In Italy, employment courts are the sole forum for resolving employment disputes. The only employment-related matters handled by the civil courts are those between social security institutions and employers for fines arising from the absence of social security payments.
Civil matters that should ordinarily be decided by a civil court will be resolved by an employment court if they are connected to an employment matter (for example, insurance matters relating to an accident at work).
Employment law is a separate set of laws (which sometimes disregards the ordinary principles of civil law) and is based on the principle of the 'weakness' of the employee with respect to the employer's position of strength.
The following constitute the sources of Italian employment law:
- the Italian Constitution, which established the framework and principles of Italian law in 1948;
- Law No. 300/1970 (the Workers' Statute), which was significantly amended in May 2015 by Law No. 183/2014 (part of a set of laws and legislative decrees known as the Jobs Act) – a wide-ranging reform implementing a number of legislative decrees;
- other mandatory employment laws, such as Legislative Decree No. 81/2008, dealing with health and safety at work; the maternity law; the working-time law; the 'smart working' law; and several other laws regarding pensions and accidents at work;
- Law No. 68/199, regarding mandatory recruitment of disabled employees, amended with effect from 1 January 2018, and Law No. 104/1992 regarding paid leave to assist disabled relatives, amended in 2015 (Italian labour lawyers are very often asked to assist employers with both of these);
- collective bargaining agreements at national, regional or company level in national collective labour contracts (CCNLs) and local company-level collective bargaining agreements (CBAs): such contracts can derogate from mandatory employment law in certain cases, including when dealing with important crises (for example, the Alitalia case). These agreements set out the main common rules for each industrial sector regarding matters such as salary levels, working hours, overtime, annual paid leave, sick leave and disciplinary rules; and
- individual contracts: these generally contain one or two pages dealing only with the applicable CCNL; the employee's job title and grade (executive, middle manager or white-collar or blue-collar employee); the mandatory basic salary level (chosen from those stated in the CCNL); the starting date; the working hours and place of work; trial period, if any; the salary structure; job description; and post-employment restrictions (non-compete and non-solicitation covenants) if any.
i Employment courts
The claims to be decided by the employment courts are those between the following parties: the employee and employer; the sales agent (a physical person) and company manager; a freelance worker (individual subcontractor) and company manager; and a member of the board of directors and the company (for fees).
In Italy, employment claims can now be filed with the courts without any prior attempt at conciliation. However, a prior attempt at conciliation remains mandatory in the case of dismissal of an employee hired before 7 March 2015.
This mandatory procedure is necessary only for dismissals for economic reasons; in such cases, an employer with more than 15 employees who is going to dismiss fewer than five employees within the same 120 days must deliver a preliminary notice of dismissal both to the regional labour office (ITL) and to the employee being dismissed and wait for a hearing before the ITL (within 20 days), which is a local office of the Ministry of Employment and Social Security.
If one of the parties refuses the conciliation attempt, or if the attempts to find a solution within the applicable time frame (20 days) are unsuccessful, a certificate is issued confirming that the conciliation requirement has been complied with. The claimant can then proceed to dismiss the employee.
The minutes of the conciliation attempt can be used by the employment court to charge the trial costs and legal expenses to the party that refused conciliation, although the final court decision may result in a lower amount being imposed.
ii Court proceedings
Court proceedings follow two distinct sets of procedural rules:
- the Employment Court Rules of Procedure 2012 (the Fornero Rules), which apply only to employees hired before 7 March 2015 by employers with more than 15 employees, and who challenge their dismissal in court; and
- the ordinary employment rules of the Italian Code of Civil Procedure (Article 414).
The Fornero Rules for dismissals are intended to speed up the start of the trial and the time it takes to obtain a decision. To avoid delay in obtaining the main decision regarding the potential reinstatement of the employee at work, the Fornero Rules procedure cannot deal with ancillary claims (for example, salary disputes connected with the former employment relationship).
In accordance with the Fornero Rules, the plaintiff must challenge the dismissal in writing within 60 days and file a lawsuit within 180 days of the letter challenging the dismissal being received.
Once the court has set the hearing date, the plaintiff shall notify the date and lawsuit to the defendant at least 25 days prior to the hearing, while the defendant must file its defence brief with the court at least five days before the hearing.
The lawsuit and the claimant's brief must be as accurate as possible, given the strict time constraints, but they can be modified slightly in response to an unexpected defence strategy by a counterparty.
