Termination of employment in Italy

United Kingdom

Termination indemnities to be paid in the case of the termination of an employment contract by the employer

Background

The Italian Legislation grants comprehensive protection to employees in the case of termination of the employment contract by the employer. In fact, the employer is entitled to terminate the employment contract only in case of Justified Cause ("Giusta Causa") or Justified Reason ("Giustificato Motivo"). The dismissal procedure is regulated by the Law and its violation can lead to a judicial declaration of invalidity or ineffectiveness of the dismissal. Should the dismissal be declared void or ineffective, the employer shall have the legal obligation to reinstate or re-engage the employee and/or to provide him with the relevant indemnification . Furthermore, in order to grant a high standard of protection to specific categories of employees considered particularly weak, the Italian Legislation does not allow the employer to terminate the employment contract in specified circumstances such as pregnancy, compulsory military service etc. In any case of termination of the employment, the employee has the right to provided with a severance pay ("Trattamento di Fine Rapporto").


Termination of the employment contract
Dismissal for Justified Cause ("Licenziamento per Giusta Causa")
An employment contract can be terminated for Justified Cause when the employment relationship cannot be continued, even temporarily. The Italian Supreme Court ("Suprema Corte di Cassazione") has specified that Justified Cause subsists:

  1. in case of material breach of the employment contract and
  2. when such an event occurs, even outside the employment relationship, which has an impact in the working environment causing the deterioration of the relationship between the employer and the employee.

It should be noticed that the particular cases of Justified Cause for the single categories of employees are often listed in the collective bargaining contracts.



Dismissal for Justified Reason ("Licenziamento per Giustificato Motivo")

According to the Italian Supreme Court ("Suprema Corte di Cassazione"), there should be a distinction between Subjective Justified Reason ("Giustificato Motivo Soggettivo") and Objective Justified Reason ("Giustificato Motivo Oggettivo").



Subjective Justified Reason ("Giustificato Motivo Soggettivo")

The Subjective Justified Reason subsists in case of material breach of the employment contract by the employee. In this case the breach of the contract is less relevant than the case of Justified Cause.



Objective Justified Reason

The Objective Justified Reason subsists in specific cases of re-organisation of the production.



Prohibition of termination – Events

The Italian Legislation envisages a number of events and circumstances when the termination of the employment is prohibited. Such events and circumstances are listed and detailed by the relevant legislative provisions issued in order to grant to specific categories of employees - whose condition have been considered particularly weak - a high standard of protection (i.e.: marriage, pregnancy, disease, injury, military service, trade union appointments, public appointments, strike etc.). An employer is entitled to terminate the employment only after a maximum time period (so called "periodo di comporto") has expired. This time period is generally agreed in the collective bargaining contracts.



Termination notice
Definition

In case of termination of an employment contract with undetermined duration, the employer shall give the employee the relevant termination notice. The duration of the notice period is established in the collective bargaining contracts and normally varies depending on the seniority and on the qualifications of the employee. During the notice period, the employment relationship continues and both parties should fulfil their mutual obligations: the employer continues with the regular payment of the salary and the employee shall perform his normal working activity. Should the employer not respect the notice period, the employer shall pay a lack-of-notice indemnification equal to the amount of money he should have paid if the notice period were respected ("indennità di mancato preavviso ").



Cases

In case of Dismissal for Justified Cause, as the employment relationship cannot be continued even only temporarily, the effects of the notified termination are immediate and the lack-of-notice indemnification is not due.



