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Employment in Italy

The Italian labour market is highly regulated and skewed heavily towards employee-rights, making it notoriously tricky to navigate. There are numerous legislative requirements for employers to comply with, depending on the type of employee and contract that is of concern, and compliance with Italian labour and employment regulations is often costly and time-consuming. However, the global economic downturn has forced Italian lawmakers to embrace political, social and legal reform in order to enhance flexibility within the Italian job market.

 

Key points on employment in Italy

Some key points to note on the Italian labour market:

– Each industry has a National Collective Bargaining Agreement that regulates the employment relationship

– Companies with more than 15 employees come under the umbrella of the Workers’ Statute

– A collective dismissal is triggered when at least five dismissals are served within 120 days. Executives are now included in this count

In Italy, individual contracts of employment and labour relationships are governed [in order of priority] by:

1. The Constitution

2. The Civil Code: Employment and labour matters are regulated under Section III (“On the employment relationship”), articles 2094-2134.

3. Laws enacted by Parliament: Italy has extensive employment and labour legislation

4. Regulations issued by authorities other than Parliament and the government.

5. National Collective Bargaining Agreements

6. Custom and practice – for issues not governed by legal provisions or by the collective agreements. Customs more favourable to employees prevail over legal provisions, but do not prevail over individual employment agreements.

Employees in Italy have a basic right to establish and join a Trade Union association in the workplace or perform Union activity. This right is protected by the anti-discriminatory provisions (Articles 14-17 of Law no. 300/70, i.e. “Workers’ Statute”). “Rappresentanze Sindacali Unitarie” (RSU) were established by national agreement in 1993 and reformed in 2014. RSUs are formed by a general election among the workforce. The Unions compete in the election and are represented in proportion to the votes they have received.

Alternatively, a union can establish its own Rappresentanza Sindacale Unitaria (RSA).

Both the RSA and RSU are involved in collective bargaining and the verification of the correct application of laws and collective agreements. They have both information and consultation rights, as laid down both by collective bargaining and by law. Both unions are generally consulted with regards to issues such as overtime levels, employment policy, hiring policy or corporate restructuring.

  1. Contracts

    Generally, all employment contracts in Italy are required to be in writing. Given Italy is a member of the European Union (EU), the country is also subject to various EU directives and legislation.

    As such, European Union Directive No. 533/91 requires that information on the main terms and conditions of employment relationships be evidenced in writing in the employment contract and provided to the employee within 30 days of hiring. In general, individual employment contracts must specify:-

    1. Parties to the employment agreement;

    2. The starting date of the employment and the duration of the trial period, if any;

    3. The expiration date, if the employment is for a fixed term (where these contracts are permitted by law);

    4. The salary, method for calculation of the salary, frequency of payment, and any particular term or condition related to the salary and fringe benefits;

    5. Working hours;

    6. Annual entitlement to paid holiday leave; and

    7. Employee’s duties and the related work “category” as established by the Civil Code under article 2095.

    Employment contracts in Italy are usually for an unlimited duration, however fixed-term and open-ended contracts are also available.

    Specific types of contracts

    A. Part-time contracts

    Part-time employment contracts must be in writing. All contracts must also specify the hours of work (e.g. by day, week, month and year). Pay and other entitlements of part-time employees are normally pro-rated according to rates of full-time equivalents.

    Ancillary clauses can also be added to give the employer a greater degree of flexibility. Some examples include:-

    • “elastic clauses” (clausole elastiche) which permit an employer to increase working time,
    • “flexible clauses” (clausole flessibili) which permit an employer to vary working hours during the day.

     B. Fixed-Term Contract (Legislative Decree no. 368/2001)

    Companies can hire employees on a fixed-term contract for a limited period of time. Fixed-term contracts can last up to 36 months, including any extension. A maximum of 8 extensions/renewals are permitted. Renewals can be made between the same parties, for the same duties and for a further limited period of time. However, a certain time gap has to lie between the renewals:  10 days if the previous contract had a duration of less than six months; 20 days if the previous contract had a duration of more than six months. Where the above mentioned interruption periods are not complied with, the new contract will be considered as an open-ended one.

