitutional Court. Indeed, the Court found Article 3, Section 1 of Legislative Decree No. 23 of 4 March 2015 illegitimate in its provision that the indemnity for unfair dismissal should be determined solely on the length of time the employee has been in post (hereinafter referred to as 'seniority').
Judges do not censor the measure of the indemnity quantification but the system of quantification, which is rigid, automatic and linked to one parameter that precludes the judge's appreciation and violates the general principles of equality and rationality. According to the Constitutional Court, the seniority parameter is not enough to restore the effective loss suffered by the dismissed employee and does not dissuade the employer from carrying out unfair dismissals.
Thus, the new Article 3, Section 1 of Legislative Decree No. 23/2018 provides that an employer shall pay an employee who has been unfairly dismissed '[a]n indemnity not subject to social security contributions of no less than six and no more than thirty-six months' salary'.
Consequently, there are no parameters to determine the indemnity for unfair dismissal. In fact, the Constitutional Court provided that the judge shall use parameters provided by Article 8 of Law No. 604/1966 ('taking into account the number of employees employed, the size of the business, the seniority of the employee, the behaviour and conditions of the parties') and Article 18, Section 5 of the Workers' Statute ('in relation to the seniority of the employee and taking into account the number of employees employed, the size of the economic activity, the behaviour and conditions of the parties').
Moreover, the salary considered to determine the severance pay shall be the last salary paid. In fact, Article 6 of Legislative Decree No. 23/2018 provides that to settle the dispute, the employer may offer the employee an amount that does not constitute a taxable income for the purposes of personal income tax and is not subject to social security contributions, equal to one month's salary for each year of seniority; in any case, a minimum of three and a maximum of 27 months' salary. Thus, for example, in the case of an employee with three years' seniority, a conciliation offer would be equal to three months' salary.
The Constitutional Court decision gives priority to the judge's appreciation in determining an indemnity for unfair dismissal, which probably will be higher than before, in most cases. However, the risk of lawsuits will be higher owing to the wide range (from six to 36 months' salary) of the possible indemnity quantification based on a judge's appreciation.
Therefore, the Constitutional Court decision will affect the use of the conciliation mechanism provided by Article 6 of Legislative No. 23/2018. In fact, if previously an amount equal to half the compensation recognised by a court may have been considered attractive, now the employee who can expect to obtain a significantly higher indemnity than the conciliatory offer with a court decision, will be unwilling to accept it.
In conclusion, the Constitutional Court invited the legislator to issue new regulations with regard to the matter, taking into account the principles expressed by the same with the above-mentioned decision. Thus, the current regime will probably be temporary and new rules should be expected in the near future.iii Privacy regulation
On 25 May 2018, the General Data Protection Regulation (GDPR) entered into force and three months later the Italian legislator issued Legislative Decree No. 101 of 10 August 2018, adapting the Italian Code of Privacy (Legislative Decree No. 196/2003) to the GDPR, thereby also affecting the privacy aspect of employment relationships.
The most relevant innovations implemented by Legislative Decree No. 101/2018 are as follows:
- The Decree reproduces the GDPR provisions with regard to the lawfulness of data processing but, in specific cases, provides specification of such provisions. One of the most important is that the data processing is necessary for compliance with a legal obligation to which the controller is subject, the legal obligation must be provided by law or by the regulation if it is statutory.
- Specification of parts of the GDPR provisions with regard to special categories of personal data. The Decree provides for lawfulness of special categories of processing personal data about an employee in relation to control and inspection activities, sanctioning and defensive activities before a judicial or administrative authority.
- Besides the GDPR requirements, the Decree provides that biometric data processing shall be regulated by a specific provision of the Italian Data Processing Authority, issued every two years.
- Besides the GDPR requirements, the Decree provides that criminal data processing shall be regulated by a decree of the Ministry of Justice, yet to be issued. Currently, criminal data processing is lawful if necessary for compliance with a legal obligation to which the controller is subject, or for exercising specific rights of the controller or the data subject (i.e., employer and employee).
- The Decree confirms that the Italian Data Processing Authority shall issue general authorisation regarding employment relationship data processing. Indeed, the last authorisations expired on 25 May 2018, but shall continue to apply until new authorisations are issued.
- Pursuant to the new regulations, the Italian Data Processing Authority shall issue specific deontological codes with regard to the processing of data related to the employment relationship.
- The Decree provides specific sanctions relating to significant violations of privacy regulations.
The case decided by the United Sections of the Supreme Court of Cassation with judgment No. 10435/2018 was one of the most significant in 2018. In this judgment, concerning an unfair dismissal for redundancy, the Supreme Court expressed an innovative principle, as a mere obiter dictum and without giving it concrete application in the specific case: 'a possible ascertained excessive burdensomeness in reinstating the employment relationship', taking into consideration the notion mentioned in Articles 1384 and 2058 of the Civil Code, that 'can allow, therefore, the judge to opt – notwithstanding the ascertained proven non-existence of one of the two constitutive requirements of the dismissal (i.e., the existence of the fact constituting the justified reason and fulfilment of the obligation for repêchage) – for the indemnity protection'. Before this decision, some courts used to order employee reinstatement even if solely one of the two requirements was proven as non-existing.AA v. Banco di Sardegna SpA
This case concerns the dismissal of an employee for taking sick leave that exceeded the maximum permitted period. The employee had obtained sick leave based on a medical certificate, declaring his sick status for a period exceeding the maximum permitted period for sick leave. During this 'protected' period, an employer may not dismiss an employee because of absence from the workplace. The employer in this case dismissed the employee before his actual absence for a period exceeding the protected period, based on the dates stated on the medical certificate, which were beyond the protected period. Consequently, the Court decided that dismissal for reasons of continued absence because of the employee's illness or injury, but before having exceeded the maximum permitted period fixed by collective bargaining or, in the absence of such, by use or fairness, is null and void for violation of the mandatory rule set forth in Article 2110, Section 2 of the Italian Civil Code. Before this decision, some courts used to define this kind of dismissal as temporarily ineffective, but lawful after expiry of the protected period.Banca Monte dei Paschi di Siena SpA v. CB
This case relates to disciplinary dismissal. Specifically, the employer contested a disciplinary violation by the employee after two years. In similar cases, the Italian courts have ruled in two different ways: (1) a delay in disciplinary contestation means non-existence of the fact constituting the just cause for dismissal and, consequently, reinstatement of the employee; and (2) a delay in disciplinary contestation is a mere violation of the dismissal procedure and, consequently, the judge shall order the employer to pay the employee an indemnity of between 12 and 24 months' salary.
