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Labor and employment law challenges in business transformations

Italy

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Collective dismissals are mainly governed by “Law 23 July 1991, no. 223, Rules on the Wages Guarantee Fund, redundancies, unemployment benefits, enforcement of European directives, job placement, and other labour market provisions” (Law 223/1991).

A collective dismissal occurs when an employer with more than 15 employees intends to dismiss at least 5 employees employed in the same establishment, or in different establishments located in the same Province within a period of 120 days.

If the aforementioned threshold and conditions are present, the employer must follow the collective dismissal procedure established by Law 223/1991.

Required legal justification

The employer’s decision on collective dismissal must be based on valid financial, reorganization (such as organizational and management rationalization aimed at facing business inefficiencies) or restructuring (such as remarkable changes in the business structures) reasons. Arbitrary or discriminatory reasons for dismissal are prohibited.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

To initiate the first consultation phase of the collective dismissal procedure, the employer must send a prior notice to the internal work councils/unions (i.e., workers’ representation at plant level called RSA or RSU as well as to the representative unions at territorial level, including those representing executives) and to the competent local labor authority (Direzione Territoriale del Lavoro, or DTL), whereby detailed information must be given on:

  • Reason(s) for the proposed dismissals
  • Number of employees to be dismissed (including executives)
  • Positions and professional profiles of the entire workforce, including those of the employees proposed to be dismissed
  • Proposed timing for the collective dismissal
  • Any proposal or measure to reduce the possible social consequences of the collective dismissals (social plan)

There is no mandatory or specific time period prescribed by law for providing notice. In any case, if required by the unions, the consultation phase must start after seven days from the receipt of the notice by the unions. The first consultation phase with the unions must be completed within 45 days from the receipt of the notice.

Consultation requirements with other employee representatives

No specific consultation requirements with other employee representatives exist.

Consultation requirements with employees

There is no legal barrier to open communication with employees - subject to the prior notification to the Unions - on a collective dismissal.

After the collective dismissal negotiation process is complete with the unions, the employer may communicate individually to the affected employees about the outcome of the process.

In any case, the dismissal letter must be delivered by the employer to the affected employees. The dismissal shall be communicated within 120 days after the conclusion of the procedure, unless different terms are agreed upon with unions.

Approval/notification of the labor authorities or other government authorities

Approval of the labor authorities or other government authorities are not required to dismiss any employees in a collective dismissal process; however, after the completion of consultation with the unions, the employer is required to notify (in writing) the competent local labor authority (Direzione Territoriale del Lavoro/Ministry of Labor) of the outcome of the consultation process with the unions. If the negotiation with the unions was not successful, the employer must provide the reasons for its failure.

If no agreement is reached with the unions during the first phase of consultation, an additional conciliation procedure may take place before the Direzione Territoriale del Lavoro/Ministry of Labor upon its request. The conciliation procedure (second phase) must be completed within 30 days from its start.

Employee selection criteria

Unless the dismissal involves all the company’s employees, the criteria for the selection of the employees to be dismissed are usually agreed upon and indicated in the agreement with the unions (if any).

The law provides that, upon commencement of the collective dismissal procedure, the employer is required to identify in the prior written notice the redundant professional profiles and the relevant number. Upon conclusion of the procedure, the employees to be actually terminated must be identified by the employer by virtue of a comparison among all the company’s personnel, based on the following legal criteria:

  • Organizational, technical and productive reasons
  • Years of service
  • Number of dependents of the affected employee (family responsibilities)

In case of collective dismissal, unrelated to closure of the company, some restrictions apply with respect to:

  • Mandatory percentages of employees with disabilities
  • Maternity leave — until the child is one year old, or in the first year after the marriage
  • Grace period for illness
  • Fixed term employment contracts

These limits operate differently in case of closure of the company or in case of collective dismissal with continuation of the business.

Actions required to limit the negative impact and social plan

The employer is not obligated to propose or devise a social plan. Notwithstanding this, the employer and the unions can negotiate and agree, during the negotiation phase, on alternative measures (like re-assignment to lower positions, incentive for voluntary resignation, etc.) in order to mitigate the negative impact of the proposed collective dismissal.

Internal alternative employment/redeployment
No mandatory requirement to provide any internal alternative employment/redeployment exists.

Other measures
No other measures are required.

Estimated timeline

Approximately one month is required to prepare for the collective dismissal process. However, the time frame may vary depending on the complexity of the contemplated collective dismissal.

