General legal framework of Italian employment law
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1. The main rules and fulfilment of the Italian employment relationship
The main regulatory sources of Italian employment law can be found in the Constitution, in the Italian Civil Code ("Codice Civile"), which includes a special section on employment matters, and in the Workers' Statute ("Statuto dei Lavoratori"), i.e., Law no. 300/1970 as modified by subsequent legislation.
Terms and conditions of employment are also provided by the national collective bargaining agreements (“NCBA") signed periodically between the trade unions and the employers’ associations.
Especially when the employment relationship is governed by NCBAs (though not compulsory, over 95% of individual employment contracts are regulated by NCBAs), individual engagement letters are generally quite short as most rights and obligations are already provided for in the applicable collective agreement.
At the establishment of any employment relationship, the employer must notify the competent public employment service ("Centro per l'Impiego") at least 24 hours prior to commencement. This notification also fulfils the obligation to notify the relevant social security institutions (i.e., INPS and INAIL).
Before the actual start of the employment relationship, the employee and employer may agree a trial period. The length of the trial is defined by the NCBA and in any case may not last more than 6 months.
During the trial period, either party may freely terminate the employment relationship at any time, without any notice, obligation, or payment of the relevant indemnity in lieu.
Italian law does not provide for a statutory minimum of "wages" and "salary". Collective bargaining agreements, however, establish the minimum wage for each specific industry.
For income tax and social security purposes, in principle, any compensation granted to the employee within the scope of the employment relationship, including compensation in kind, is considered wages (this does not include a few limited exceptions, such as so-called welfare entitlements granted by the employer).
There are no statutory bonuses. Collective incentive plans may be governed either by corporate policies or by trade union agreements ("premi di risultato", in Italian parlance).
Yearly wages are normally paid in thirteen monthly instalments. The additional 13th instalment ("tredicesima") is paid out each year along with the December salary. Some NCBAs provide for a 14th monthly instalment, normally paid in June.
Employers are required to fund severance payments for all employees ("Trattamento di Fine Rapporto - TFR"), amounting to 1/13.5 (approx. 7.4%) of the annual overall compensation, payable upon termination of employment.
2. Types of employees
Under Italian Law, the employees are divided into the following four categories: i) blue-collar employees (“Operai”); ii) white-collar employees (“Impiegati”); iii) middle management (“Quadri”); iv) executives (“Dirigenti”). Executives are employees who hold a top-level management position, who are largely autonomous and enjoy extensive decision-making powers. Executives can also be directors of a company – meaning members of the Board of Directors – by means of a directorship relationship with the company. Several NCBAs define Dirigenti as those who, reporting directly to the entrepreneur, perform functions with a high level of professionalism, wide autonomy, discretion, initiative and with the power to give directives to the enterprise or an independent part of it.
3. Rules governing the dismissal of Non-Executive Employees
Under Italian law, the individual employment contract of Non-Executive Employees can be terminated by means of:
A. Dismissal without notice, the so-called "dismissal for just cause", based on very serious misconduct, which renders impossible the continuation of the employment, even on a provisional basis.
B. Dismissal with notice either (i) based on subjective reasons i.e., on a less serious failure (than the misconduct under A above) – on the part of the employee – to observe his/her legal or contractual obligations; or (ii) based on objective reasons on the part of the employer, relating to – for instance – the employer’s need to reorganize its production business and/or its work force (i.e., suppression of the job position).
In addition to the above, in case of dismissal for objective reasons the employer must be able to demonstrate in court that at the time of the dismissal there was no other possibility of assigning the employee an alternative job position within the company’s organization (so-called employer’s duty of repêchage). Therefore, the burden of proof of the repêchage obligation is on the employer, which must prove that the dismissal was an extrema ratio, meaning that the worker could not be reallocated to an alternative position.
3.1 Termination payments
Upon termination of the employment, employees are entitled to:
(i) the payment of a severance indemnity, so-called TFR;
(ii) the payment of some minor termination indemnities (payment in lieu of unused holidays and leaves, accrued pro-rata 13th and 14th monthly instalment, if any, and so on); and
(iii) a notice period to termination, the duration of which varies according to the employees' seniority and professional level and is established by national collective bargaining agreements.
The payments under points (i) and (ii) above are always due in case of dismissal, while the notice period (or the relevant indemnity in lieu) is not due in case of dismissal for just cause only.
With respect to point (iii) above, it is worth noting that the employer is anyway entitled 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 charges thereon) that would have been due during the notice period. When calculating the indemnity in lieu of notice, it must consider the employee’s overall remuneration, including the average variable remuneration earned either over the last three years or during the term of employment, where shorter. Furthermore, exemption from working during notice and payment of the relevant indemnity in lieu would entail immediate termination of employment.
3.2 Unfair dismissals – Consequences
Consequences in case of unfair dismissal of Non-Executive Employees sentenced by the Labour Court vary depending on:
• the hiring date of the dismissed employees (i.e. before or after March 7th, 2015, date on which the so-called “Jobs Act Reform” was enforced);
• the number of employees hired by the employer (i.e. more or less than 15 employees).
