Procedures For Terminating the Agreement
Italian labour law states, in general, that an open-ended employment relationship can be terminated for objective or subjective reasons, or for just cause. Moreover, dismissal must be given in writing and must detail the reason on which it is based.
In particular, justified objective reason according to article 3 of Law n. 604/1966 consist in reason related to work organisation or regular functioning of undertaking.
In relation to the date of recruitment of the employee and the size of the company (in a labour perspective), different procedures are envisaged.
- for employees hired before 7 March 2015 by large employers (i.e. employers with more than 15 employees in each headquarters, establishment, branch, office or autonomous department or 60 employees nationwide), Article 7 of Law 604/1966 applies to dismissals on objective justified reasons.
- In case of dismissal for justified objective reason employer must carry out a mandatory pre-emptive consultation phase. In particular, the employer is bounded to inform the Local Labour Office and the employee of its intention to terminate the employment. He also must details the reason on which the dismissal is founded and the possible measures to reallocate the employee. The Local Labour Office summons both parties within 7 days of receipt of the communication. If no out-of-court agreement is reached, the employer may dismiss the employee.
- for employees hired before 7 March 2015 by small employers, the procedure described above does not apply. The notice of dismissal must contain the organisational or production reasons for the dismissal which will be effective from the date of receipt of such notice.
- Employees hired after March 7 2015 falls under Legislative Decree n. 23/2015 (so called “employment contract with growing protections”). This means that the procedure provided by article 7 of Law 604/1966 does not apply and the dismissal for justified objective reason must be given in writing and must detail the reason on which it is based.
Dismissal for disciplinary reason may consist in justified subjective reason or just cause. “Just cause” includes serious cases of breach of contract and misconduct, but also other issues which, despite being outside employment relationship, can impact on the employment relationship since they mine trust or expectation of performance, thus cancelling the employer’s interest in collaborating with the employee anymore. In this case, the notice period is therefore excluded and must not be provided to the employee.
“Justified subjective reason” is a notable failure in performing contractual duties (this is the case of a relevant failure). In case of dismissal justified subjective reason, notice period is due.
In both types of dismissal for disciplinary reasons the employer has the duty to implement prior to the dismissal the procedure provided by Law 300/1970 regarding the application of disciplinary sanctions.
The employer must previously communicate to the employee the charge (by describing the facts and circumstances potentially grounding the charge), then allowing the employee to justify himself within a few days (5 days or in a different deadline provided for by the relevant national collective bargaining agreement). Then, the dismissal can be given after the employee has provided justification (should the Company not accept these justifications).
The only immediate dismissal is for just cause (article 2119 Italian civil code) which, as mentioned above, consists in serious cases of breach of contract and misconduct. In this case, the dismissal is effective immediately (i.e. from receipt of the letter of reprimand) and no notice period is due to the employee.
The employee may resign by online procedure as provided for in Article 26 of Legislative Decree 151/2015.
The employee may resign by giving the notice period provided for in national collective bargaining agreement.
The resignation may also be for just cause with immediate effect in case of an employer's breach of contract which is so serious that breaks the employment relationship. Some examples of resignation for just cause identified by Italian case law are the following:
- failure to pay wages for two months
- failure to pay social security contributions;
- injurious behaviour of the hierarchical supervisor;
- sexual harassment in the workplace.
Employees under a fixed term employment may resign before the expiring date only for just cause.
Termination On Notice
Notice period is due in case of dismissal for objective or subjective reasons or in case of voluntary resignation and it can be served or replaced by compensation.
Notice period is established by the national collective bargaining agreement applied and depends on the employee's grading and length of service.
Termination By Reason Of The Employee's Age
Generally, reaching pension requirements does not automatically entail termination of employment, unless the employee has met the requirements for an old age pension.
An employee who has not reached old age pension requirements may continue to be employed and retain the protection provided for unlawful dismissal.
Automatic Termination In Cases Of Force Majeure
The supervening impossibility of the service, as case of termination of the employment relationship, occurs in cases in which the relationship cannot continue due to events not attributable to either party: natural events or measures of authority that are not attributable to the actions or omissions of the parties.
Hypotheses of supervening impossibility relating to the employee are imprisonment or the loss of entitlements enabling him to carry out his duties (e.g. withdrawal of a driving licence or firearms licence). In these events, the employer may dismiss the employee.
Mass dismissal are ruled by Law 223/1991 applicable when a company with more than 15 employee intends to lay off more than 5 employees within a period of 120 days.
According to Law 223/1991 company is required to communicate its plans to the relevant trade union and to the Local Labour Office. The notification must be given in writing and must contain information required by law.
The RSU and the trade unions can request a joint review to discuss with the company the reasons for redundancy and possible alternative measures.
If the parties do not reach an agreement, the Local Labour Office convenes the parties to try to reach an agreement.
After completion of these two phases (maximum 75 days) the company may proceed with the mass dismissal.
Termination By Parties’ Agreement
The employment relationship may be terminated by agreement between the parties (mutual termination).
Directors Or Other Senior Officers
Dismissal of top managers must be justified, as set out by national collective bargaining agreement for top manager. In case of unlawful dismissal, the top manager is entitled to receive "supplementary compensation" established by the collective agreement in relation to the length of service.
Only in case of invalid dismissal, art 18 par. 1 of Law no. 300/1970 applies to the top manager as well.
Special Rules For Categories Of Employee
Free dismissal (so-called ad nutum dismissal) is an exceptional form of dismissal which not impose to the employers to provide written reasons.
