Employment law in Italy

1. Introduction

The Italian Civil Code, statutory regulations and special laws contain a very detailed regulation of employment relationships.

In addition, collective labour agreements also contain provisions relating to hiring, salary, duties, working time, accidents, illness, maternity, termination of the employment relationship, severance indemnities and other aspects of the employment relationship.

Most provision of employment law are mandatory and can only be modified to the benefit of the employee.

Legal mandatory provisions are also applied to foreign employees working in Italy. In principle, a choice of law (different from Italian law) made by the parties in a contract of employment must not result in depriving the employee of the protection given to him under the mandatory rules of Italian law that would apply in the absence of a choice of law.

The parties can choose the law applicable to Italian employees working abroad in compliance with the mandatory provisions of the relevant foreign jurisdiction and private international law.

2. Working hours

The maximum weekly working hours are fixed to 40 hours in the Italian Civil Code, but parties are free to agree a variation of working hours through trade union agreements, generally up to a maximum of 48 hours a week including overtime.

Act 196/1997 requires a specific authorization by the Department of Labour (Inspectorate) for work exceeding 48 hours a week (in practice: more than 8 hours overtime).

Different overtime limits can be fixed by collective agreements. In principle, overtime should be occasional or due to exceptional reasons which cannot be met by the hiring of new workers. Employees will usually expect to be paid overtime for any time worked in excess. The circumstances in which payment for overtime is paid should be included in the employment contract. Special pay increases are fixed by collective agreements for overtime worked on Sundays, on other holidays and night work.

Any material change in the employee’s working hours must derive from a written agreement between the contracting parties.

3. Remuneration

Minimum wages are negotiated for separate industrial sectors between the main three union groups and employers’ associations in each industry. All employers are bound by these minimum wages even if they were not involved in the negotiations.

Social security payments in Italy also vary according to the job and the number of employees in the business, and are usually a percentage of total remuneration. This includes salary, overtime, bonuses and special payments. Foreign nationals working in Italy pay the same social security contributions as Italians.

Italian employment contracts often include substantial additional benefits to employees. The most significant of these is the end-of-year/Christmas bonus, which is included in all contracts and is one month of basic salary. Some contracts have a further 14th month bonus or a production bonus, which is paid before the summer holiday.

Many employers in Italy also offer fringe benefits although some have started to phase out these benefits in return for share options and profit sharing.

4. Holidays

All employees are entitled to a minimum of four weeks’ paid annual holiday. Collective bargaining agreements (CBAs) and individual contracts can provide for a longer period of holiday entitlement. Annual leave cannot be replaced by a payment in lieu, except where the employment contract is terminated. There is no statutory unpaid holiday entitlement. However, a CBA can provide for unpaid leaves of absence.

During specific festive days, workers receive regular pay. If for technical reasons they have to work, they receive double pay and a further increase (about 50% of normal pay).

During their vacation, employees receive normal pay, excluding only indemnities connected to the actual work.

The four-week period must be used for at least two consecutive weeks during the same year, if requested by the employee, and the remainder of the weeks must be used within 18 months at the end of the accrual year. The time at which the holiday is taken is in principle chosen by the employee. However, the employer may determine a different date for the employee to take his/her vacation, if the dates chosen by the latter are incompatible with the requirements of the enterprise.

According to a reform that entered into force on 24 September 2015 (“Jobs Act”), employees can transfer their accrued annual hourly leave or holiday entitlements for free to employees of the same company in order to allow them to look after their minor children who, due to their particular health conditions, need for continuous treatments etc.

5. Maternity/paternity leave – entitlement to leave and pay

Maternity leave is compulsory for female workers, from two months before until three months after childbirth. Pre childbirth leave can start at an earlier date than two months, if the employee’s work is dangerous for her health or that of the unborn child. In this case, a medical certificate is required, together with an authorisation from the Employment Office. However, the employer’s consent is not needed. On the other hand it is possible to postpone pre-childbirth leave in order to increase the leave granted after childbirth.

