New investment opportunities in Italy thanks to new employment law reforms

The reforms in recent years that have involved employment law in Italy have, for some institutions, resulted in radical innovations which were not even imaginable up until a few months ago and have completely overturned the principles that historically inspired the dynamics of the job market.

The legislative interventions, which hopefully for workers will mean an increase in employment – despite sacrifices in terms of protections and guarantees, are aimed at promoting entrepreneurial freedom, in order to fight the involutional effects of the crisis.

In this scenario the introductions which can affect a decision to invest in our country – obviously here limited to an analysis of employment law aspects – are represented by a complete revision of short-term contracts and, even more importantly, greater flexibility with dismissals, obtained by limiting reinstatement for wrongful dismissal to a few cases.

In addition to the reform of the laws of some institutions, another interesting expedient aimed at providing incentives for employment is represented by contribution exemptions for new hirings, if certain conditions are met.

In terms of short-term contracts, Italian Legislative Decree 34/2014 has completely overturned the structure of this type of contract, by eliminating the historic limitation of justifying motives, which, at least partly, had an effect on short-term employment.

Since this decree became effective, employers have had the possibility of stipulating short-term contracts without the obligation of having to provide specific reasons for not granting an open-ended contract, as long as the total duration of 36 months is complied with (beyond that the job becomes open-ended) and a maximum ceiling of short-term workers equal to 20% of workers with an open-ended contract (with application of an administrative fine if this figure is exceeded).

The greater flexibility of this contractual instrument allows employers to have a considerably lengthy period for assessing the interest in possibly confirming the job, both in terms of the suitability of the employee and his usefulness within the company organisation.

Moreover it is important to point out in this context that, as an exemption to the law, for those who intend to open new businesses, there are no limits on the number of short-term contracts for the entire start-up phase and its duration is indicated in the collective contract.

The introduction which caused the most national debate, Decree Law no. 183 of 10 December 2014 – whose directives are becoming progressively tangible through implementing decrees issued by the Government – includes a change on the protection laws for wrongful dismissal, a provision which became a reality with Legislative Decree no. 23 of 20 February 2015 (it became effective on 7 March), related to the so-called “long-term contract with increased protection based on seniority”.

Specifically, “increased protection based on seniority” refers to a new criterion for calculating the indemnity due to the worker by the employer in case of wrongful dismissal, designed for the purpose of further increasing the propensity of employers for long-term hiring, given the more limited consequences (at least in the short-medium timeframe) in the event of a later termination of employment.

With the reform the previous regime of article 18 of the Worker Statute has been abandoned. Now, generally for a wrongful dismissal the judge will rule to terminate the employment and simply sentence the employer to pay an indemnity which varies based on seniority (2 months pay for every year on the job from a minimum of 4 to a maximum of 24 months or just one months pay, from a minimum of 2 to a maximum of 12 for cases of defect of form). The cost is even less for the employer if he decides to make the worker a settlement offer, at certain conditions.

Reinstatement remains completely excluded for cases of dismissal for objective just cause and is limited to specific situations, represented by limited cases which, due to their nature, are destined to occur only sporadically (dismissals due to discrimination, null and void dismissals and when there is no case for dismissal).

It is important to note that other implementing decrees of the decree law of December 2014 were in the approval phase at the time we were writing this. One will revise other contract types and above all increase the employer’s ius variandi power, allowing them to have greater flexibility in assigning workers to different jobs, even inferior in certain conditions.

In the general scheme, a leading role in the interventions to support long-term hiring is played by the provision of the Stability Law for 2015 which introduced an exemption from contributions which is anything but negligible. Employers will be able to benefit from an annual exemption up to a maximum of 8,060 euro for new hirings, if performed by 31 December 2015 and with an open-ended contract.

A useful instrument for assessing the initial effects of the first reforms a few months after their enactment is seen from figures for the month of April 2015, provided by the Report of the Ministry of Labour and taken from the Information System of Obligatory Communications.

According to this data, almost 757,000 new job contracts were registered (almost 40,000 more than April 2014) and among these over 171,000 are open-ended, with a growth from less than 16% to almost 23% in a year.

In addition to the above, in the light of the data provided by ISTAT (Italian Statistic Institute), after the decrease registered in the previous months, in April 2015 the number of employees increased of 0.7% (an increase of 159,000 employees) compared with March 2015. The employment rate, equal to 56.1%, increases of 0.4%.

Hopefully the positive results were stimulated by the incentives introduced by the stability law and new reforms that recently became effective, and that the data was not affected too much by seasonal needs and Expo, which can only have a strong impact on short-term jobs.

Written by Vittorio De Luca and Giulia Ambrosino – Studio De Luca Avvocati Giuslavoristi