The United Sections of the Supreme Court of Cassation decided that the judicial decision to cancel the disciplinary dismissal resulting from a significant and unjustified delay in the disciplinary contestation, falling ratione temporis in the discipline of Article 18 of the Workers' Statute, as amended by Article 1, Paragraph 42, of Law No. 92/2012, will result in the application of the indemnity sanction provided for in the fifth paragraph of Article 18 of the Workers' Statute. According to the United Sections, therefore, in the event of an existing violation that was not promptly contested, provided that the employment relationship is terminated at the date of dismissal, the employee is entitled to the payment of an indemnity of between 12 and 24 months of the last total salary.WD-40 Company Ltd v. CP
Finally, this case is in regard to discriminatory dismissal occasioned by marriage. The employer dismissed the employee a few months after he got married. Article 35 of Legislative Decree No. 198/2006 provides that dismissal of a female employee because she has got married is null and void and it is assumed that dismissal of an employee during the period between the day on which the request for the banns is made, in so far as the marriage celebration will follow, and one year after the celebration itself, was decided because of the marriage. The male employee of the case issued a complaint before the Court because, in his opinion, the provision is discriminatory in its literal meaning and should apply to male employees too.
The Court decided that, far from being discriminatory, this legislation is perfectly legitimate as it responds to a difference in treatment justified by reasons, not as a result of the gender of the person providing a work activity but of the protection of maternity. This is constitutionally guaranteed to women, who are also entitled to the same human rights as employees, on the basis of the fulfilment of her essential family function and to provide the mother and child with special adequate protection. Nor is it in contrast, precisely for this reason, with the EU anti-discrimination legislation (the Charter of Fundamental Rights of the European Union), in particular with either Article 23, Paragraph 2 thereof (according to which 'The principle of equality does not prevent the maintenance or adoption of measures that prevent specific advantages in favour of the under-represented sex') or Article 33, Paragraph 2 thereof (according to which 'In order to reconcile family and professional life, everyone has the right to protection against dismissal for a reason relating to maternity and the right to paid maternity leave and parental leave after the birth or adoption of a child').
Outlook and conclusions
As anticipated in the last edition, the Jobs Act and the Fornero Rules are currently in the spotlight and the right wing is seeking to repeal this legislation.
This scenario would probably lead to a progressive reintroduction of Article 18 of the Workers' Statute, and consequently the return of real protection against dismissal and of reinstatement in cases of unfair dismissal. However, repealing the Fornero Rules would lower the retirement age, resulting in more retired people and fewer working people, which is problematic in terms of financing retirement benefits.
In conclusion, with regard to the effects of the most important legislative act of employment law of 2018, the Dignity Decree, the Italian Social Security Authority (INPS) issued a statistical document regarding temporary employment. The results of the INPS statistical research show that the Dignity Decree does not imply an increase in hiring with open-ended employment agreements.
In fact, during the period between July (when the Dignity Decree became effective) and October 2018, the number of employees hired with open-ended agreements was 381,100 compared with 364,784 during the same period in 2017, and between January and June 2018, 662,847 employees were hired with open-ended agreements compared with 630,260 during the same period in 2017. From this, we can deduce that the positive tendency in new open-ended employment relationships started before, and independently from, the Dignity Decree.
Moreover, during the period between July and October 2018, 1,109,977 employees were hired with fixed-term agreements compared with 1,144,952 during the same period in 2017, and between January and June 2018, 1,768,081 employees were hired with fixed-term agreements compared with 1,588,712 during the same period in 2017. As stated above, we can deduce that the positive tendency in new fixed-term employment relationships also started before, and independently from, the Dignity Decree.
With regard to employment termination, however, during the period between July and October 2018, the number of fixed-term agreements that were terminated was 1,056,181 compared with 1,026,218 during the same period in 2017. We can therefore deduce that the implementation of the Dignity Decree entailed an increase in terminations of fixed-term employment relationships.
In fact, under the Dignity Decree, the reduction of the maximum duration of contracts from 36 months to 24 months has naturally led to an increase in the turnover of employment contracts. A company may decide to hire an existing employee with a permanent employment agreement or to hire another employee with a new fixed-term or temporary employment agreement. The company may also decide to terminate the employment agreement entirely.
The option to hire an employee with a permanent employment agreement is less attractive for companies owing to an increase in the cost of terminating permanent employment agreements, as provided for in the Decree and in light of the Constitutional Court decision discussed in Section IV. In fact, there is considerable empirical proof that an increase in the costs of the interruption of employment relationships results in a reduction in recruitment.
The second option – to hire another employee – entails additional costs for the company in finding personnel with whom to substitute non-renewable employment agreements. The replacement does not take place immediately and the introduction of the specific cause for fixed-term employment agreements with a duration of more than 12 months increases the costs perceived by the employer in filling a temporary position in the company.