Employees who can be dismissed ad nutum are:
- employees hired on a probationary period (before the employment becomes definitive);
- Domestic employees;
- Professional athletes;
- Employees who have reached old age pension.
Law no. 179 of 2017 ruled on the whistleblower phenomenon, introducing protections for the employee who reports wrongdoing in the private sector and supplementing the contents of the so-called "231 models". Among other provisions, the aforementioned law provides the nullity of "retaliatory" sanctions against the whistleblower, including retaliatory or discriminatory dismissal.
Specific Rules For Companies in Financial Difficulties
There are several laws concerning the employment relationship of companies in financial difficulties.
For example, the redundancy fund, which can be applied under certain requirements by companies in financial difficulty, suspends the employment relationship and ensures the employee's salary.
Special Rules For Garden Leave
The garden leave period is a period in which the employment relationship is suspended (the employee does not work and does not receive salary).
This period is normally agreed between the parties as part of a termination agreement.
Restricting Future Activities
Pursuant to Section 2125 of the Italian Civil Code a non-competition agreement (“NCA”) must comply with certain requirements, regarding prescribed form, limited object and proper consideration, aimed at compensating the employee for the restriction of his/her professional activity.
In particular, the NCA must be provided by a written form, describe in detail the restricted activities, must be limited in time (up to five years for Top Managers), must be limited in territorial scope and must provide for a specific consideration.
Italian Civil Code does not provide for any specific parameter or criterium for the quantification of the proper consideration or typical kind in which the consideration must be paid. As said, the consideration's purpose is to indemnify the employee for the partial renouncement to his/her future working activities. In light of this, the consideration has to be adequate and proportional to the sacrificed work activity and reference should be made to the territorial limit, the term of duration and subject limitation.
Protection granted by law in case of null or unlawful dismissal depends on the size of the companies and on the date of commencement of employment.
- Employees hired before 7 March 2015 by large employers (i.e. employers with more than 15 employees in each headquarters, establishment, branch, office or autonomous department or 60 employees nationwide), fall under Article 18 of Law 300/1970, so-called Statute of workers.
Severance payments provided by art. 18 of Statute of workers can be summarised as follows:
Employees hired before 7 March 2015 by small employers fall under Law no. 604/1966.
- In case of dismissal null and void: reinstatement of the employee (or 15 months of pay) plus payment of financial compensations equal to the salary that the employee would have earned from the date of termination to the date of reinstatement, with a minimum payment of five month of pay.
- In case of dismissal for just cause or subjective justified reason where the charges are not existent or punished with a minor sanction according to NCBA or dismissal for justified objective reason held manifestly not existent: reinstatement of the employee (or 15 months of pay) plus payment of financial compensations equal to the salary that the employee would have earned from the date of termination to the date of reinstatement, with a maximum payment of 12 months of pay.
- In case of dismissal for just cause or justified objective/subjective reason held unfounded: payment of financial compensations from 12 to 24 months of pay;
- In case of formal defects in the dismissal: payment of financial compensations from 6 to 12 months of pay.
According to art. 8 of Law no. 604/1966, in case of unlawful dismissal, the employee may be reinstatement or receive compensations from 2,5 to 6 months of pay. Note that in case of dismissal null and void art. 18 par. 1 of Statute of workers will apply.
Employees hired after March 7 2015 falls under Legislative Decree n. 23/2015 (so called “employment contract with growing protections”).
In case of termination declared null and void (according to art. 2 Legislative Decree n. 23/2015) the dismissed worker can be reinstated. Sanction typically entail also the payment of financial compensations equal to the salary that the employee would have earned from the date of termination to the date of reinstatement, with a minimum payment of five months’ salary.
In case of employers with more than 15 employees, the aforementioned decree provides:
- In case of dismissal for just cause or subjective justified reason where the charges are not existent: reinstatement of the employee (or 15 months of pay) plus payment of financial compensations equal to the salary that the employee would have earned from the date of termination to the date of reinstatement, with a maximum payment of 12 months of pay.
- In case of dismissal for just cause or justified objective/subjective reason held unfounded: payment of financial compensations from 6 to 36 months of pay
- In case of formal defects in the dismissal: payment of financial compensations from 2 to 12 months of pay.
Employees hired after March 7 2015 by a small employer benefit only of basic protection against unlawful dismissal when employer has a small number of workers. In case of unlawful dismissal for just cause or justified subjective/objective motive employee has the right to compensation for a maximum of 6 months of pay. In case of formal defects in the dismissal maximum compensation is 6 months of pay.
Special Tax Provisions And Severance Payments
Incentives paid to the employee for dismissal are subject to special tax treatment. The incentive is subject to separate taxation: this means that it is not subject to social security contributions and the tax rate applied is more advantageous.
Allowances Payable To Employees After Termination
Upon termination of employment, the employer must pay the notice if due plus severance pay and outstanding holidays or leave.
As mentioned above, the notice period is set by the collective agreement applied.
Severance pay is ruled by Article 2120 of the Italian Civil Code and is a sum paid on termination of employment. Its amount is equal to the sum of the salary received each year divided by 13.5. National collective bargaining agreements may provide different rules.
Time Limits For Claims Following Termination
The dismissal must be challenged within 60 days (from the receipt of the letter) and in the following 180 days, the lawsuit must be filed before a labour court.
Moreover, after termination of the relationship, the employee may file other claims within the limitation period. For example, there is a five-year limitation period for wage claims. For higher classification, the limitation period is 10 years.
If the company has less than 15 employees, the limitation period starts from the date of termination. If the company has more than 15 employees, the limitation period starts during the relationship.