During compulsory maternity leave, the mother is entitled to 80% of her regular pay from Social Security and the period is counted as actual work time. Collective agreements usually oblige the employer to make up the difference to the regular wage.

After maternity leave, employees are entitled to return to the same job in which they were employed before taking leave. Employers cannot dismiss female employees during pregnancy and until the child is one year old, except in certain circumstances.

Additionally, the resignations and mutual termination agreements entered into with mothers during pregnancy or with parents of children under the age of three must always be validated and confirmed by such mothers or fathers through a special procedure. Failure to do so renders the resignation/mutual termination agreement ineffective.

If the mother does not take maternity leave, the father is entitled to the entire or residual period of maternity leave. Employees on paternity leave are entitled to the same allowance, have the same rights to return to their job after paternity leave and have the same protections against dismissal as employees on maternity leave.

Additionally, fathers must take one day, and possibly another two days, of paid paternity leave within five months of the child being born.

After childbirth, in addition to the maternity and paternity rights above, male and female employees can take parental leave for up to six months each (with an overall limit of 11 months), until the child is 12 years old.

Single parents are entitled to ten months’ leave. Employees receive an allowance amounting to 30% of their salary during parental leave, for an overall maximum of six months, until the child is six years old. The parental leave can be enjoyed on an hourly or daily basis. For additional time there are different indemnities depending on the family income.

Both parents have equal right to leave in case of a child’s illness; without limitation for the first three years of age and for five days a year until age eight.

The working mother, during the first year, has the additional right to two hours of daily rest, initially intended for breast-feeding. Supplementary time is also foreseen in case of twins or multiple births. The employee can request (only once) that his or her full-time contract be converted into a part-time contract in lieu of parental leave, reducing the working hours by up to 50%. The employer must convert the contract within 15 days of the request.

Employees, regardless of length of service, are entitled to adoption leave both when adopting children from within Italy and when adopting children from overseas. The adoption leave may only be taken by one of the adoptive parents. An employee who adopts children nationally is entitled to paid adoption leave during the five months following the actual placement of the child with them. An employee adopting from overseas is entitled to start the five months’ paid adoption leave prior to the arrival of the child in Italy in order to comply with the foreign adoption procedure or for the required period of residence abroad. Any remainder of the five months’ leave may be taken immediately following the arrival of the child in Italy. They can also take parental leave, for the first three years that the child is in the family, for the same periods and with the same financial benefits as parents of natural children.

6. Restrictive covenants

There are a variety of covenants that can apply during or after the termination of employment; for example, those relating to confidentiality, intellectual property rights, and also provisions aiming to retain certain employees. Confidentiality – this is a common clause to include in an employment contract. It restricts the use or disclosure of confidential information and company property, both during employment and after its termination. Retention Agreements – this is a clause often inserted into an employment contract for executives, which is for an indefinite period. The parties agree not to terminate the contract for a fixed period of time.

Other restrictions – there may be other clauses in an employment contract that impact on an employee’s ability to compete, although they may not strictly be termed restrictive covenants e.g. bad leaver provisions in a bonus plan which apply if an employee leaves and competes with his employer, or deferred compensation that is only payable if an employee does not compete for a period after he leaves employment.

Italian law does not set a specific level of consideration or mode of payment required for restrictive covenants. The payment can therefore be provided during the course of the employment relationship or after it has ended. If it is paid during the employment, the amount may be set at a fixed level, or be a percentage related to pay or other elements of remuneration.

Recent case law suggests that the covenant will be found to be void if the payment for that covenant is not fixed at a set amount, which would apply even if the relationship only lasts a few months. On that basis, the amount to be paid for the covenant should be fixed and then paid in monthly instalments during the employment. If required, any final outstanding amount would need to be paid as a lump sum if the employment terminated prematurely in order to reach the fixed amount agreed for the covenant.

6.1 Non-compete clauses

In Italy a non-competition covenant is governed by the Civil Code. Used effectively, this clause will serve to restrict a former employee from competing with business interests by setting up a similar business and/or take up employment with a competitor.

