The Reform Of The Italian Labour Market: The Two Sides Of The Coin - New Opportunities And New Restrictions On Enterprises

Monday, November 1, 2004 - 01:00

A major reform concerning the Italian labour market legislation was enacted one year ago by way of Legislative Decree no. 276 of September 10, 2003 (commonly called "Biagi Reform"). Such an impressive range of new legal provisions has been recently amended by Legislative Decree no. 251 of October 6, 2004. It is now time to proceed with a first evaluation of the reform, highlighting its most important innovations, which have introduced new opportunities but also new restrictions on enterprises.

Amongst the crucial provisions of the Biagi Reform are those concerning the self-employment relationships entered into on a continuous, coordinated and personal basis (commonly called " collaborazioni coordinate e continuative"). In the past, such type of contract was very popular in the Italian labour market, because it allowed firms to benefit from higher flexibility and lower social security costs, compared with standard employment relationships. In some cases, however, such relationships were established in situations deprived of any genuine self-employment nature, for the sole purpose of avoiding the application of the more burdensome rules governing standard employment.

In order to eliminate such abuses, the Biagi Reform has strictly limited the cases in which such contracts may be entered into. Now, all the relationships qualified as collaborazioni coordinate e continuative must be necessarily related to one or more specific projects or work plans or phases thereof and autonomously managed by the collaborator, who is therefore required to achieve a specific result. Should the above requirements not be met, the coordinated and continuous collaborators shall be considered subordinate employees on an open-term basis, effective from the beginning of the relationship.

Collaboration contracts focusing on a specific project shall be entered into in writing and shall specify, inter alia, the duration of the relationship (either determined or determinable), the criteria to be adopted for determining the remuneration and the relevant amount (proportioned to the quantity and quality of the work performed), the expiration dates, the terms of payment and the rules governing the reimbursement of expenses. Generally, collaboration contracts expire upon the completion of the project, but early termination is permitted consequent to a just cause or according to the methods agreed upon by the parties.

Any self-employed contract entered into before the Biagi Reform came into force shall cease to be effective from October 24, 2004. Specific agreements with the Unions may extend the period of effectiveness of the existing contracts, which shall finally cease to be effective from October 25, 2005. Therefore, companies are required to accurately verify whether the self-employment relationships by which they are currently bound comply with the new requirements and limits, and eventually enter into new contracts.

Although the provisions governing continuous and coordinated relationships have undoubtedly increased the burden on enterprises, the new rules concerning staff supply ensure, to a certain extent, more opportunities for a flexible management of the work force. Staff supply of workers by authorized agencies was first allowed in Italy in 1997 on a fixed-term basis. With the Biagi Reform, staff supply is now also admissible on an open-term basis. As a matter of fact, enterprises can now enter into open-term contracts with a staff supply agency in certain circumstances specifically identified by the law, including particular porter duties and cleaning work, transportation and warehouse services, managerial consultancy services (including HR management), organization of the commercial functions and call-centre management. Fixed-term contracts are always permitted in presence of technical, production-related, organizational and replacement reasons.

Among other reasons, staff supply contracts may not be entered into for the purposes of replacing strikers and in the cases of companies that have ordered collective dismissals in the previous six months. The enterprise and the supply agency are jointly liable for the payment of the remuneration and the relevant social security contributions due to the employees supplied. The enterprise may exercise management, but not disciplinary, powers vis-à-vis the employees supplied. However, the latter are not considered as employees of the enterprise benefiting from their work.

The rules governing staff supply also provide for a number of sanctions to be imposed when the establishment of this type of employment relationship does not fall within the scope foreseen by the law. These sanctions (which have been increased pursuant to the recent decree no. 251 of 2004), may consist of a payment of a fine or a monetary administrative penalty, but also of imprisonment in the event the staff supply is performed without authorization or in the case of exploitation of minors. In addition, the employee may file a petition against the user before the Labour Court, in order to obtain the acknowledgement of the existence of an employment relationship with the user, effective from the date on which the employee started to supply his/her services.

Although the introduction of open-term staff supply is somehow aimed at meeting perceived need for flexibility within the Italian labour market, the sanctions, costs and guarantees imposed on the users, together with the formalities to be satisfied in order for the parties to enter into a staff supply agreement, make the use of this contractual instrument extremely delicate and onerous, thereby limiting its scope of application.