    Quantitative limits are usually set by the labour authorities, however the law states that the overall number of fixed-term contracts may not exceed 20% of the permanent workforce. Fixed-term contracts also cannot be used to replace workers on strike or to replace employees temporarily laid-off or involved in collective dismissals in the past few months.

    Contracts may be carried over for a limited period of time after the expiration of the term. However, the grace period may not exceed either 30 days (less than 6 months) or 50 days (if more than 6 months). If the grace period has lapsed, the employment is automatically regarded as an open-ended one.

    C. “Cn Call” jobs (“Lavoro a Chiamata o intermittente” , Legislative Decree no. 276/2003)

    “On call” job contracts are contracts where an employee declares his/her availability to work over a certain period of time, during which he/she can be called in – even for a few days only – with short-term notice.

    In some cases, the contract may provide that the employee is bound to work if called in by the employer. In this instance, the employee is eligible to an additional 20% of the wage set by the National Collective Agreements (NCA)s.

    D. Apprenticeship (“Apprendistato” , Legislative Decree no. 276/2003)

    An apprenticeship is a type of open-ended contract, specifically focussed on vocational training. An employer can hire apprentices within certain quantitative thresholds (usually depending on the number of employees hired) and is responsible for ensuring that the apprentice acquires the relevant professional skills and qualification.

    E. Temporary agency contracts (“Contratto di somministrazione di lavoro”)

    Temporary contracts (both fixed-term or open end basis) can only be agreed with qualified employment agencies. Workers must be subject to the same legal and economic conditions available to employees of the user company. Similar to fixed-term contracts, employers may not use staff supply contracts to replace workers on strike or to replace employees temporarily laid-off or involved in collective dismissals in the previous few months. The overall number of temporary contracts may not exceed the 20% of the workforce hired on permanent basis, unless different thresholds are set under collective bargaining agreements.

  2. Probation Periods

    Employment contracts may contain a probation or trial period (“periodo di prova”). Article 2096 of the Civil Code requires that the trial period be written in the employment contract and must be entered into on the first day of the employment. If not, the probation period is considered null and void and the employment is will be considered as an open-ended employment contract from the start.

    The statutory trial periods are as follows:

    1. 3 months, for employees not assigned to managing functions;
    2. 6 months, for all other employees

    However, the probation period is commonly set in the relevant NCAs depending on the category of the employee.

    During the probation period, each party is free to terminate the contract without notice and without having to pay any indemnity in lieu of such notice. The duration of the probation period is set by the applicable collective agreement and varies according to different categories of employees (the maximum duration being 6 months for high level employees).

  3. Termination Procedures

    Written notice is always required for any dismissal. However, the exact procedures and restrictions applicable vary according to the type of contract the employee is under.

    A. Individual dismissal

    Under Italian law, any termination of employment must be justified. These reasons can be divided in three main categories:

    1. Objective justified reasons – these are reasons related to the abolition of a job position due to a company’s economic situation. They could relate to production, reorganization or restructuring  etc;

    2. Subjective justified reasons – these are reasons when the employee commits any breach of his or her contractual obligations or is guilty of negligence in the performance of his/her duties; however his/her behavior is not serious enough to be considered dismissal under “just cause”. Examples include failure to follow important instructions, wilful misconduct, repeated unjustified absences from work;

    3. Just cause (“giusta causa”) – relates to any serious misconduct or breach by the employee that renders the continuation of the employment impossible. These include theft, riot, serious insubordination, and any other behavior that seriously undermines the fiduciary relationship on which the employment relationship is based.

    Open ended contracts can be terminated without any compensation or additional sanction where there is just cause (“giusta causa”) or objective or subjective justified grounds (“giustificato motivo”).