Ideally, the first phase of the trial is very speedy and is concluded with one of three possible decisions: (1) reinstatement of the employee at work; (2) imposition of a fine of up to two years' salary; or (3) a declaration that the dismissal is correct and rejection of the claim.
This quick decision can be opposed by the losing party by filing a lawsuit before the same court within 30 days. A date will then be set for the opposition hearing, which is conducted pursuant to the Article 414 rules (i.e., an ordinary proceeding).
If, at the end of this opposition phase, the losing party intends to challenge the decision, an appeal must be lodged with the court of appeal within 30 days. During the appeal, only new information may be added or information that the party could not have known before. The appeal can be challenged before the Supreme Court, but only on questions of law or in relation to a misinterpretation of the CBA.
For all other employment claims (mainly salary claims, but also dismissal of senior managers, dismissal of employees working for employers with fewer than 15 full-time employees, or dismissal of employees hired after 15 May 2015, depending on the size of the employer), the claimant must file a lawsuit with an employment court, according to Article 414.
In general, the time limits for bringing claims are as follows:
- contracts null and void: no time limit or 10 years;
- salary claims: five years; and
- dismissal or change of contract (from temporary to permanent, or freelance to permanent employment) or change of employer (for example, agency workers who claim to have been hired by the customer): 180 days from the date of the letter challenging the decision being received.
However, during the voluntary conciliation period, the time limit is suspended and resumes the day after the parties deem the conciliation attempt to have failed.
The writ of summons shall be full and complete. This means that nothing can be changed subsequently, including any attached documents, the names of the witnesses and the circumstances testified to by the witnesses.
Upon receipt of the writ of summons, the court will open a file and add all the documents. The president of the court will then assign the claim to a single judge, who will schedule a date for the first hearing through a case management order.
It is the claimant's responsibility to obtain the judge's order and serve the writ of summons, together with the court order, on the defending party (the respondent).
The respondent shall then file the defence brief with the court at least 10 days prior to the hearing. The defence brief shall be complete and cannot be changed subsequently, including any attached documents, the names of the witnesses and the circumstances testified to by the witnesses.
The main hearing is heard by a single employment judge and is open to the public, but the judge can restrict access. During the first hearing, the judge must try to help the parties reach a settlement agreement. Again, should one of the parties disregard the judge's suggestion and refuse unreasonably to settle the claim, that party may be sanctioned by imposing the payment of the other party's legal fees, even if that party wins the case (albeit, in the latter case, for an amount lower than the one suggested by the judge and accepted by the counterparty).
The judgment can either be announced orally or taken under advisement to be issued in writing as soon as practicable. In either case, the court ultimately must publish a decision and provide the reasoning for it.
If the worker is the successful party, he or she automatically obtains an order for payment of all claims and legal costs, sometimes even before the reasoning for the decision is written and made available to the parties.
A court judgment can be challenged by filing an appeal with the court of appeal within six months of the date on which the reasoning for the judgment is made public. Should the court judgment be served on the counterparty's lawyer by the winning party's lawyer, the term for filing the appeal is only one month. The appeal can only be filed without further witnesses being heard or new documents being acquired (except for specific objections). Beyond the court of appeal, further appeals can be made to the Supreme Court, but only on questions of law.
III TYPES OF EMPLOYMENT DISPUTES
i Unfair dismissal
Under the Workers' Statute, no employee can be dismissed without a qualified reason (objective or subjective). It is up to the employer to show that the dismissal was reasonable and that it was carried out in accordance with fair procedures.
For employers with more than 15 full-time employees and employees hired before 7 March 2015, the following unfair dismissal awards apply:
- Reinstatement at work plus a maximum of one year's gross salary (depending on the duration of the trial), plus the option to resign with an upfront payment of 15/12 of the annual gross salary. This may occur in cases of false accusations or false economic or organisational reasons, or if an alternative to dismissal was available but not considered.
- A fine of between one and two years' gross salary. This lesser sentence is generally handed down by the court when the accusations are true, but not particularly serious, or the economic or organisational reasons are true.
- A fine of between six months' gross salary and one year's gross salary is levied when the reasons for termination are true and valid but the procedure was defective.
- Reinstatement at work plus damages equal to the full salary and social security costs for the period from dismissal to the reinstatement order, without any time limit, when the dismissal is found to be retaliatory (for example, a whistle-blower has been dismissed because of his or her accusations) or discriminatory, or in the case of dismissal of a working mother or of a woman within one year of her marriage.