The employer and the employee can agree that, after the termination of the employment relationship, the employee will be prohibited from working in competition with the former employer. The agreement can be signed at any point during the employment relationship and also after its termination. The restrictive covenant must be signed in a written form, and must establish the kind of activity/industry which is subject to the restriction, along with the duration and the territory of the covenant. It must also provide for remuneration for the employee.

An employer can require a post-termination non-competition covenant from an employee.

In order to be valid, the non-competition covenant must set out:

(a) the kind of activity/industry the restriction is to cover;

(b) the duration the restriction after termination of employment;

(C) the territory it will cover; and

(D) the payment of “fair remuneration”.

The non-competition covenant can cover all work activities that could be in competition with the employer’s business. However, it cannot be so wide as to prevent the employer from earning an income or losing his professional skills, despite the potentially high financial compensation for the covenant.

The time limit for the covenant is set at five years for senior managers (“Dirigenti”), and three years for all other employees. This time period runs from the first day after termination of employment. It is worth noting that the employer cannot include a provision in the covenant that allows it to withdraw from the covenant unilaterally, unless the employee’s consideration for the covenant is left untouched.

If the non-competition covenant is violated by the employer, the employee may sue the employer before the court to obtain the compensation owed to him, or to terminate the contract.

If the breach is by the employee, the employer can seek to have any compensation already paid reimbursed, and also seek damages for losses caused by the employee’s breach. The employer may also be able to obtain an injunction to stop the breach. For some cases, it can be possible to file for a precautionary injunction.

6.2 Non-solicitation / non-poaching clauses

It is possible to impose a clause prohibiting solicitation and/or hiring of former colleagues (both during and after employment) if agreed with the employee.

It is assumed in Italy that it is not generally possible to prohibit the hiring of employees by a former employee.

However, the former employee must not use confidential information or infringe the “fair competition” law which prohibits so-called “raids”. This means that individuals are prohibited from orchestrating a team move to a competitor if the reason for that move is to weaken the former employer rather than to purely improve its own workforce. If these restrictions are included, they would tend to define the employees who cannot be approached or hired by reference to their seniority, grade or level, or their role in, or importance to, the business. They often only apply to colleagues that the departing employee had a reasonable level of contact with, knowledge of or responsibility for, and within a defined period before the departing employee leaves.

Smaller companies may be able to enforce a restriction that covers a wider set of employees. In practice, it is difficult for employers to prove that a non-solicitation of employees covenant has been broken because merely showing that the employee has been hired by a former colleague is not necessarily a breach of the covenant. Nonetheless, the penalties provided for the breach of the covenant, alongside the possibility that the former colleagues may tell the employer of the work proposal received, can prevent the former employee soliciting his former colleagues.

7. Termination

Employees have to be given notice of termination of their employment. The law and, when applicable, the collective bargaining agreements determine the minimum length of the notice period which varies depending on the employee’s length of service, seniority, qualifications and levels.

A dismissal must always be in writing and upon termination of the employment contract, the employee is entitled to receive TFR and other amounts, already accrued, at the termination of the employment like holiday and leave accrued, and 13 or 14 monthly instalments.

An employer is entitled to dismiss an employee, for reasons relating to the individual, when the employee breaches the employment contract. This type of dismissal is without notice and without payment in lieu of it. An employer is also entitled to dismiss an employee for business-related reasons based on productivity and the organisation of the work, including a redundancy situation. The employee is entitled to a notice period or payment in lieu of it in this case.

