5 things to know about Employment Law in Italy

In this series, Barry Stanton, Managing Partner is talking to his European colleagues, with whom he has worked on numerous projects, about five things we should know about employment law in their country.

This episode, we have guest speaker Emanuele Licciardi from Morri Rossetti in Milan. Together, they shed light on the complexities of workplace investigations and performance management within Italy's legal framework. They provide a comprehensive exploration of non-compete agreements, business transfers, and the response to business delocalization, making it an essential listen for employers and legal professionals alike. 

Whether you're an employer in Italy or simply curious about international employment law, this episode delivers essential knowledge and expert advice. 

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Chapters

• 0:56 Workplace investigations
• 4:31 Performance Management
• 9:50 Delocalization of businesses
• 15:42 Employers of record
• 18:48 Non-competition covenants

Transcript

Barry Stanton: 0:01 

Hello, my name is Barry Stanton, I'm the managing partner at Boyes Turner and I've also practiced as an employment lawyer for the past 25 years. In that time, I have seen the growing importance of a knowledge of European and international employment law. In this series, I'm talking to my European colleagues, with whom I have worked on numerous projects, about five things we should know about employment law in their country Today, I'm joined by Emanuele Licciardi, who is a partner at the Italian law firm Morri Rossetti in Milan. Manuele and I have worked together for a number of years on a range of projects for a wide array of clients. Manuele, it's very good to see you again. Good to see you too, Barry. We've talked over the years, Manuele, about a number of issues which are of interest to clients in Italy, and I wanted to touch on a couple of those points, the first one being workplace investigations and what your advice is to employers around that sort of particular process. 

Emanuele Licciardi: 0:56 

Well, in Italy, workplace investigations are mainly led by the worker's statute there's a lot that is already more than 50, because it was published in 1970. And there's a statute that somehow encompasses all the control that the employer can do on employees' activity, both on a physical basis or remotely, and also provides for the rules for disciplinary proceedings. So this is basically the foundation for the workplace investigation. However, it's not the only rule that set of rules that the employers to meet when it starts a workplace investigation, because in the years, of course, have other aspects of being added in with the data privacy policies and rules and also with the whistleblowing directory that has been implemented in Italy. So what the employer has to bear in mind when it starts this kind of process is, first of all, that it is crucial to remember that the purpose here is just to gather information and not to start to initiate a disciplinary action at this stage. 

Barry Stanton: 2:11 

Emanuele, I just wanted to ask in terms of an investigation, I'm assuming in Italy it's very similar to the UK, where the investigation should be neutral, so it's there to find out the facts and not to prove someone's guilt, and if that's correct, that's a very important point, isn't it? 

Emanuele Licciardi: 2:29 

That is correct, that's the point, because if the employer, once carries out the investigation, already starts arguing some specific point, the first claim the employee can have is saying that the whole investigation should be considered null and void because that was meant only to gather facts and information, not to have any specific fact already reported to the employee as a misconduct. So that's the first point to be very cautious when you start this kind of investigation, because otherwise you risk to impair the whole process so that you cannot discipline the employee for that fact. Then what we can also say is the role of the witnesses that can be heard during this investigation. Of course the employer has to prevent any kind of retaliation and safeguard those employees from any act of other employees that are connected to this investigation. And of course the first step to do here is guarantee anonymity of these witnesses, unless of course there is some kind of judicial hearing. There is a proceeding that requires the employer to share the name of the witnesses. 

Emanuele Licciardi: 3:49 

And what is also interesting in this point here is coming to the controls that the employer can do. Whether the employee is high, remote or physically, is that both they are highly regulated. So the employee has a collective agreement with the unions, with other work employee hired remotely or physically, is that both they are highly regulated. So the employee has a collective agreement with the unions, with other work council, or has to go through a specific process of authorization with the local labor expect rate. So basically the employer is not allowed to do his own investigation in terms of remote control or control on the employees without this kind of preliminary requirements. 

Barry Stanton: 4:31 

That's very interesting and very helpful, thank you. And then investigations, presumably looking at conduct, but also a big part played in management of employees is performance management, when employees are not performing well. 

