Amendments have been made to the regulation of fixed-term employment contracts, staff agency work, and the amount of the indemnity (severance) granted in cases of unjustified dismissals as a result of new legislation called “Decreto Dignità,” which went into effect in late 2018.
Employer groups have criticized the reform as returning the Italian labor market to previous strict rules, reducing flexibility, and overprotecting employees in cases of dismissal.
The maximum duration of fixed-term contracts is now 12 months, reduced from 36 months, and the term can now be extended to 24 months only if specific requirements are met. The same rules apply to agency fixed-term contracts.
The new rules on fixed-term contracts apply to contracts entered into after July 14, 2018, and to extensions and renewals concluded after October 31, 2018.
Employers do not need to justify using a fixed-term contract (as opposed to a permanent one) as long as the duration does not exceed the 12-month period.
An employer that wishes to extend the duration to 24 months will need to show:
- Temporary and objective grounds for the fixed-term contract, unrelated to ordinary activity, or
- A need to replace other employees (e.g., employees on maternity leave, on sick leave, or temporarily assigned to different roles); or
- A relevant and temporary increase in ordinary activity that was not foreseeable.
In the absence of one of these reasons, a contract exceeding 12 months transforms into a permanent one.
These provisions on the duration limit can be modified by collective bargaining. Furthermore, the 24-month limit can be extended through the approval of the ministerial territorial office of a new fixed-term contract not exceeding 12 months.
Italy has limits on the percentage of the workforce that can be engaged on a fixed-term basis. Unless otherwise provided by applicable collective bargaining agreements (CBAs), the maximum number of fixed-term contracts and staff agency fixed-term contracts in a company has been increased to 30 percent of permanent contracts in effect on January 1 of the relevant year.
Law Decree n. 87/2018 has also increased the indemnity an employer must pay an employee in cases of unfair dismissal.
If the dismissal is unlawful, the minimum indemnity is increased from 4 to 6 months’ pay (3 if the company employs less than 16 employees), while the maximum indemnity is increased from 24 to 36 months’ pay (6 months for employers with less than 16 employees).
If the parties settle within 60 days of the dismissal, the indemnity to be paid is 1 month’s pay per year of service within a minimum of 3 months and a maximum of 27 months.
This decree aims to tackle precarious work and provide greater job security through the tightening of rules on fixed-term contracts. However it has been criticised by many employers that see it as limiting their ability to resource their businesses with flexible labor that meets demand and are concerned about the increased unfair dismissal costs, which are significantly higher than those in many other countries.
Written by Sofia Bargellini of SZA Studio Legale and Roger James of Ogletree Deakins
© 2019 SZA Studio Legale and Ogletree, Deakins, Nash, Smoak and Stewart, P.C.