If the dismissal has grounds on an employee’s breach of contract, a disciplinary procedure must be followed. Under this procedure, the employer must:

(a) promptly send the employee a letter describing the facts on which the breach of the contract is based;

(b) wait for the employee’s reply – if any – which must be received within five days (or a longer period if provided for in the CBA applied, if any);

(C) send the employee a letter of dismissal, explaining why the employer did not accept her/his Based on the older provisions, which are still applicable to the employees employed before 7th March 2015, if the court ascertains that there are no grounds for dismissal, it may order the following remedies:

1. If the employer employs more than 15 employees either in the plant or within the same municipality, or more than 60 employees in the whole of Italy:

(a) If the dismissal is unfair because the grounds do not exist or the disciplinary provisions applicable to the contract provide for sanctions less severe than dismissal: the consequence is reinstatement and damages equal to full salary from the date of dismissal to the date of reinstatement, capped at 12 months’ salary (any other income earned or potentially earned by the employee in the relevant time span will be deducted from the amount awarded).  As an alternative to reinstatement, the employee (not the employer) can opt for the payment of 15 months’ salary as compensation. This also applies in the event of a dismissal based on the employee not being suitable for the job because of a disability, deemed to be unfair.

(b) In any other case in which a Court finds a dismissal on disciplinary or redundancy grounds or just cause to be unfair: the dismissal remains in place (termination of the employment relationship is confirmed) but compensation is awarded to the claimant (ranging from 12 to 24 months’ salary).

(c) In the event that the dismissal has grounds but is issued without an explanation of its grounds or in violation of the procedure, the court will declare the contract terminated at the date of dismissal and order the employer to pay compensation ranging from a minimum of six to a maximum of 12 months’ salary.

2. If the employer employs 15 employees or fewer in the place of employment and 60 or fewer employees in the whole of Italy, the employer must either re-hire the employee within three days or pay the employee compensation equal to an amount ranging from two-and-a-half to six months’ of the employee’s last annual salary (the employer has the choice). In determining the precise amount of damages to award within the range of two-and-a-half and six months’ salary, the judge will take into account the number of employees, the size of the company, the employee’s length of service and the parties’ conduct.

On the contrary, pursuant to the new provisions, which apply to employees hired from 7th March 2015:

1. If the employer employs more than 15 employees either in the plant or within the same municipality, or more than 60 employees in the whole of Italy:

(a) In all cases in which the court ascertains the unfairness of a dismissal on redundancy grounds, disciplinary grounds or just cause, the court will declare the termination of the employment contract at the date of dismissal and order the employer to pay compensation, not subject to social security contributions, equal to two months for each year of service, with a minimum of 4 months and a maximum of 24 months.

(b) Only where a dismissal based on a contractual breach is found to be unfair due to the inexistence of facts, is the resulting consequence reinstatement and damages equal to the full salary and social security contributions due from the date of dismissal to the date of reinstatement, capped at 12 months’ salary (any other income earned or potentially earned by the employee in the relevant time span will be deducted from the amount awarded).  As an alternative to reinstatement, the employee (not the employer) can opt for the payment of 15 months’ salary as compensation.

(c) In the event that the dismissal has grounds but was issued without an explanation of its grounds or in violation of the procedure, the court will declare the contract terminated at the date of dismissal and order the employer to pay compensation (not subject to social security contributions) equal to one months’ salary for each year of service, with a minimum limit of two months’ salary and a maximum cap of 12 months’ salary.

2. If the employer has 15 employees or fewer in the place of employment and 60 or fewer employees in the whole of Italy, the applicable rules are the same, with the following exceptions:

(a) the remedy of reinstatement applicable in the case of inexistence of the grounds (point 1, letter b above) does not apply.

(b) the compensation applicable in the case of unfair dismissals on redundancy grounds, disciplinary grounds and just cause and compensation applicable in the case of violation of procedures (point 1, letter a and c) is halved and, in any case, cannot be higher than six months’ salary.

As an alternative to reinstatement, the employee is entitled to ask the employer to pay compensation equal to 15 months’ salary, without prejudice to the right to compensation for damages.

The rules described in this paragraph also apply to dismissals found to be ineffective because they have been served orally, and to dismissals based on the employee being unsuitable for the job because of a disability and found to be unfair.

The burden of proof regarding the fairness of the dismissal always lies with the employer.

Finally, it is important to note that the new regime also applies to employees hired before 7th March 2015 if the employer met or will meet the more-than-15-employees threshold (or more than 60 in Italy) after said date, due to new hires.

