Published on «International Employment Lawyer» March 11th, 2021 – Sharon Reilly

As one of the first countries to declare a state of emergency and go into full lockdown due to the covid-19 pandemic (9 March 2020), Italy’s national health service was quickly stretched to its limits. This, coupled with the inevitable economic recession, has had a strong impact on the nation’s labour market.
We soon saw most other EU countries follow suit and by 18 March 2020 around half the population of Europe was in lockdown. This triggered the need for national governments to adopt emergency measures, balancing, where possible, the needs of businesses to survive, with those of individuals to keep their jobs or at least have a source of income, albeit diminished.
This balancing act was like walking a tightrope and led to different countries taking different initiatives, which reflected their political, cultural, and economic backgrounds.
Germany and the UK, for example, implemented a series of measures to support businesses – including the furlough scheme – without restricting companies’ right to restructure their business and terminate employees. Other countries, such as France, while not introducing a ban on dismissals, said employers who receive “social shock absorbers” cannot fire workers due to the pandemic. Spain imposed an outright banned on redundancies arising from the crisis but left the door open to economic redundancies not related to covid (difficult to make the distinction, I suspect). Then there is the Italian route, which is unique not only to Europe but globally.

In March 2020, the Italian government passed emergency legislation placing a blanket ban on redundancies for economic reasons. This was accompanied by the introduction of a generous furlough scheme across all sectors of the economy (not just limited to manufacturing, as had historically been the case). This manoeuvre was lauded by workers but viewed with scepticism by employers.
Historically, Italian employees enjoy enhanced rights and protections compared to most other EU countries; for example, until 2012 the principal remedy for unfair dismissal in Italy (for companies with more than 15 employees) was reinstatement: this is now the exception, rather than the rule.

To legally dismiss employees in Italy, the employer must satisfy one of the following grounds:

  • just cause (giusta causa) – the UK equivalent of gross misconduct or serious breach of contract that renders continuation of the employment relationship impossible, including, for instance, theft, riot, serious insubordination and any other behaviour that undermines the fiduciary relationship between the parties;
  • subjective justified reasons – where the employee commits a breach of their contractual obligations or is negligent in performing their duties, but the behaviour is not so serious as to warrant dismissal for just cause; or
  • objective justified reasons – where the role is being abolished due to specific business needs of the company. This is referred to as an “economic dismissal” and does infer any misconduct on the part of the employee. Companies can make both individual and collective redundancies under this heading: the latter is triggered when five or more dismissals are served over a 120-day period.

It is worth noting that different rules apply to individual dismissals of top managers (dirigenti): the grounds are less strict and the only remedy for unfair dismissal is damages.
On 17 March 2020, the Italian government passed emergency legislation effectively banning so-called “economic dismissals” across the board, initially for a period of 60 days, which then morphed into a year-long ban. Although the ban is set to end on 31 March 2021 a further extension is currently under discussion until June 2021. Any breach of the ban, if challenged by the employee, would result in the dismissal being declared null and the employee reinstated.

There are three important elements to this ban:

  • it applies to all companies irrespective of size;
  • it is not linked to the use or otherwise of furlough; and
  • is not limited to dismissals justified by the pandemic, but to all dismissals for economic reasons, including those not strictly connected to covid.

The ban does not extend to mutual terminations nor to voluntary resignation. However, while the generally held interpretation of the law is that the unique and unprecedented protection against dismissal has not been extended to top managers, there has already been a court ruling to the contrary in first instance, so watch this space!

As often happens, there are some exceptions to the ban to bear in mind when managing a workforce in Italy:

  • Companies that have ceased operations in Italy, so a genuine closure of the business;
  • Companies that have been declared bankrupt;
  • Companies that have entered into a company-level collective bargaining agreement with trade unions, providing for an incentive package in return for termination of the employment relationship, limited to employees who sign up to the agreement.

Only once in Italy’s history has a government chosen to freeze the job market: at the end of the Second World War. By going down this path, Italy finds itself completely out of step with the rest of the world, in the unrealistic hope that post-pandemic everything will return to normal, and workers will be able to pick up their jobs where they left off.
The reality is an increasing number of “zombie” companies beyond the point of resuscitation – many of which were already struggling pre-covid. On the other hand, instead of receiving financial support to re-skill for the jobs of the future, employees are yoked to companies and dare not resign. In kicking the can down the road, the government is postponing the inevitable: a tsunami of redundancies when the ban is lifted.
What was initially seen as a radical measure for the greater collective good and to safeguard employment, has slowly but surely become increasingly unpopular as one extension follows another. This is seen by some as unconstitutionally impinging on the freedom of entrepreneurs to manage their business without intervention from the state.
Indeed, legal experts have been vocal in their criticism – in my view rightly so – in raising questions not only about the measure being in conflict with Article 41 of the Italian Constitution on freedom of enterprise. In addition it is difficult to reconcile the measure with the concept of a temporary emergency provision as a first response to an extraordinary occurrence, given that it has lasted a year and counting.
A further extension of the ban on dismissals beyond the end of March will rekindle the debate and I would not rule out some companies turning to the courts for a ruling on compatibility with the Italian Constitution or, as recently happened in Spain (Court of Barcelona), with European constitutional law.
While the Italian courts have not yet been asked to rule on the issue of constitutionality, there was a recent judgment by the Court of Ravenna, on the matter in question. The case concerned a dismissal that took place in April 2020. The court decided not to refer the question of constitutionality to the Constitutional Court, given that the dismissal was served during the initial emergency period when the ban was still fresh. The court would probably have taken a different view had the dismissal been made later in the year.
It has been a testing time for businesses, but the reality is that employers will have to sit it out, unless they are prepared to take a test case to the highest court in the land. In the meantime, all they can do is plan for how their business needs to look post-covid to survive, and the measures to implement once their hands are untied by the Italian legislature.