Grounds for Termination
Under Italian law, any termination of employment must be justified. The reasons to terminate an employment contract can be divided in three main categories:
- Objective justified reasons – which are related to the abolition of a job position due to a company’s economic situation regarding production, work organisation, or proper functioning;
- Subjective justified reasons – which occur when the employee commits a breach of his/her contractual obligations or is guilty of negligence in the performance of his/her duties, but the behavior is not so serious as to constitute a dismissal for just cause; or
- Just cause – that indicates any serious misconduct or breach that renders the continuation of the employment impossible, including, theft, riot, serious insubordination, and any other behavior that seriously undermines the fiduciary relationship with the employer.
Employers with more than 15 employees must follow a specific information and consultation procedure involving the Trade Unions with regard to collective dismissals. In the absence of employee representative bodies, notice shall be given to the “comparatively more representative” trade associations.
With the passing of Law no. 161/2014 the Italian legislature has for the first time provided that executives have to be included in the calculation that triggers a collective dismissal, and that companies will need to set up a separate negotiating table with the executives.
Dismissal must be given in writing and must detail the reasons on which it is based. Whenever a dismissal is based on economic reasons a mandatory pre-emptive consultation phase must be carried out by companies employing more than 15 workers, before the dismissal becomes effective. Different rules apply to the dismissal of dirigenti (executives). The executive’s dismissal is deemed to be justified only if it is as a result of:
- objective reasons related to the employer’s economic, organisational and production-related needs; or
- subjective reasons related to performance.
In the case of particularly serious misconduct the dirigente can be dismissed for just cause. In this event, the dismissal is effective immediately and the dirigente is not entitled to any notice period.
Is severance pay required?
Italian law provides for the payment of a deferred form of remuneration, otherwise known as the severance payment (TFR). Along with other minor statutory termination amounts, the TFR must be paid to employees whenever an employment contract is terminated, irrespective of the cause of termination. The amount of the TFR varies depending on the employee’s salary and length of service (it is approximately equal to 8% of the yearly gross salary per each year of employment).
Is a Separation Agreement required or considered best practice?
The parties are not obliged to enter into a separation agreement, but we consider it as best practice in order to avoid future claims and lawsuit.
Remedies for employee seeking to challenge wrongful termination
Under Italian law, if an employee were to win a case for unfair dismissal, the remedy in most cases would be damages of between 12- and 24-months’ salary, depending on the gravity of the ‘unfairness’. In some particular cases the remedy could be reinstatement (discrimination or in-existence of facts on which the dismissal is grounded).
In Italy, the law requires that companies ensure the confidentiality of a whistleblower’s identity to the extent permitted by Italian law. However, anonymous whistleblower complaints are not entertained. According to mandatory law, formal whistleblower channels must be available to i) directors, managers or other subjects acting on behalf of the company or one of its organisational units; and ii) persons subject to the direction or supervision of those in part i) above. As such, whistleblower programs need not be available to self-employed contractors, external consultants, or others, though from a practical point of view there may be good reasons to include such persons within the scope of a whistleblower program.