For employees hired after 7 March 2015 by an employer with more than 15 full-time employees, the awards start from a minimum of 6/12 of the annual gross salary up to a maximum of three times the annual gross salary.
ii Employment status
Whether an individual is an employee, temporary staff on a coordinated and continuous collaboration contract (known as a collaborator or 'co.co.co.') or self-employed is of key importance in relation to any employment benefits or rights he or she may have.
For example, certain rights are available to employees, such as the right to the national minimum wage and paid annual leave, and the right not to be unfairly dismissed. In addition, the tax and social security treatment of an individual will depend on their employment status.
On the other hand, collaborators and consultants (self-employed workers) are entitled to fewer rights.
In general terms, an employee is a worker who has entered into or works under an employment contract, whose job is determined unilaterally by the employer and who is mainly paid on a time basis (locatio operarum): he or she sells his or her job skills on an hourly basis to a sole customer and can be redirected by the employer from one job to another, every day, in accordance with the business needs.
An individual is self-employed if his or her work is self-managed according to the target agreed with the customer, without any limitation on assisting other customers and without any time constraints or place of work determined by the customer. The self-employed individual can be a freelance professional (such as a lawyer, an accountant, a medical doctor) with a qualification from a state exam and registered in a mandatory register, or a free consultant without any specific enrolment in a mandatory register. What is crucial is that all these individuals are 'entrepreneurs on their own behalf', undertaking some sort of entrepreneurial risk on their own account.
On the other hand, a collaborator is an individual who has entered into or works under a work contract or any other contract whereby the individual performs the work personally, for another party to the contract, by coordinating the work to meet the customer's needs and targets; on a continuous basis; without carrying out business through his or her own organisation of capital and tools; without undertaking a proper entrepreneurial risk on his or her own account; but without the customer being able to change his or her job unilaterally and ask that different tasks be performed.
In determining employment status, the courts will look at many factors regulating the arrangement between the parties. There is no single conclusive test to determine an individual's employment status.
iii Other disputes
Other common disputes heard in court are in relation to:
- minimum wages because of a lower level of classification with respect to the CBA provisions;
- paid leave and wages;
- overtime (work performed after the hours ordinarily provided for by the national collective contract);
- remote control of workers without any trade union agreement;
- 'black' work (working off the books without a contract and receiving payment without a payslip and proper taxation);
- dismissal of senior managers;
- stock options and restricted stock units;
- calculation of severance packages (the deferred payment, accrued on an annual basis by the employer, paid out in all cases of employment termination);
- violation of temporary contract rules and requests to be hired on a permanent basis;
- violation of collaborator rules, and requests to be considered as an employee from the beginning of the relationship; and
- mobbing, and injury to mental and physical health.
IV YEAR IN REVIEW
i Decree No. 101 of 3 September 2019, and Law No. 128 of 2 November 2019,
The year 2019 was not characterised by new regulations in employment law. Indeed, political and social opinions were both focused on the recent government crisis and the formation of a new government. The only relevant new regulation related to 'gig economy' issues.
Decree No. 101 of 3 September 2019, which was published in Official Gazette No. 207 of 4 September 2019, was converted, with amendments, into Law No. 128 of 2 November 2019, and contains 'urgent provisions for the protection of employment and for the settlement of corporate breakdowns'. The new Law regulates 'Riders', which are defined by the new Article 47 bis, Paragraph 1 of Decree No. 81/2015 as 'self-employed workers who perform activities of delivery of goods on behalf of third parties in urban areas with bicycles or motor vehicles, through the use of platforms, including digital platforms'.
The Decree finally defines the employment relationship of Riders as one of the 'hetero-organised' collaborations indicated in Article 2 of Decree No. 81/2015. Thus, the new provisions confirm the decision of the Court of Appeal of Turin in the well-known ruling of 4 February 2019, which amended the ruling issued by the Turin Court of First Instance (which, in contrast, had recognised the Riders' employment status as being completely autonomous in nature).
Indeed, Article 2, Paragraph 1 of Decree No. 81/20152 provides that 'As of 1 January 2016, the rules of the subordinate employment relationship shall also apply to collaborations that are mainly personal, continuous and whose execution methods are organised by the client'; at the end of Article 2, Legislative Decree No. 101/2019 has further provided that 'the provisions set out in this paragraph shall also apply if the performance of the service is organised through digital platforms'.