Emanuele Licciardi: 4:45 

Again, is there specific legislation, specific laws around that in Italy, the point is that there is no specific legislation around it, so there is no specific dismissal for performance reason. In Italy, then, the performance management is still seen according to the case law has a disciplinary case. So we go again in the path we have already alighted. So the worker statute and the rules provided by the worker statute, and so any poor performance should be treated as a case of non-diligent performance of the work by the employee. So basically, the part of the proof here is an employer that not only has to give evidence of the poor performance by itself, but also that this performance has been the consequence of a non-diligent behavior of the employee. And the employer should also be able to prove that there is no other external reason that may have impacted on the employee performance, maybe even at the organization of the employer, or a trend in the market that could have been caused by the actual performance of the employee. 

Barry Stanton: 6:08 

That sounds like quite a high burden of proof for the employer to meet. 

Emanuele Licciardi: 6:12 

It actually is, and this is the reason why, here in Italy, this is a kind of solution that is very seldom used, only when you have, of course, very I would say very high-end cases in which the employee, compared to other employees that have the same role and with the same tasks, results that are very distant, very far from the expected results and from the results that have been achieved by the other colleagues. 

Barry Stanton: 6:41 

If one's following the performance management process, is there a time frame in which one could performance manage somebody out of a business, or is it very quick? 

Emanuele Licciardi: 6:51 

It's not actually very quick because, since this is not a case that has been ruled, of course, what we need to have to dismiss an employee is a serious breach of contract. So we need to prove that that specific non-village and behaviour it's so serious to be sufficient to justify a termination. So, basically, either you have a really enormous non-village and behaviour and you are sure, of course, of the other items we are talking about or you need to add multiple disciplinary proceedings that altogether can be summoned saying that the overall performance of the employee has been not only poor but also was not diligent at all. So in our experience, this is something that may take a long time. Usually it's a process that may take months to arrive to a certain point where we can say the threshold to have maxed. The burden of proof is there. 

Barry Stanton: 7:54 

Okay, and so in a case of poor performance, is an employer a better place to try and find some sort of amicable solution? 

Emanuele Licciardi: 8:03 

That could be one of the outcomes that we have, of course. It's always tricky, of course, starting to negotiate with the employee in this kind of situation, because you can always argue that there is a sort of duress in the negotiation or that if the employee is eventually terminated, that is for a retaliation because the employee did not agree to find a solution. But of course that could be one of the solutions. The other one is to check if, in that specific situation, there could be also an organizational reason to terminate the employment. So you have a redundancy, of course, and you need to be sure that you are still meeting all the requirements you have for the redundancy case on the other side. 

Barry Stanton: 8:57 

Yes, and I suppose that's easy if it's an employee in a unique position, but much more difficult if you've got one employee among several doing a similar job. 

Emanuele Licciardi: 9:06 

We do have a comparison duty when you have employees in the same pool of tasks and of kind of skills. We also have the so-called reputational duty. So basically, for employees that are not executives in the medium size and big companies, you still need to offer and play any vacant position, of course, that are aligned to their tasks, before making them redundant. 

Barry Stanton: 9:36 

Yes, we all have similar problems. 

Emanuele Licciardi: 9:38 

by the sound of it, Just to have a very short answer to your last question. Yes, you have other paths, but not always those paths are really simpler than the one you started. 

Barry Stanton: 9:50 

Okay, thank you. The COVID crisis raised an interesting issue in Italy, as I understand it, which is related to the delocalization of businesses and the Italian government taking steps to prevent or try to slow down the movement of business away from Italy. I wonder, Manuel, if you could just talk through that a little bit, because obviously it's still relevant today. 

Emanuele Licciardi: 10:10 

Sure, we did have some specific pieces of legislation that were approved during 2021 and 2022. In 2021 and 2022, basically, they were a reaction to the first experience that we had after the crisis on an economic level, of course, because we had a few big global investors present at the time that started to move the localized assets to other countries mainly delocalize assets to other countries mainly, of course, to other European countries that have lower cost of labor for sure. So what the government did at that time was implementing new legislation that mainly made more costly for them to transfer their business outside of Italy, them to transfer their business outside of Italy. This was mainly related to contribution, financing and any other kind of support they had received in the past years from the Italian government on other public funds, so that we're going to lose this kind of finance if they were to move. And also for what interests? 