After the prior notice to the unions, the first phase of joint consultation must be completed within 45 days. In case of a disagreement, it may take additional 30 days for the conciliation process (second phase) initiated by the Direzione Territoriale del Lavoro/Ministry of Labor. The second phase must be completed within 30 days from the date of its initiation. Therefore, the whole procedure must be concluded within 75 days from the date of receipt of first notice addressed to the unions. This time period is reduced by half if the number of employees to be dismissed is less than 10. The dismissal shall be communicated within 120 days after the conclusion of the procedure, unless different terms are agreed with unions.

The aforementioned time frame is only an indication of the minimum mandatory requirement and it does not include the time frame required for the preparation of the contemplated collective dismissal and/or any possible extensions agreed with the unions.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Notice or an indemnity in lieu of, if the employee is released from work during the notice period
  • Severance payment (Trattamento di Fine Rapporto, or TFR)
  • Other severance indemnities in accordance with the individual or collective agreement
  • Payment to the National Social Security Institute (INPS) for each dismissed employee (excluding executives) of an amount equal to nine, six or three times their monthly mobility indemnity (this cost is only applicable in certain cases)

    The mobility indemnity was gradually replaced by the Social Insurance for Employment (ASPI indemnity) during the interim period from January 2013 to 31 December 2016. The ASPI is funded by the employers for each dismissed employee upon termination of employment but, with respect to collective dismissals, will apply starting from 1 January 2017 (in lieu of the mobility indemnity).

Customary additional costs

The employer may budget an exit package additional to the mobility indemnity but is not obligated to propose or devise a social plan. It is important to note that in any case, the mobility indemnity is paid by the National Social Security Institute (INPS) — not by the employer — to the employees.

Notwithstanding this, the employer and the unions can negotiate and agree on measures like outplacement and incentive for voluntary resignation in order to limit the negative impact of the collective dismissal during their joint consultation(s).

Hiring restrictions post-redundancy

There are no legal barriers restricting an employer from hiring new employees after implementation of a collective dismissal, in positions or establishments, different from those involved in the collective dismissal. However, according to the case law a hiring restriction is applicable if the employer decides to hire new employees for the same position or plant/establishment where it implemented collective dismissal. There is no specific time period prescribed for such restriction as it can vary depending on whether an agreement in this regard has been reached with the unions within the closure of the consultation process.

Italian law does not provide the affected employees the right to be rehired. However, this right can be agreed during the negotiation with the unions.

Litigation risk

Interested parties

The law establishes that if a collective dismissal is implemented in violation of the procedure and there is an agreement with the unions to that effect, the affected employees cannot challenge the dismissals for violation of the procedure. In other words, the agreement with the unions will validate the incorrect procedure. The following interested parties can bring lawsuits related to the redundancy process:

  • Unions: if they were not involved in the procedure and/or there was any violation in the procedure (on condition that they did not enter into an agreement with the employer).
  • Impacted employees: if the dismissals were implemented verbally, in violation of the legal criteria (or those agreed with the unions) and/or for breach of the procedure established by law.

    Impacted employees can challenge the dismissal (in writing) extrajudicially (letter to the employer) within 60 days from the date of notification of dismissal. The extrajudicial challenge should be followed by a judicial challenge before labor courts within 180 days of the date on which the employee first challenges the dismissal, otherwise the entire challenge process would be ineffective.

Litigation can stop or slow down the collective dismissal process. A labor court may suspend the process if it was challenged by the unions (under Art. 28 St. Law, also known as Law 300/1970) for anti-union behavior of the employer.

Damages and other remedies

The legal consequences in case of unfair dismissal can vary (depending also on the contractual category of the unlawfully dismissed employees) and might include reinstatement into the previous job and position and/or compensation. In case of invalidity of the collective dismissals, the affected employees are entitled to the following:

Damages for unfair dismissal

A labor court may order economic compensation — up to 24 months gross salary (in majority of the cases) in case of invalidity of the collective dismissal.

Reinstatement

A labor court may grant an award for reinstatement (in limited cases, i.e., if an employee was dismissed either verbally or in violation of the criteria established by law).

Criminal sanctions

No criminal sanctions in Italy for noncompliance of collective redundancy procedure are established by law.

Country-specific issues

There are no other issues specific to Italy.

Contact

Primary Contact for Italy Labor and Employment Law

Stefania Radoccia
Studio Legale Tributario
+39 0285143802

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Italy
IT

Contacts