    Whenever a dismissal is due to an employee’s conduct (constituting either just cause or justified grounds, depending on the gravity), an employer must follow a specific disciplinary procedure set forth by art. 7, Law May 20, 1970, no. 300 (the so called “Workers’ Statute”). A letter containing the allegations must be delivered to the employee outlining the facts and circumstances where the company sees the breach of his/her obligations. The employee is also given  no less than 5 days of receipt of the letter to present, either in writing or orally, his/her possible justifications. Only after such term has expired a letter of dismissal may be validly served.

    Whenever a dismissal is based on economic reasons a mandatory pre-emptive consultation phase must be carried out by companies employing 16+ workers, before the dismissal becomes effective.

    Termination of fixed-term contracts 

    If one party terminates the contract before its term and without just cause, the other party may be awarded proper compensation. In the event of early termination by the employer, the compensation usually amounts to the amount the employee would have been entitled to until the end of the contract.

    Resignations 

    Generally resignations are not required to be in a certain form, however most collective agreements require that this be in writing. Under certain NCAs, the length of the notice period for resignations may be shorter than for dismissals.

    Notice and termination payments 

    Upon termination of employment relationship, employees are entitled to:

    • Payment of deferred wages (TFR)*
    • Payment of some minor termination indemnities (e.g. payment in lieu of unused holidays and leave, accrued pro-rata 13th and 14th monthly installment and so on)

    *Italian law provides for the payment of a deferred form of remuneration, otherwise known as the severance payment (“Trattamento di Fine Rapporto” or TFR). The TFR must be paid to employees whenever an employment contract is terminated, irrespective of the cause of termination. The amount of the TFR varies depending on the employee’s salary and length of service (it is approximately equal to 8% of the yearly gross salary per each year of employment).

    Employees are also entitled to a notice period of termination. The duration varies according to the employees’ seniority and professional level and the national collective agreements.

    Employers are always required to make the two payments above in the case of dismissal. However, the notice period (or the relevant indemnity in lieu) would not be due in the case of dismissal for just cause. The employer may also choose to exempt the employee from working during the notice period. In such case, the employee would be entitled to receive the corresponding indemnity in lieu, which would be equal to the normal salary (plus social security contributions) that would have been due during the notice period.

    Unfair dismissals  

     The Jobs Act has introduced a new regime for individual and collective unfair dismissal. The new provisions apply to:

    • employees hired on an open ended basis from 7th March 2015;
    • employees hired before 7th March 2015 on a fixed-term basis whose contracts were converted into an open ended contract after 7th March 2015;
    • apprentices hired before 7th March 2015 whose contracts were converted into an open ended contract after 7th March 2015.

    Under the new Jobs Act, in the event the Court finds the termination for economic or disciplinary reasons to be unfair, employees are entitled to an indemnity equal to 2 monthly wages for each year of employment, with a minimum of 4 months up to a maximum of 24 months.

    The Court only require reinstatement of the employee in the case of void and discriminatory termination or where the allegation for dismissal on subjective reasons was not based on fact.

    In smaller firms (less than 15 employees) ,the indemnities will be halved and cannot exceed 6 months wages. Reinstatement is only required for void and discriminatory dismissals.

    Extrajudicial settlement procedures have also been established to avoid long protracted disputes. The employer to offer the worker compensation equal to 1 month’s wage per year of service, for a minimum amount of 2 months wages up to a maximum of 18 months wages. Acceptance of this settlement prevents the employee from seeking further appeal against the employer. The sum paid is not subject to social security contribution or to fiscal taxation.

    Dismissal of Executives 

    Though similar principles apply, dismissal of executives is not regulated by the same statutory provisions governing termination of lower-level employees. Dismissal is assessed according to the principles of correctness and good faith.
    The High Court (Corte di Cassazione) has indeed repeatedly confirmed that concept of “fairness” of an executive’s termination is not the same as the notion of “just cause” and “justified reason” applicable to normal employees. However, it includes any reasonable ground for termination not limited to a breach of the correctness and good faith rules which underpin an employment relationship.