Undoubtedly, the fact that when converting Decree No. 101/2019 into Law No. 128/2019 the legislature replaced the adverb 'exclusively' with 'mainly' (referring to the personal nature of the worker's services) and eliminated the reference to 'time and place of work' with regard to the organisation by the client of the service performance methods suggests that the difference between the categories of coordinated and continuous collaboration (as defined in Article 409 of the Italian Code of Civil Procedure) has become even less distinct, making the two categories of collaboration almost identical. Therefore, the sole element that distinguishes the hetero-organised collaboration continues to be the organisation of the work performance by the client.
The result is that for the collaborator–Rider, it will be even easier to provide evidence in court that his or her work performance is hetero-organised to obtain the application of the subordinate employment provisions pursuant to the new Article 2, Paragraph 1 of Decree No. 81/2015, although technically he or she remains a self-employed worker. To avoid applying the subordinate employment relationship provisions, the only possible alternative would be to refer to the national collective agreements mentioned in Article 2, Paragraph 2(a) of Decree No. 81/2015 (as decided by the Court of Rome on 14 May 2019 and which excluded, with regard to the coordinated and continuous collaboration relationships under examination, the application of the subordinate employment relationship provisions demanded by the workers, since the economic and regulatory conditions of the relationship, although characterised by the presence of a hetero-organisation, were already regulated by specific collective agreements).
With regard to the regulatory provisions concerning the treatment (i.e., the 'minimum levels of protection') of Riders, Law No. 128/2019 introduces Chapter V bis ('Protection of work through digital platforms') into Decree No. 85/2015, with the new Articles 47 bis, 47 ter, 47 quater, 47 quinquies, 47 sexies, 47 septies and 47 octies. However, the provisions concerning remuneration (Article 47 quater) and compulsory insurance cover for accidents or injuries in the workplace (Article 47 septies) will only enter into force from 2 November 2020. In particular, remuneration shall be determined by collective agreements stipulated by the most representative trade unions and employer organisations at national level, and these are allowed to establish criteria for determining the overall remuneration based on service performance methods and the organisation of the client.
Should the above-mentioned collective agreements not be stipulated, riders cannot be remunerated on the basis of deliveries made but must be guaranteed a minimum hourly fee according to the minimum tabular amounts established by national collective agreements in similar or equivalent sectors. In addition, cyclist Riders will also be paid a supplementary indemnity of not less than 10 per cent for work done at night, during holidays or in bad weather conditions.
ii Decree No. 14 of 12 January 2019: employment consequences in cases of corporate bankruptcy
In cases of bankruptcy, the law provides for a specific procedure to convert the rights and assets of the debtor into liquid funds and to define legal relationships resulting from agreements stipulated by the debtor and still in force at the start of the bankruptcy procedure.
An interpretative issue arising under previous legislation concerned the effects of the bankruptcy declaration on employment contracts still in force. In anticipating the new bankruptcy code, the Italian Supreme Court ruled in a recent decision that: 'In cases of the employer's bankruptcy, unless a temporary exercise of business is authorised, the employment relationship is suspended for a period, so that the employee may not claim the wages due for the period between the beginning of the bankruptcy procedure and the date on which the trustee in bankruptcy has made the declaration pursuant to Article 72, Paragraph 2 of the Bankruptcy Law, since the remuneration right does not exist because of the existence and continuation of the employment relationship, but requires the work performance, as a consequence of the bilateral nature of the contract'. In contrast, labour law literature held a different opinion, according to which the former Article 72 of the Bankruptcy Law could not be applied to employment contracts on account of Article 2119, Paragraph 2 of the Civil Code, which provides that 'an entrepreneur's bankruptcy or company's compulsory administrative liquidation do not justify the termination of the employment relationship'. Consequently, even if employees had not performed their work, but had remained at the disposal of the bankruptcy authorities, they had the right to receive remuneration.
Now, however, the introduction of Decree No. 14 of 12 January 2019, which contains the Bankruptcy Code, has put an end to the legal uncertainty on the matter, as Article 189 of this piece of legislation has confirmed the orientation indicated by the Italian Supreme Court.
Specifically, while maintaining the basic structure of the former Article 72 of the Bankruptcy Law, Article 189 of Decree No. 14 has introduced a separate regulation on employment relationships still in force at the start of the bankruptcy procedure, providing that: 'the opening of a judicial bankruptcy procedure against the employer does not justify dismissal. Employment relationships still in force on the date of the decision shall remain suspended until the trustee, with the authorisation of the appointed judge and after consulting the creditors' committee, informs the employees that the bankruptcy administration will take over the employment relationships, fulfilling the relevant obligations, or communicates their termination'.