Emanuele Licciardi: 11:20 

Employment lawyers and employers in particular. 

Emanuele Licciardi: 11:23 

They have enacted also a specific path that medium-sized and big-sized companies have to implement in case of delocalization. 

Emanuele Licciardi: 11:34 

So the threshold here is companies with at least 250 employees in the years preceding the time which they decide to delocalize, and they should decide to shut down or to terminate at least 50 employees. 

Emanuele Licciardi: 11:53 

If you are in this kind of scenario, then you have a sort of aggravated path for the negotiation that you should have anyways with the unions, since in this case, before even starting the usual procedure, must-nest-must-sell that already that procedure can last up to 75 days. 

Emanuele Licciardi: 12:16 

Up to 75 days, then you have to notify this decision to move the business, 90 days before starting the master's missile procedure, to the Ministry of Labour, to the Ministry of Economic Development and to the trade unions, to the trade unions, and then in the next 60 days you have to draft a plan that tends to somehow reducing the impact that this decision can have on the occupational level. So, as you can see, it is already a process that adds up to the usual one, that makes longer the proceeding to arrive to the actual termination of the employment relationships and of course, it also has the effect of raising the potential claims and litigation related to these processes. Anyways, if at the end of this proceeding the employer do not find any specific agreement with the institution or with the unions, that sort of contribution that any employer has to pay related to dismissals in Italy, is raised for this specific reason, the question that always interests me here in these situations, if one's moving part of a business, whether that would attract any interest under the acquired rights directive in Italy. 

Barry Stanton: 13:50 

Let's say you're moving the business from perhaps Italy to Albania. 

Emanuele Licciardi: 13:55 

It actually does. 

Emanuele Licciardi: 13:56 

Of course, I would say that employees in Italy would, of course, ask for the application, or what is the implementation, of that directive in Italy in these cases, but my experience is that it's more a negotiation point. 

Emanuele Licciardi: 14:15 

So in many, many cases that we have managed for clients of international transfer of business, I had basically no cases of employees really willing to relocate to another state. It has also determined that a change of strategy also in managing the relation with the unions, because, of course, if you, for instance, try to apply strictly mass termination procedure here because you think that no one of the employees will go to the other counter, will not relocate, even if no one of them really wanted to go to relocate, they will use that specific aspect, as you know, a technical point to make their termination of the bond. So what you really need to do in this case is actually treating this case as it is so, as an international transfer of business, and applying those directives. So that would mean that, for instance, the Italian employee going to Albania should receive all the treatment he would have been receiving in Italy if the process would have been totally managed in Italy. Knowing that, it's very likely that when you will go negotiating with the unions. You will end up thinking about a termination process. 

Barry Stanton: 15:42 

I concur with that view. That's what happens in the UK as well. Okay, another topic we've discussed over the years is employers of record, and I know you have some views on that. Can you just talk about the Italian view of the EOR regime? 

Emanuele Licciardi: 15:59 

Yeah, I think the plain answer to this question would be that employers of record not operate in Italy. Of course this is a sort of blunt answer, but the thing here is that the lease of employees in Italy is a regulated activity. So any operator that wants to lease employees to another entity here has to go through a specific authorization process and to gain a license that is provided by the Ministry of Labor. So what we have experienced several times in the last few years is that none of the main operators that we have known really have carried out this kind of process of authorization. So they basically reply their business model they have in other countries where I assume is fully legal here in Italy, where they would need to have the kind of license. 

Emanuele Licciardi: 16:56 

Of course this will cause, and this causes many headaches to their clients because of course here in Italy when an entity that is not licensed, at least personnel, not only that entity goes to face sanction from the authorities in Italy, but also the employer that actually uses the performance of the employee is sanctioned by the authorities in Italy, but also the, the employer that actually uses the performance of the employee, is sanctioned by by the authorities and also the employees can claim and is entitled to be acknowledged as an employee of that specific employer. 