Dismissal procedure
Notice

According to Italian Law, the dismissal must be communicated to the employee by written notice . A "verbal" dismissal is ineffective. (It should be noted that a "verbal dismissal" is admitted for home assistants and, in general, for employees in a trial period). If the notice does not contain the reasons of the dismissal, the employee may request reasons within 15 days from receiving the notice. Within 7 days from receiving this request, the employer shall send the employee a further written notice specifying the reasons. Once the reasons are detailed in writing, they cannot be changed again. Should the employer not respect this procedure, the dismissal shall be declared ineffective



Exceptions - Disciplinary Dismissal

A Disciplinary Dismissal can be classified either as a Justified Cause Dismissal or as a Justified Reason Dismissal depending on the circumstances of the case. In case of Disciplinary Dismissal, the termination procedure is different from the one described under 4.1 above: reasons shall be communicated prior to the notice of termination and the employee shall be given time to put his case with the assistance of the trade unions.



Challenging the Dismissal

Within 60 days (from receiving the notice of termination or from receiving the written notice setting out the reasons) the employee can contest the dismissal by way of any written, even extra-judicial, defence. In any case, prior to the filing of a formal complaint to the Court , the employee shall start a compulsory conciliation procedure . The conciliation procedure can be carried out (i) directly with the trade unions according to the provisions of the collective contracts or (ii) in front of the Employment Office.



Wrongful dismissal
Definition

Unless a Justified Cause or a Justified Reason subsist, the dismissal may be declared wrongful. In particular the dismissal may be declared:



ineffective , where the employer has not respected the procedure described above under point void , where the dismissal is discriminatory or lacks Justified Cause or a Justified Reason.



Judicial declaration of wrongful dismissal - Procedure

Dismissals can be declared ineffective or void by the local Court –Employment Section ("Tribunale Civile – Sezione Lavoro"). The procedure in front of the Employment Court is particularly quick compared with the standard civil procedure. Consequences
The Italian Legislation envisages two main remedies against wrongful dismissal:



order of reinstatement of the employee



where the dismissal is declared void or ineffective, the Court shall order the reinstatement of the employee. In order to make the reinstatement obligation effective, the employers is required to make the payment of an indemnification ("reinstatement indemnification") which is determined on the basis of the time period between the (wrongful) dismissal and the reinstatement. In any case, the reinstatement indemnification shall be, at least, equal to 5 monthly salary payments . It should be noted that, instead of reinstatement, the employee can opt for an indemnification equal to 15 monthly salary payments ("alternative indemnification") which must be added to the reinstatement indemnification;



order of re-engagement of the employee



where the dismissal is declared void or ineffective, the Court shall order the re-engagement of the employee. The employer can choose between (i) re-engaging the employee within 3 days from the order of the Court or (ii) paying to the employee an indemnification quantified by the Court which can vary between 2.5 and 6 monthly salary payments . It should be noted that such an indemnification can be increased up to 12 monthly salary payments if the employee has worked for the employer for a long time;



differences between the reinstatement and the re-engagement remedies



it should be noted that while in case of reinstatement, the employment relationship is not interrupted, in case of re-engagement the (wrongful) dismissal is effective, but the employer must re-engage the employee, starting a new employment relationship.



criteria of application of the reinstatement and the re-engagement remedies





Discriminatory Dismissal

A dismissal is considered discriminatory when it has no ground except for political or religious beliefs, participation in trade – union activities, racial, sexual or idiom-related reasons. The Italian Legislation grants a particularly strong protection against discriminatory dismissals. In fact:



in case of discriminatory dismissal, the remedy is the reinstatement and reinstatement indemnification, irrespective of the size of the employer ;



b) the abovementioned remedy is also granted to managers ("dirigenti") who are generally excluded from the application of the employment protection legislation.



Managers ("Dirigenti")

Generally speaking, the employment protection legislation is not applicable to managers. In fact, because of their high hierarchical position inside the company, managers are not considered "weak parties" in the employment relationship. However, collective bargaining contracts usually contain provisions granting managers the right to a fair indemnification in case of termination of the employment in absence of Justified Cause or Justified Reason.



Miscellaneous
Non–Competition Clause-Indemnity

Non competition clauses, where the employee undertakes not to carry out any similar activities either on his own account or as an employee of a competitor of the employer, can be inserted in the employment contract. Under Italian Law such clauses shall be agreed in writing, expressly providing the employee with an adequate indemnity and detailing limits, object and the geographic and temporal relevance of the agreement. The duration of the non – competition obligation cannot exceed 5 years for managers and 3 years for other employees.