The compulsory suspension of employment relationships pursuant to Article 189, during the period between the start of the procedure and the trustee's decision to take over or terminate the relationships, removes the trustee's obligation to provide both remuneration and social security contributions. This is in compliance with the bilateral nature of the employment contract, which in the absence of work performance excludes the right to remuneration and any other right connected with and consequent thereto.
However, the importance of the provisions of Article 189 in practice is particularly evident given that point three of the Article also introduces a limit applicable in the event that the trustee does not decide within a reasonable period whether to take over or terminate the relationships. In fact, point three of Article 189 provides that 'in any case, except where the provisions of paragraph 4 apply, after four months from the opening date of the judicial bankruptcy procedure without the trustee having communicated [a decision on] the employment relationships takeover, employment relationships which have not already terminated shall be deemed to be terminated by law with effect from the opening date of the judicial bankruptcy procedure, except where the provisions of paragraphs 4 and 6 apply'.
The automatic termination of employment relationships in the event of trustee inactivity referred to in Article 189 implies that the employee is no longer required to give notice requesting that the trustee assign a term within which the trustee should take a decision in relation to the employment relationship and at the expiry of which the contract should be terminated.
iii Relevant cases
Supreme Court No. 5372/2019, case SCM GROUP SPA v. RSG
The case decided by the Italian Supreme Court with Judgment No. 5372/2019 concerns compensation for the unlawful dismissal of executives. The Supreme Court expressed an innovative principle: 'where, on the basis of the sectoral national collective labour agreement, the payment of indemnities for termination of the employment relationship of the executive presupposes that the dismissal is unjustified, the unfairness of the dismissal may be subjected to an interlocutory decision in the assessment of the amount of the economic compensation due by the employer, without requiring a specific challenge of the dismissal by the executive. Consequently, the non-filing or expiry of the limitation period in relation to the possible claim of unfairness of the termination of the executive does not prevent the claim for compensation from being judged'. Before this decision, the courts used to reject claims for compensation for unjustified dismissal if the executive did not challenge the dismissal itself.
Supreme Court No. 3147/2019, Case FP v. ALMECO SPA
This case concerns the absence of motivation for an executive's dismissal. The Supreme Court expressed an important principle in favour of the employer. In fact, every dismissal shall be specifically motivated pursuant to Italian law otherwise, it is deemed to be unlawful. This is because the employee is entitled to know the specific motivation for his or her dismissal to verify its lawfulness. Nevertheless, because of the specific features of executive employment relationships, the Supreme Court has stated the following principle: should the reason for the dismissal of an executive not be given (i.e., should it be deemed insufficient or generic), in accordance with adversarial principles, the employer must specify or include it in the arbitration procedure. If the executive has decided to sue the employer directly before the ordinary courts, in accordance with the principle of alternative protection for employment disputes, equivalent rights shall be granted to the employer within the judicial proceedings because otherwise the position of the employer would be compromised as a result of an autonomous and unquestioned assertion by the counterparty. Before this decision, some courts would declare any unmotivated dismissal unlawful.
Supreme Court No. 19660/2017, Case FS v. UNICREDIT SPA
The case under examination related to the inclusion in the terms of a local collective agreement signed by the social parties and the employer of a waiver of the payment of an indemnity in lieu of notice, paid by the employer to the employees in the event of dismissal. Pursuant to constitutional principles of Italian law, the social parties may not waive employees' constitutionally protected rights. Nevertheless, employees' rights shall be balanced with other constitutionally protected interests, such as a wider and more general protection of employment levels, and this often produces differences of legal interpretation with the result that some courts may give more importance to specific employee rights and others may give more importance to wider public interests. In the decision under examination, the Supreme Court provided a specific orientation on the matter by declaring fully legitimate a local collective agreement signed pursuant to Article 8 of Decree No. 138/2011. In this agreement, the social parties agreed to waive the payment of the indemnity in lieu of notice to redundant employees to limit the negative consequences of the business crisis and reduce the negative effects of the crisis on employment levels. Since the above-mentioned indemnity is a pecuniary obligation, it may be negotiated and waived by social parties to prevent a negative and appreciable effect on general employment levels.
V OUTLOOK AND CONCLUSIONS
Following the formation of the new coalition government (which excluded the right wing League party), the Jobs Act and the Fornero Rules are no longer in the spotlight. Therefore, the reintroduction of Article 18 of Law No. 300/1970 may be abandoned, including such reforms as the lowering of the retirement age. Considering the very high average age in Italy, this may have positive effects in terms of financing retirement benefits.