The general objective of enhancing the overall level of flexibility of the Italian labour market has also been pursued by the Reform with the introduction of other new types of employment contracts: job on call, job sharing and occasional work. The job on call consists of a working activity to be performed on a discontinued or intermittent basis, according to the requirements specified in the collective agreements or, in their absence, in a specific decree to be issued by Italian Ministry of Labour. Under such type of contracts, the employee shall guarantee his/her availability to perform the work and shall be entitled to be paid an adequate stand-by allowance. The employee who fails to respond to the employer's call shall no longer be entitled to receive said indemnity. Job on call contracts shall be entered into in writing and shall contain certain specific contractual elements, including the duration, the objective and subjective circumstances legitimating this type of contract, the place and terms according to which the employee shall be available, and the related notice of call, which shall in no event be less than one working day.

A job sharing contract is established when two or more employees jointly share the responsibility for the supply of a sole work obligation. Job sharers can decide how to replace one another at any time and at their own discretion. This type of contract should be regulated by collective agreements, in compliance with the rules set forth in the relevant decree.

Occasional work has been defined as a self-employment relationship with the same principal not exceeding 30 days in a calendar year, and with a remuneration of less than EUR 5,000 per year. Outside such boundaries, the relationship shall be deemed a coordinated and continuous collaboration, with application of the limits described above.

The Reform has also provided for procedures enabling the "certification" of the new flexible contractual forms illustrated above. According to the legislator's intentions, the "certification" of employment contracts should clearly and correctly qualify the employment relationships, in relation to the distinction between independent and subordinate employment, between the content of staff supply and the contract concerning the supply of other services, and amongst similar contractual typologies (job on call, job sharing, part-time). The aim of such "certification" is to reduce disputes over the qualification of the employment relationships. In other words, the commencement of a certification procedure should provide prior qualification of a contract, so as to reduce the risk that its legal nature be later challenged before the Court.

Frankly, these objectives appear to be extremely ambitious, and therefore there are serious reservations as to whether they can actually be achieved or not. The procedure for the certification is a voluntary procedure, subsequent to a joint request filed by the parties to the contract subject to certification. Specific certification bodies shall define individual requests in accordance with good practice principles as expressly set forth in specific decrees to be issued by the Ministry of Labour. The bodies qualified for the certification shall be the Provincial Labour Offices, the Provinces, the Universities and other national or territorially-competent bilateral entities. The parties may obtain from the certification bodies a qualification of the contractual regulation which will be effective vis-à-vis the parties themselves and third parties ( i.e., national social security and insurance institutes). However, the main limit of such procedure is that both the parties to the contract and third parties can initiate legal proceedings in the event of a wrong qualification or in the case of differences between the certification and the next development of the relationship.

The Reform also provides for important innovations in terms of training employment contracts, which can now be distinguished in two types. Apprenticeship contracts (commonly called "contratti di apprendistato") can be divided into: apprenticeship fulfilling educational and training rights and duties; apprenticeship aimed at attaining a professional qualification through training at work and technical and professional learning; and apprenticeship aimed at acquiring a diploma or for higher level training routes.

Entrance contracts ("contratti di inserimento"), which have replaced contratti di formazione e lavoro are based on individual projects specifically aimed at adjusting the individual worker's skills to a working context. The parties benefiting from said contracts shall be young people aged from 18 to 29 and disadvantaged workers. Companies can benefit from important economical advantages when entering upon this type of contract: firstly, workers could receive a remuneration two levels below the remuneration payable to an employee with the same professional qualification; secondly, such workers are not included in the number of employees to be taken into account for the application of certain provisions of the Biagi Reform.

The brief description provided so far shows that the Biagi Reform has been an important step through the modernization path of the rules governing the Italian labour market. New forms of staff supply, job sharing, job on call, occasional work and training employment contracts could really help companies cope with a growing demand for flexibility in human resources' organization and management. Other rules however, such as those requiring a specific project for self-employment continuous relationships, could burden enterprises with additional restriction, thereby compelling them to look for solutions other than those adopted in the past. In any case, the instruments offered by the Reform should be used with particular attention. The consequences and penalties foreseen in the event of breach are very burdensome, and have been made even more serious by the recent amendments.

Alberto Maggi is a Partner in the Milan office of Gianni, Origoni, Grippo & Partners and be reached at amaggi@gop.it or +39 (02) 763741. Silvia Tozzoli is an Associate in the same office and can be reached at the same number or at stozzoli@gop.it. You may also contact Stefano Crosio (Resident Partner in the firm's New York office) at scrosio@gopny.com or (212) 957-9600.