Italian employment law reform

On 14 July 2018 a new employment law reform has come into force (Law Decree 87/2018, Dignity Decree). The reform will have implications for all employers in Italy, reforming some important points of the employment relationship and restoring some rules in relation to fixed term contracts. It also increases the indemnities in case of unfair dismissal for employees employed on a permanent contract after 07 March 2015.

The reform is aimed to disincentivise fixed term and flexible contracts and to increase the protection in case of dismissal.

Major changes regarding fixed term contracts, temporary contracts and indemnities in case of unfair dismissals.

Fixed term contracts

• maximum duration reduced from 36 to 24 months
• possibility to enter into fixed term contracts without providing organizational reasons reduced from 36 to 12 months
• obligation to provide organisational reasons after 12 months and in any case of new contract (also if the first contract is shorter than 12 months); in case of extension, organisational reasons are not required if the overall duration is shorter than 12 months
• organisational reasons allowed:
  •  a) objective and temporary needs not included in the ordinary activity of the company;
  • replacement of other employees;
• organisational reasons are not required to extend or renew fixed term contracts relating to seasonal activities
  • b) temporary, important and not programmable increase of the ordinary activity
• maximum extensions in the 24 month limit: reduced from five to four
• unemployment indemnity contribution increase of 0.5%
• term to challenge the contract increased from 120 to 180 days, and
• provisional regulation: new rules are applicable for all new fixed terms contracts and for extension of fixed term contracts in force.

Temporary contracts

• Equalised to fixed terms contract with regards to:
  • maximum duration
  • organisational reasons after 12 months, and
  • limits to renewals and extension.
• Rules of fixed term contract not applied:
  • 20% limit in relation to the total workforce, or
  • priority right in case of new hiring.

Indemnities in case of unfair dismissal (employees hired after 07 March 2015)

The general rule to quantify the indemnity in case of unfair dismissal in two months per year of service is confirmed.
Caps to minimum and maximum possible indemnity raise of 50% (respectively from 4 to 6 months and from 24 to 36 months).

Please find here below a chart of the indemnities in relation to the employees length of service:

Existing employment relationships

New rules apply both to fixed term relationships entered after the enforcement of the reform and to changes of existing employment relationships.

For example, a fixed term contract with an overall duration of more than 24 months cannot be extended anymore; a fixed term contract already extended three times can be extended only another time adding an organisational reason if the overall duration exceeds 12 months. In case of extension of renewal there will be anyway an increase of the social contribution equal to 0.50%.

An increase of claims originated by renewals of fixed term contracts beyond 12 months is expected as a result of the reform. In order to mitigate the risk of claims, employers will likely increase the employee turnover, hiring new employees after 12 months rather than extending the contracts of existing employees.

The reform will definitively be approved after the confirmation of Parliament which is expected in the 60 days term provided by the Constitution. Within the same term, the Parliament could also amend or reject the reform, however a rejection of the reform is unlikely. In the event of amendments or a non-confirmation of parliament, the reform shall still apply to fixed term contracts signed or extended from 14 July 2018 up to the amendments or the non-confirmation of the Parliament, as well as to dismissals that occur between these dates.