Public opinion and, consequently, the legislature have focused strongly on 'gig economy' workers and their rights. In fact, during the past year there were multiple claims before the courts filed by Riders for the most famous food home-delivery companies. These claims drew a high level of media attention.
The main issue examined by the courts concerned whether such workers should be classified as employees or as autonomous workers, or even as a tertium genus presenting features of both subordinate employment and autonomous work. The legislature seems to have resolved this issue with a regulation that relates specifically to a tertium genus that is very similar to the category of coordinated and continuous collaboration defined by Article 409 of the Italian Code of Civil Procedure. Although it is likely that legislation and case law will continue to evolve and will amend this first 'Riders-category regulation', the new regulation may be considered a positive development, at least for having put an end to the legal uncertainty on the matter.
Even if not has not been in the spotlight as much as the Riders regulation, the new amendment of the Bankruptcy Law grants more certainty to employees in cases of bankruptcy, which is an important development and one that may have a positive effect on employment and the economy, considering the high incidence of bankruptcy in small Italian companies.
In conclusion, with regard to the effects of the most important legislative act of employment law of the past three years, the Dignity Decree, the Italian Social Security Authority (INPS) issued a statistical report on the employment situation in Italy. The INPS statistical research shows that there has been an increase in the hiring of employees through open-ended employment agreements.
In looking at the numbers overall, we can see that in the first 10 months of 2019 6,154,000 people were hired by private employers. Compared to the same period in the previous year, there was an increase in hiring employees on permanent, seasonal and intermittent contracts, and on apprenticeships; on the other hand, there was a decrease in the hiring of employees on fixed-term, on-call and temporary contracts.
In the period January–October 2019, compared to the same period in 2018, there was a sharp increase in the volume of agreement-type changeovers from fixed-term to open-ended employment agreements, from 416,000 to 603,000 (an increase of 187,000, or 44.9 per cent); there was also an increase in the number of apprenticeship relationships confirmed at the end of the training period (from 54,700 to 68,100, or 24.5 per cent).
In any case, the positive trend towards new open-ended employment relationships is in line with 2017 and 2018 tendencies, indicating that this positive trend started before and independently of the Dignity Decree.
As at October 2019, the yearly balance (i.e., the difference between the number of employees recruited and the number of terminations in the past 12 months) is positive, equal to 224,000 more employees recruited than were terminated, although this is lower than the figure registered in the same period at the end of October 2018 (389,000) and lower than the figures registered in all the previous months. There is, therefore, a decreasing employment trend, even though the balance between recruitment and terminations is still positive on an annual basis.
In line with the trend that emerged at the beginning of 2018, there is a continuing clear difference between the trend in permanent employment relationships on one hand and fixed-term relationships on the other:
- the yearly balance for permanent employment increased: as at October 2018, there were 72,000 more new permanent employment relationships than terminated open-ended relationships; whereas in October 2019 this figure had increased to 385,000; and
- the yearly balance for fixed-term relationships over the same period decreased: as at October 2018, there were 152,000 more new fixed-term employment relationships than terminated fixed-term relationships; whereas in October 2019, there were 238,000 more terminated fixed-term relationships than new fixed-term employment relationships.
The yearly balance of the other types of relationships (in particular, apprenticeships and on-call work) continue to be positive, with the exception of temporary employment relationships, the negative balance of which is expected to increase.
In conclusion, we underline the fact that the reduction of the maximum duration of contracts from 36 months to 24 pursuant to the Dignity Decree leads to a mechanical increase in the turnover of employment contracts. A company may decide to hire an outgoing employee under a permanent employment agreement or to hire another employee under a new fixed-term or temporary employment agreement. It may also decide to terminate the employment.
The first option, hiring the employee under a permanent employment agreement, is less attractive for companies because of the increased cost of terminating permanent employment agreements introduced in the Dignity Decree and in light of the 2018 Constitutional Court decision that the rules under the Jobs Act for determining compensation for unlawful dismissal solely on the basis of seniority were unconstitutional. In fact, there is considerable empirical proof that the increased costs incurred through interruptions of employment relationships result in a reduction in recruitment.
The second option, hiring another employee, implies additional costs for the company in having to find substitute personnel who will accept non-renewable employment agreements. In this situation, the replacement is not immediate and the introduction of the requirement to provide a specific motive for fixed-term employment agreements with a duration beyond 12 months increases the employer's perceived costs in filling a temporary position in the company.