Regardless from and in addition to the payments under previous par. 2.1, which anyhow are due to the employee (except for the notice period which is not due in case of dismissal for just cause), in case of dismissal, should the latter be deemed as unfair by the Labour Court, the employer – staffed with more than 15 employees – would be sentenced to the following consequences:
Dismissal of Non-Executive Employees hired before March 7th, 2015:
a) if the reason to termination is assessed as discriminatory or retaliatory:
- reinstatement of the dismissed employee in the previous job position (in this case, the employee may waive the right to reinstatement, electing to receive, in lieu of reinstatement, an additional compensation equal to 15 monthly instalments);
- payment of an indemnity equal to the remuneration accrued from dismissal to the reinstatement, to an extent, however, that the indemnity cannot be lower than 5 monthly instalments;
b) if the reasons grounding the dismissal are considered totally unlawful:
- reinstatement of the dismissed employee in the previous job position (or, up to employee’s decision, the payment of an indemnity equal to 15 monthly instalments) and payment of the remuneration accrued between dismissal and reinstatement (up to 12 instalments);
c) if the reasons are inadequate to ground the dismissal:
- payment to the dismissed employee of an indemnity ranging from 12 to 24 monthly wages.
With reference to companies staffed by up to 15 employees, in case of unfair dismissal employees are entitled to an indemnity ranging from 2.5 to 6 monthly instalments. In case of discriminatory, oral and void dismissals, regardless of the number of employees, the consequence under letter a) above is applicable.
Dismissal of Non-Executive Employees hired after March 7th, 2015
a) if the reason to termination is assessed as discriminatory or retaliatory: the same consequences under letter a) above would apply;
b) if the reasons grounding the dismissal – only for subjective reasons or just cause – are considered totally unlawful: the same consequences under letter b) above would apply;
c) if the reasons are inadequate to ground the dismissal: payment to the dismissed employee of an indemnity ranging from 6 to 36 monthly wages.
For companies with up to 15 employees, the amount of the indemnity is halved, and, in any case, it cannot exceed 6 months’ salary. Reinstatement is intended only for discriminatory or void dismissals.
4. Dismissal of Executive Employees
Pursuant to Italian Law, the dismissal of Executives is not regulated by the same statutory provisions which govern the termination of lower-level employees but is subject to less stringent restrictions than the dismissal of other employees. Nonetheless, either a just cause or a fair reason (objective or disciplinary) for termination is required for the dismissal to be considered legitimate.
Pursuant to the Law, Executives can be terminated at will by the employer, provided that a notice period is granted (except in case of termination for “just cause”). This means that, in the case of dismissal of Executives, the employer does not have the duty of repêchage.
Protection in the case of unfair dismissal is generally provided by the collective bargaining agreements.
In addition to notice period to termination (due in any case of dismissal except for just cause) NCBAs applicable to Executives in the main business sectors have introduced a principle whereby Executives are entitled to an indemnity (so-called “supplementary indemnity”) for damages, in the event their dismissal is not duly justified, whose amount depends on the seniority in service of the Executive.
5. Employee Data Protection
With respect to Data Protection, Legislative Decree no. 101/2018 of August 10, 2018, implemented in Italy the (EU) Regulation 2016/679 on the protection of natural persons regarding the processing of personal data (the General Data Protection Regulation, “GDPR”).
Specifically, with reference to national legislation and NCBAs, Article 88 of the GDPR provides that each Member State may lay down more specific rules by law and NCBAs to ensure the protection of the rights and freedoms regarding the processing of employees' personal data in employment relationships.
That allows a continuity in terms of individual and trade union protection and prerogatives, as provided for by the Workers' Statute.
By means of Article 4, the Workers' Statute preserves the confidentiality of employees, defining the cases from which the possibility of a remote control of employees’ activities may derive, even only potentially. The same Article requires the employer to provide employees with adequate information on how to use the tools supplied and requires a full compliance with the data protection applicable law by referring directly to the provisions of the Italian “Privacy Code” (Legislative Decree no. 196/2003 as amended by the above-mentioned Legislative Decree no. 101/2018).
Please note that the employees’ control is not limited to the “workplace” concept but also extends to devices, apps and generally tools used to perform the employment services.
However, employer should properly inform employees about how their personal data will be processed in a clear, simple, and exhaustive manner (Articles 13 and 14, GDPR).
In compliance with the Workers' Statute and the data protection applicable law, the employer must implement measures to protect employees’ personal data “from the design” of the processing (privacy by design) and “by default” (privacy by default). In compliance with the “Accountability” principle, the employer must always adopt measures to ensure the protection and confidentiality of employees' personal data, drawing up, if necessary, an impact assessment (Article 35, GDPR). With reference to the nature, object, context, purposes of the processing and the use of new technologies, if the processing triggers, even potentially, a high risk for the rights and freedoms of individuals, before proceeding with any operation on personal data, the data controller must carry out an assessment of the impact of the envisaged processing operations on the protection of personal data.
The lawful legal bases for the processing of employees' personal data subsist if processing is necessary for: (i) the performance of a contract in which the data subject is a party; (ii) compliance with a legal obligation to which the controller is subject (e.g., according to social security matters); (iii) the purposes of the legitimate interests pursued by the controller. In this respect, please note that the consent given by employees is not a lawful legal basis, since, due to the hierarchical relationship with the employer, the consent could never be considered freely given or, for the same reasons, freely revocable (WP29).
Lastly and without prejudice to the above, please note that the employer is required to guarantee the rights provided for by Articles 15 to 22 of the GDPR as well as to authorize employees who process personal data with an ad hoc act and within the specific functions and is required to provide them with specific instructions on the processing and safety measures to be observed.