Investing in Italy: Labour and Employment

Italian technologies, brands and distribution channels to secure a gateway to Europe.

In recent years the Italian Government has undertaken additional economic and legal reforms in a variety of areas in order to increase the country’s long-term growth, foster competitiveness worldwide and harmonise its domestic legal system with the rest of Europe.

This third article in a series of five delves into what investors such as private equity and venture capital firms need to know about labour market law in Italy.

*****

Employment relationships in Italy are governed by Italian law, as well as by applicable collective agreements (“NCBA”) and individual contracts. Under Italian law, an employment relationship is established by a contract between the employer and the employee.

However, except for high-level employees, individual employment contracts have limited significance, as statutory law and NCBAs cover almost all of the aspects of the employment relationship, such as the minimum contents of the hiring letter, the maximum duration of the probationary period, holidays, working time, overtime, sick leave, maternity leave, disciplinary procedures, minimum salary and other employment related entitlements, termination and notice period, as well as severance indemnities.

Most of the provisions under Italian Labour law are mandatory and the parties can deviate from them only for the benefit of the employee. In any case, a choice of law clause in an employment contract cannot deprive the employee of the mandatory protections provided under Italian law that would apply in the absence of such clause.

A peculiar aspect of the Italian Labour law framework is the classification of workers into three main categories: executives, employees and self-employed individuals.

In the event of a dispute regarding the nature of the relationship, the courts mainly look at the manner in which the relationship has actually been carried out, taking into account the extent to which the worker is subject to the direction, organisation and discipline of the employer/principal.

Italian Labour law also provides further specific protection to employees, mainly dealing with the termination of their employment relationship by the employer, which is set out in more detail below.

1. Fixed-term contracts

Fixed-term contracts are allowed for a maximum term of 24 months and can only be extended by a maximum of 4 times over that period. The maximum number of employees engaged on fixed-term contracts cannot exceed 20% of the permanent employees as of 1 January of the relevant year (or any other percentage set out in the applicable collective agreement). Employers with five employees or less can hire one fixed-term employee.

2. Individual and collective termination of employment contracts

The position on termination of employment contracts in Italy depends on many factors such as whether or not the contract meets the requirements set out in the “Jobs Act” of 7 March 2015. Contracts that do not meet these requirements will usually be governed by the “2012 Fornero Law”.

In addition, if a contract, and its consequent termination, is regulated by the Jobs Act, different remedies are available depending on the size of the employer, the reasons causing the dismissal and the date the employee started his/her employment.

For large employers (employers with more than 15 staff at the same business site or more than 60 staff in total), if an employee’s dismissal is found to be unjustified, the employer may have to pay compensation (ranging from 6 months’ salary up to a maximum of 36 months’ salary), social security charges and, in some instances, reinstate the employee. If a small employer unjustifiably dismisses an employee, the compensation is half of that for a large employer and the cases in which the employer will have to reinstate the employee are more limited.

The Jobs Act introduced a “quick” settlement agreement procedure, according to which the employer has the opportunity to offer, within 60 days from the dismissal, compensation in settlement to the employee, equal to 1 full monthly salary for each year of service, with a minimum of 3 and a maximum of 27 full monthly salaries. This compensation is exempt from social security charges. If the offer is accepted, the employee only waives his/her rights in relation to the termination of his/her employment.

Executives are not subject to the dismissal rules as outlined above, but to different rules set out in the applicable national collective bargaining agreements that provide only for damages compensation related to the executive’s seniority, save in case of discriminatory or verbal dismissals, which may lead to reinstatement.

3. Social security, welfare and immigration

As far as social security contributions are concerned, a foreign investor should be aware that Italian social security is compulsory and that social security charges (on average up to 43% of the employee’s gross salary) are jointly paid by employers and employees (the employers pay about 30% to 35% and the employees pay the rest).

Additional opportunities exist for employers to introduce new, or enhance existing, welfare benefit plans for the employees and their families. These measures are aimed at boosting and extending the range of benefits eligible for income tax relief and promote the role of collective bargaining agreements at company level in the definition and regulation of tailored welfare schemes.

Finally, foreign employees working in Italy are subject not only to Italian Labour law but also to strict immigration requirements. While European nationals only need to enrol with the local registry office in the municipality where they reside in Italy, non-European nationals, though subject to limited exceptions, must also fall within the “quota” that the Ministry of Internal Affairs establishes annually.

Therefore, a written job offer or an employment contract is not sufficient for a non-European national to legally work in Italy; it is also necessary to obtain a work permit, an entry visa and an Italian residency permit. Completion of all the procedural immigration formalities typically requires a few months^[1].

4. Remote workers

Under Italian legislation, “Flexible Working”, otherwise called “Remote-Working”, is a flexible way of working, made possible through digital technology, particularly improved during the Covid-19 pandemic.

Not a new type of employment contract, but a different way of performing the working activities, freed from specific locations and working times, bound only by the daily and weekly working time limits provided under the law and relevant collective agreements.

Modalities of this “remote” performance must be regulated through a specific agreement between the employer and the employee which may be open or fixed term. In particular, such agreements will have to set out rest times, the technical and organisational steps to be taken to ensure that the worker actually logs off from his IT equipment as well as the lawful monitoring procedures and aspects concerning safety at work.

By establishing that work can be carried out partly at the business premises and partly elsewhere, employees who provide services that do not require their physical presence in the company or any special equipment, will be able to achieve a better work-life balance.

5. Self-employed workers

Measures for the protection of the self-employed workers and consultants are provided for by the current legislation including in the areas of maternity leave, suspension of the collaboration in case of illness, stricter terms of payment for the performance, training programs and tax-reliefs.

Moreover, the Italian Code of Civil Procedure states that a working relationship is considered as autonomous (and therefore not dependent) if, in compliance with the coordination arrangements established by mutual agreement between the parties, the self-employed independently organizes his activities in terms of time, manner and place.

In other words, companies must pay close attention in regulating collaboration contracts with self-employed workers pursuant to the existing rules, in order to reduce risks of unfavourable outcomes in case of litigation concerning the real nature of the employment relationship.

6. Whistleblowing

On 9 March 2023 Italy implemented the EU Directive no. 2019/1937 on the protection of persons who report breaches of Union Law adopting the Legislative Decree no. 24/2023 which applies to all legal entities in the private sector:

1. employing more than 50 employees through open-ended or fixed-term employment contracts;
2. employing less than 50 employees and which voluntarily adopt the Organization Model as per Legislative Decree no. 231/2001;
3. employing less than 50 employees and which are active in the European regulated sectors (g., financial markets, credits).

Whistleblowers (i.e., employees, self-employees, volunteers, interns, stakeholders and other persons with administrative, management, control or supervision function) can report actual or potential breaches of European Union and Italian legislation referred to certain sectors. In general terms, according to this new piece of legislation, the legal entities identified by the law need to establish, after consulting with trade unions, an internal reporting channel and procedures which secures confidentiality of, inter alia, the identity of the whistleblower and of the person involved, as well as of the content of the report.

Any form of retaliation or of discrimination against the whistleblowers is prohibited.

Administrative sanctions apply if retaliatory acts are committed against the reporting persons, and/or whistleblowing channels and procedures are not established. In addition, there are sanctions for false reports.

**********

Fabio Ilacqua is a Partner at Gianni & Origoni. Connect with him on LinkedIn here.

[1] In year 2022 the “digital worker” category has been introduced as an exception to the “quota” system, for non-European nationals working remotely.