Trial Period Clause

Employment contracts may contain trial period clauses according to which the employer, at any time during the trial period or at the end of the same, is entitled to terminate the employment even in the absence of any Justified Cause or Justified Reason . Generally speaking trial period clauses do not exceed a 6 months period. Trial period clauses must be agreed in writing.



Collective dismissal
Requirements

The Collective Dismissal Procedure can be used if the following requirements are complied with:



a) the employer must employ more than 15 workers;


b) at least 5 dismissals in 120 days are planned;


c) the dismissals must be carried out in the same productive unit or in different productive units located in the same Province;


d) the dismissals are due to the reduction or transformation of work or activities or cessation of the activity.



Procedure
Notification to trade unions and Joint Examination

The employer shall give notice to the trade unions of its intention to proceed with a collective dismissal. The notice shall detail (i) the reasons for the reduction of the employees; (ii) technical, organizational and/or productive reasons making it necessary to proceed with the dismissals and (iii) the amount and characteristics of the superfluous employees. Following the abovementioned notice, the trade unions can request the employer to proceed to a joint examination of the situation. Should the joint examination not lead to an agreed solution, the Employment Office can convoke the parties for a further attempt. Once this further attempt has been exhausted, the employer is entitled to proceed with the dismissals.



Choosing Criteria

The choice of the employees to be dismissed must be done according to the following criteria:



a) family status;


b) length of employment;


c) technical / productive needs of the employer.



Once the employees to be dismissed are identified, the termination, of the employment shall be done in writing and the relevant notice period shall be granted.



Unfair Collective Dismissal – Consequences

Within 60 days from the termination notice, the employee can contest the dismissal. The dismissal can be declared ineffective if the abovementioned dismissal procedure was not followed or void if the selection criteria were not respected. In these cases the remedy shall be the reinstatement of the employee together with the payment of the reinstatement indemnification.



Severance payment ("trattamento di fine rapporto")

According to Article 2120 of the Italian Civil Code, in any case of termination of the employment contract, the employee shall have the right to severance pay ("Trattamento di Fine Rapporto"). In fact, at the end of every year, the employer shall make a financial reserve equal to 7.4% of the annual employee's salary: at the moment of the employment termination the employee shall have the right to receive the overall relevant amount.



Increasing flexibility of the italian job market – the agreement for italy ("patto per l'italia")
Background

On July 4, 2002 the Government and the Main Trade Unions have signed an agreement – called the Agreement for Italy ("Patto per l'Italia") – providing a number of measures aimed at making the Italian job market more flexible. The provisions contained in the Agreement for Italy are supposed to be inserted in a Legislative Decree to be issued by the Government in the next few months. However, it should be noted that the left-wing trade union CGIL has not signed the agreement and is strongly opposing the adoption of the pro-flexibility provisions: so it is not certain whether the Government will be able to adopt the proposed measures because of the strong opposition of the Italian main trade union.



Proposed modification of the application of remedies against wrongful dismissals
Inapplicability of the remedy of the reinstatement to new employees

Employers who, as a consequence of the hiring of employees (with undetermined duration contracts) within three years from the entering into force of the Legislative Decree, employ more than 15 employees, in case of (wrongful) termination of the employment, shall be obliged to make the re-engagement and not the reinstatement indemnification. This provision does not apply to employers who, in the 12 months prior to the entering into force of the Legislative Decree, have employed an average of more than 15 employees.



Joint examination

According to the Agreement for Italy, after 24 months from the entering into force of the Legislative Decree, the Ministry of Welfare and the Trade Unions will meet in order to jointly examine the consequence of the adopted measures in the job market.



For further information, please contact Fabrizio Spagnolo at [email protected] or on + 39-06-478151.