    B. Collective dismissal 

    Under Italian law, a collective dismissal occurs when at least five dismissals are served in the same business unit or in more units within the same district and in the time frame of 120 days, due to reduction, transformation, or closure of business. The collective dismissal framework applies to all employees, including executives.

    Law 223/1991 requires that employers with more than 15 employees must follow a specific information and consultation procedure involving the Trade Unions with regard to collective dismissals. The procedure begins with the employer submitting a written notice to the works councils (if any) or to the Trade Unions to inform them of its intention to carry out a collective dismissal. The employer must notify, in writing, the competent employment office, the employees’ staff representatives (RSA or RSU) and the respective Trade Unions of the decision to proceed with the collective dismissal. In the absence of the above-mentioned employee representative bodies, notice shall be given to the “comparatively more representative” trade associations.

    The notice must include the following:-

    • Reasons for the collective dismissal;
    • The technical, organizational and productive circumstances for which the dismissal cannot be avoided;
    • The number of employees affected along with their duties
    • The date of dismissal;
    • The measures, if any, that will be taken in order to reduce the social impact of the dismissal

    Unfair dismissal

    Under the new Jobs Act, the employee is entitled to reinstatement or compensation in lieu for void dismissals (e.g. oral termination). On the other hand, if the employer has breached the mandatory termination procedure or selection criteria, the employee may be awarded compensation equal to 2 months’ wages for each year of service up to a maximum of 24 months.

     C. Labour proceedings 

    Any dismissed employee has to right to instigate legal action if he/she deems that his or her dismissal was not properly justified. The action before the labour court must be preceded by an out-of-court challenge of the dismissal (within 60 days of the dismissal).  Different time periods apply for fixed-term contracts. The Fornero Reform has raised the 60 day period to 120 days. Indeed, once the duration of the minimum period of interruption between fixed-term agreements had been extended to 90 days, the previous 60-day period in which to challenge the employment had to be increased accordingly, to avoid possible abuse from employers.

    Ordinary proceedings 

    Special provisions of the Italian Code of Civil Procedure (Art. 409) apply to labor proceedings may be applicable for a special and quick resolution of individual disputes. The proceedings are much quicker compared to ordinary civil proceedings.

    • There must be a mandatory conciliation attempt by the Judge prior to the hearing stage;
    • The Labour Courts have the faculty to introduce new evidence and to order one of the parties to pay sanctions, indemnities and compensation during the proceedings for the amount that has already ascertained to be due;
    • There is a prohibition parties changing their initial pleading.Judgment in the first instance may be challenged before the Court of Appeal, while further appeal may be made to the Supreme Court.

    “Fornero” special proceedings 

    The Fornero reform (Law no. 92/2012) introduced an even faster procedure restricted to unfair dismissal disputes for companies with more than 15 employees.

    • Judges are obliged to schedule the first hearing within 40 days of the complaint. Within 10 days of the first hearing, the judge must issue a judgment to reject or uphold the claim. The judgment is immediately enforceable.
    • The parties may appeal this judgment to the Court of Appeal, which may in turn be challenged before the Supreme Court. 

    The “Fornero” procedure does not apply to workers engaged under the new “Jobs Act regime”.

  4. Statutory Leave

    Working hours

    Statutory law dictates that Italian employees are subject to the following working hours:-

    Daily: maximum of 13 hours

    Weekly: 40 hours (on a yearly basis), with a maximum of 48 hours per week (with a reference period of 4 months, although NCAs may set this to be 12 months)

    Overtime work is considered to be any hours exceeding the 40-hour threshold and may not exceed 8 hours on a weekly basis and 250 hours on a yearly basis. NCAs set specific additional rates to be applied overtime work, and can also replace overpay with additional rest days.

    Employees must be granted at least one weekly rest day (normally Sunday).

    Annual leave 

    Legislative Decree 66/2003 provides that the minimum length of annual holidays is four weeks per year, however the applicable collective agreement may provide more favorable conditions for employees. Employees have to take at least two weeks in the same year. Up to two weeks of unused vacation may be postponed to the following year, but it must be taken within 18 months following the accrual year.  NCAs normally provide for a further period of paid vacation in addition to the statutory minimum, which increases with seniority of service.