For employees hired from 7th March 2015, the company must pay compensation (from four to 24 months’ annual salary) if it fails to comply with the information and consultation procedure or if it breaches the criteria for selecting the redundant employees.

(8) Employment contracts

In Italy an oral employment contract is valid and effective. There is no specific requirement for a written employment contract nor obligation to draft the contract in Italian. However, to be valid, certain clauses must be in writing (for example a probationary period, a fixed-term period and a non-competition clause). In addition, the employer must inform the employee in writing (within 30 days of starting employment) of the:

(a) Identity of the parties;

(b) Place of work;

(c) Date on which the contract begins;

(d) Duration of the contract, specifying whether it is fixed-term or permanent;

(e) Probationary period, if applicable;

(f) Job title or category;

(g) Salary;

(h) Duration of paid holidays;

(i) Working hours; and

(j) Length of the notice period when terminating the contract.

Collective bargaining agreements (CBAs) between trade unions and employers’ associations are common in all sectors. National CBAs are only binding on a company if it is a member of the relevant employers’ association. Generally, if a company is not a member, it does not have to apply the CBA. However, the agreement applies if reference is made to it in the employment contract or the employer decides to adopt its terms.

Generally, an employer cannot unilaterally change the terms and conditions of employment. The employee’s consent to these changes is always required.

However, there are two strictly regulated exceptions to this rule (as amended in June 2015) which permit an employer to unilaterally change the employee’s duties and place of work if the employer wishes to do so.

It is possible to assign the employee to a lower job, subject to the following limitations:

(a) The employer can unilaterally assign an employee to different duties as long as such duties belong to the same job-classification level and statutory job category as his or her previous job-classification level, and the employee is entitled to the same salary.

(b) The employer can unilaterally assign an employee to different duties of a lower job-classification level, but in the same statutory job category, only if there is an objective reason for doing so. To be valid, the change must be executed in writing and the employee must be entitled to the same salary and job-classification level.

(c) The employer can enter into individual agreements with its employees to change their duties (without limitation), job-classification levels, statutory job categories and salaries, on the condition that these agreements are signed before a conciliation committee and that they are signed in the employee’s interest so as to keep his/her job, to acquire a different skill or to improve his/her living conditions.

Until 31 December 2015, companies that hire employees under an open-ended employment contract are exempted from the obligation to pay social security contributions up to a maximum of EUR8`060,00 per year, for a period of three years. This exemption only applies if the employee did not work under an open-ended employment contract in the six-month period before being hired.

Collective bargaining agreements also give various benefits to employees, depending on their length of service, including: Automatic salary increases; Longer sick leave; Longer notice periods.

In addition, there are other incentives (for example, reduced social security contributions or incentives), which are available to companies that employ certain categories of people, including:

(a) Young people, generally between 15 and 29 years of age, under specific types of contracts (such as apprenticeship contracts).

(b) Long-term unemployed persons over the age of 50 and unemployed women of any age who have been unemployed for a period of between six and 24 months, depending on whether they reside in certain disadvantaged regions.

(c) Disadvantaged persons (that is, those subject to redundancy procedures or affected by disability).

9. Transfer of undertakings

Where an undertaking (in whole or in part) is acquired in Italy, then, as a general rule, the existing employment relationships are automatically transferred to the purchaser on existing terms.

The employees are normally obliged to accept the change of employer, provided that the change of ownership does not result in a detrimental change in the conditions of employment.

The change of ownership does not constitute grounds for the dismissal of employees unless this is necessary for economic, technical or organisational reasons. Both the seller and the purchaser must inform their employees about the transfer and, where appropriate, consult with them on any measures of importance.

Collective bargaining agreements (CBAs) can allow executives to resign within six months of the date on which they receive formal notice of the transfer, receiving an extra payment equal to the payment in lieu of notice.

Dismissals made as a direct result of transfers of undertakings are invalid.

 

The material contained in this note is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© Miller Rosenfalck LLP, January 2017

 

Please contact:

Elena Kadelburger

DD +44 (0)20 7553 6007