Italy's employment law reforms are long overdue but incomplete

By Franco Toffoletto, Partner, Toffoletto De Luca Tamajo e Soci

On 18 July 2012, the Monti-Fornero reforms of Italy’s employment law came into force as Law 92/2012.

The last pillar of the deeply-ingrained legislative system from the 1960s and '¨70s, where reinstatement was the only remedy for unfair dismissal, has now given way. A step forward has also been taken to lower dismissal costs by introducing fixed-term contracts.

The Italian parliament has used the long-overdue reforms to speed up the economy and streamline the labour market, sweeping away some outdated working practices and attitudes.

Termination of employment

The most significant amendments affect the termination of employment for firms with more than 15 employees in an office or municipality, or more than 60 employees in total in Italy.

In such cases, reinstatement is no longer the only remedy for wrongful dismissal. While reinstatement is still the remedy for dismissals based on discriminatory grounds, in certain circumstances a judge can order an employer to pay capped compensation of six to 24 months’ salary. This will very much affect tactics regarding dismissals going forward.

When a dismissal is based on redundancy and a court finds that its grounds evidently do not exist, a court '¨can still order the employee’s reinstatement. Also, when there is no evidence in court of the facts on which a disciplinary dismissal is based, the employee will be reinstated. In other cases of unfair dismissal, the employee will be only awarded compensation of between 12-24 months’ salary.

While the requirements for a fair dismissal do not change compared to the past, the introduction of alternative remedies – depending on whether there is no evidence at all of the grounds for '¨the dismissal or if the dismissal is considered unfair for other reasons – means firms need to take particular care about what is stated in documents leading to the termination.

Every single fact must be double checked and supported by clear and full evidence to be shown in court, if needed. A lack of accuracy with this would make a huge difference: the difference between having employees reinstated in their jobs or the firm paying compensation.

In the case of individual redundancy, a new information procedure has been introduced that must be followed before dismissing an employee: the employer '¨will have to communicate the intention '¨to terminate employment both to the Labour Office and to the employee. The Labour Office will subsequently meet both parties within seven days, to attempt to settle the dispute.

When communicating redundancies, firms will need to provide some grounds for the redundancy, but not give away too much financial detail.

Moreover, when drafting ‘compromise agreements’ to terminate an employment contract and get an employee waiver on the employment relationship, both resignations and mutual terminations '¨now always have to be validated and confirmed by the employee through a specific procedure set out in the legislation. This is a condition for the termination to take effect.

In cases where the termination has to come later than the signature of the agreement, not only should this provide employee commitment to follow the new procedure and validate the termination in due form, but it could also specify that all payments be made only once the whole procedure is achieved and it has been verified that termination has taken effect.

Given the specific procedure that apply when the employee is pregnant or is a parent of a child of up to three years old, it may be advisable to obtain the employee’s declaration that he/she does not meet such conditions before assessing how to proceed.

Fixed-term contracts

The good news is that it is now possible to enter into a fixed-term employment contract or agency contract for the first time with an employee for a period that does not exceed 12 months (non-renewable, even if shorter than 12 months), without having to specify the reasons for the fixed term.

In practice, this eliminates the possibility of an employee disputing the fixed term of his contract. Any subsequent contract entered into with an employee will need to provide grounds for the fixed term.

Moreover, an employee who wishes to dispute the fixed term of his contract must now do so within 120 days from the expiry date and then file a claim within the next 180 days. After this, he will no longer be able to claim that the fixed term was unfair.

Mixed news

These amendments are very good news for firms, as they are likely to significantly decrease litigation in court and thus firms’ liability in relation to fixed-term contracts.

However, while this new piece of legislation gives greater power to management to have a more flexible labour force, Italy’s employment law still needs a constructive and comprehensive overhaul. It needs to be simplified and rationalised, and the rules for trade union representatives need to be set out in a clear and effective way.

Toffoletto De Luca Tamajo e Soci is a member firm of employment law alliance Ius Laboris

sft@toffolettodeluca.it