    An employer cannot replace the minimum annual holiday entitlement with payment in lieu thereof, unless in the case of a dismissal. On the other hand, it is possible for the employer to pay the indemnity in lieu for annual holidays exceeding the four-week minimum period. Employees are entitled to pay in lieu of unused vacation upon employment termination.

    Sick leave 

    Employees are entitled to 3 days’ paid sick leave. Pay replacement benefits are provided by the social security institute from the 4th day of illness to the 180th day. Certain NCAs require employers to top up social security benefits to 100% of salary.

    Employees cannot be dismissed during sick leave before the end of a minimum period prescribed by the applicable collective agreement. After that period, an employer may terminate the contract. During this period, their employment contract is frozen and their rank/seniority is also protected.

    Maternity leave 

    Pregnant female employees are entitled to 5 months’ maternity leave, starting from the second month prior to the due date to the third month after birth.
    The last 3 months can be extended to 7 months in specific cases.

    Pay replacement benefits are provided by social security. The employee is also forbidden from engaging in any work that might be considered harmful during pregnancy.

    Similar to sick leave, during maternity leave the employee’s employment is suspended and her seniority is protected.

    Other leave 

    The law also provides for various other types of leave e.g. adoption leave, paternity leave, parental leave and short- term leaves, such as wedding leave or leave linked to public and jury duties, family circumstances or education.

  5. Pensions and Benefits

    The social security system in Italy provides retirement, survivor and disability pensions, as well as healthcare, unemployment benefits and family allowances.
    The amount of benefits the employee is entitled to is generally based on the amount of accrued social security contributions and the employee’s length of service.

    All employees and wage earners in Italy, including executives, project-work and self-employed workers are obliged to take part in the Italian social security scheme. The following contributions are mandatory by law

    • contributions for pension schemes;
    • contributions for social security covering life insurance, health, maternity, disability, unemployment and family allowances.

    Social security contributions are paid to the Italian social security administration (“INPS”). Employees can also join third-party pension funds (provided by NCAs) if they wish. For employees who started working after January 1, 1996, the amount of salary to be taken into account for the purposes of calculating the pension contributions is capped at an annually determined amount, depending on cost of living increases.

    Employers must withhold social security and pension scheme contributions due by the employee (part of the contributions for the employee is due directly by the employer). The amount of social security and pension scheme contributions depends on the type and size of the business and the rank of the employee. Aggregate contributions range from approximately 40% to 45% of the aggregate remuneration accrued in the relevant year. The aggregate contributions are normally borne by the employer for 80% to 85% of their amount; the rest is borne by the employee and must be withheld by the employer.

    Social security contributions are deductible for corporate income tax purposes.

    The receipt of pension benefits is contingent upon the employee’s payment of the social security contributions provided for by the law. The pension is linked to the amount of contributions paid as a percentage of the employee’s global salary during his / her entire working life. In certain specific cases provided for by law (e.g. periods of leave), in order to allow the employee to reach the minimum pension requirements, the contribution is directly paid by the government. In other cases, such as the interruption or the termination of work (from lack of work during one’s working life or retirement before retirement age) the contribution due by law can be directly paid by the employees. Effective from January 1, 2011, the government will start paying the pension to a retired employee only 12 months after the date on which such individual achieved the requirement for retirement eligibility and actually elects to retire.

    The National Work Accident Insurance Institute (“INAIL”) covers almost all employees for accidents at workplace and occupational diseases.  Employees are entitled to payments in cases of a violent accident that occurs during working hours resulting in death, permanent, total or partial disability, or the temporary inability to work, which lasts longer than three days. Payments are made even in cases where the worker is at fault and are only excluded in cases of willful misconduct by the worker.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Italy. For companies which intend to employ their staff directly through their incorporated Italian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Italy.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Italy.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Italy

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Italy

– the company needs help with tax, employment, immigration and payroll compliance in Italy

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