By Dónall Breen - 30 April 2018
This is part five in a series of articles exploring the employment law regime in jurisdictions where businesses may be considering moving some of their staff post-Brexit. It is intended to provide a high-level overview, drawing out the main legal requirements to consider. This month’s focus: Italy.
This article has been written in conjunction with our Littler Global partners in Italy. If you require any further information on Italian employment law, please contact Carlo Majer on CMajer@littler.com.
Similar to other continental European jurisdictions, Italy’s codified laws and collective bargaining agreements (CBAs) mean employees and employers have clear sets of rules to follow, although these can be difficult to navigate without the proper experience. Traditionally a rigid employment law jurisdiction, much welcomed reforms in 2015 have made being an employer in Italy considerably cheaper and more flexible. Therefore, it is important to obtain proper advice in order to exploit the many opportunities provided by the new laws, reduce the cost of labour and minimise the risk of litigation. Nonetheless, Italy remains one of the more challenging employment law jurisdictions and good planning and well-informed HR personnel are essential for a smooth employment relationship.
Overview – Employment Relationship
There are different categories of employees:
In CBAs, these categories of employees are usually treated differently. For example, managers and executives are usually not entitled to overtime if they work over 40 hours per week and the executives have different rights in terms of unfair dismissal.
Probationary periods must be provided in the employment contract and can be for up to six months, subject to the applicable CBA. During this period, the employee has no statutory rights in relation to unfair dismissal and no notice is required by both parties.
Contracts of employment
Although written employment contracts are generally not required, written contracts are highly advisable to evidence the agreed terms and it is a standard practice to draw up a written contract. However, written contracts are expressly required by law for fixed-term contracts, apprenticeships, staff leasing and agency work.
There is a plethora of statutory laws that apply whether mentioned in the employment contract or not, and to this extent working relationships are regulated mainly by the applicable CBA.
Minimum wage requirements
There is no minimum wage provided by law. However, under the Italian Constitution employees are entitled to receive a salary reflective of the quality and quantity of their work and, in any case, one that is sufficient to guarantee a decent lifestyle for themselves and their family.
In the absence of any legislation providing a minimum wage, CBAs have determined the minimum wage for each category of employment. If the company does not apply any CBA and a dispute arises regarding the congruity of the wages paid, the court is entitled to consider and make reference to the minimum wages set out in the national CBAs for the relevant sectors, irrespective of the application of the relevant CBA to that particular company.
Holiday and holiday pay
Employees are entitled to a minimum of four weeks’ paid holiday. In additional, there are also 11 Italian public holidays per year. Some CBAs grant additional paid leave for employees, and almost all CBAs provide the Patron Saint’s Day as a supplementary holiday.
Usually, employees work 40 hours per week. Employees can exceed this limit upon the request of their employer and they’re not entitled to refuse, but must be paid overtime in accordance with the applicable CBA. In any case, employees cannot work more than 48 hours per week and overtime cannot exceed 250 hours per year.
The restrictions on working hours do not apply to executives, managers and employees who have any form of independent decision-making powers within the organisation's structure.
Generally, all employees (including executives) must be granted both a daily rest period of 11 consecutive hours and a weekly rest period of 35 consecutive hours.
Registration with authorities
Newly recruited employees must be declared to the authorities not more than a week after the employee starts work.
Taxes and employment related charges
Italian employment income is taxed according to a progressive tax rate, varying from 23% for income up to €15,000 to 43% to income over €75,000.
The employer's share of social security contributions amounts to about 26.6% of the gross salary, while the employee's share amounts to about 9%.
The employer must withhold the employee's share from the gross monthly salary.
Under Italian law, works councils may be created on employees’ initiative in the form of RSUs (meaning “unitary works council”) or RSAs (meaning “company works council”). The key function of the works council is to negotiate binding agreements with the employers at workplace level as part of the bargaining structure.
There are some sectors, including banking and insurance, where works council are very rare and Italian law does not contain any specific provisions allowing the employees and/or their representatives to participate in the management of the company.
Overview – Termination
The parties must observe the required notice periods before an employment contract is terminated (except for gross misconduct, known as “just cause”). The notice period depends on the employee's length of service and is regulated by the CBA. You can make payment in lieu of notice, however there is no concept of ‘garden leave’ in Italy.
Severance pay must be awarded when the employer terminates an employment contract. Currently the amount payable is equal to the sum of each annual gross salary divided by 13.5. These amounts are index-linked annually.
Procedural requirements for dismissal
Dismissals must be in writing in order to be valid and effective and there must be a valid reason for dismissal which are outlined below.
If the dismissal is due to “just cause” or “subjective justified reason”, before serving the termination letter the employer must follow specific disciplinary procedures as set out in law.
In every case of dismissal (unless it is just cause), the employee is entitled to their notice period.
Protection against dismissal
There are three types of valid grounds of dismissal:
Employees who are unfairly dismissed can challenge their dismissals before an employment tribunal. If the judges find the dismissals are unfair, compensation limits depend on the size of the company and when the employee was engaged. For example, employees hired after March 2015 in small companies (< 60 employees in Italy or < 15 employees in a single unit), the judge will award the unfairly dismissed employee compensation equal to one month's salary for each year of service, with a minimum of two months' and a maximum of six months' salary. Larger companies and those with employees engaged prior to March 2015 face a more expensive compensation regime, including reinstatement.
There is no compensation limit for damages incurred as a result of discrimination or harassment.
Small companies making employees redundant who were hired after March 2015 have no mandatory procedure to follow. The dismissal can be served in writing, observing the notice period.
Larger companies have a special mandatory procedure that must be followed. The intention to dismiss must be communicated in advance to the employee and to the local Labour Office. The Labour Office can call a meeting but otherwise the dismissal can be served. If the meeting is called, the parties have 20 days to reach an agreement. In the event of failure to reach an agreement, the dismissal can be served.
Similar to the UK, certain employees have varying levels of protection against dismissal, and Italian Law provides several cases in which the employer is prevented from dismissing employees (except in the cases of gross misconduct) e.g. pregnant women up to one year after child’s birth, disabled workers, employees who take paternity leave, etc. Work council members are also offered special protection.
Interestingly, without just cause, employers cannot dismiss employees who have been married for one year or less – it seems there is a little Amore in Italian employment law!