Emanuele Licciardi: 17:32 

The one that is used is this uh is activity. So we usually suggest our clients other models that are in line with the rules here in Italy, with the practice here in the country, because they need to do development and research or they need a technical support for activity that actually they manage from abroad. Then it could be sufficient just to hire the employee with a foreign entity and appoint in Italy a social security representative who will pay the social security contribution on behalf of the company. Instead, if they want to develop the market here, to do commercial activity, to have clients directly here in Italy, it could be wiser just to incorporate a small company, even a small limited liability company, so that also all the tax aspects will be clear to the authorities and the employment activity will be way simpler to manage. 

Barry Stanton: 18:48 

That's very helpful, thank you. And finally, coming on to another favourite topic of employment lawyers and the bane for employers non-competition covenants. And I know there's people of various countries talking about legislation about non-competition covenants, and I know there's people of various countries talking about legislation about non-competition and I was just wondering what the position is in in Italy. 

Emanuele Licciardi: 19:07 

They are impossible. We have actually a quite strict legislation about non-compete that has its grounds in the civil code and then we have a quite, I would say, impressive number of case decisions that also provide for some guidance in the way to interpret, to construe this legislation. Of course in Italy we do not have the binding precedent principle but still, of course, if you have the Supreme Court providing some guidelines, they are always useful for the operators. The main point basically is the non-complete agreement has to be drafted in writing. It requires a consideration for the federal employee for the non-compete restriction. That is the first point, of course, because the provision of the law does not provide for a specific determination of this consideration, but just say an appropriate consideration. So there's always a balance between this consideration and the other part of the law provision that says that the agreement is valid if the restriction is limited in the scope, in the time and territory. So the scope should be of course linked to the activity the employee has carried out for the employer, for the former employer. So a scope that is too wide will be wider of the activity the employee has carried out could be considered as unlawful. The time it depends on the kind of classification of the employee. So for executive it could be five years, for not executive it's only three years. And the territory again there is no specific limitation. It could be even worldwide. But the larger is the territory the higher is the possibility that a court could say that this territory is too wide to be consistent with the other part of the non-compete covenant. 

Emanuele Licciardi: 21:20 

So meaning the scope, the time and the consideration, the overall principle that mainly is seen in this case law is that basically any kind of covenants that restricts the employees from compete with the former employee cannot just annul the possibility of the employee to get a new occupation after he has quit with the former employer. 

Emanuele Licciardi: 21:49 

Then, aside of this consideration related to the main part of the agreement, of course the non-compete agreements still hire contracts. So you can have either specific feature and items that you can add to these agreements. For instance, you can have option close if you want to have the possibility to basically enable the parties to use the non-compete at a certain point during the employment and not from the very beginning. You can have information undertakings if the employer, for instance, wants that the employee communicate if he starts a new employment activity so that he can control if this is in competition or not. Employment activities, so that you can control if this is in competition or not. And, of course, you can have clause for liquidated damages that will help the employer to act in case of breach of the non-compete obligations. 

Barry Stanton: 22:43 

Thank you. Can I just clarify one point on consideration. When you talk about consideration, are you referring to a payment being made for the duration of the non-compete period, or is that consideration being paid at the beginning when they sign the contract? 

Emanuele Licciardi: 23:00 

That is a very interesting point, Barry, because it's part of the discussion that has gone through many years in the caseload. That has gone through many years in the case law. Basically it's a payment that the employer has to pay to the employee has specific consideration for the restriction. So this would imply that it's a payment that is made by the employer at the end of the employment relationship because, as we said, this should be proportionate to the kind of restriction the employer is imposing. The kind of parameter that the courts have used to see if this is proportionate is the salary of the employee once the employment is terminated. 

Emanuele Licciardi: 23:50 

So what the party usually do is to provide for a clause that states that the employer will pay that consideration. 

Emanuele Licciardi: 24:00 

That will be a percentage of the final salary, annual salary of the employee at the time of the termination of the employment or even during the non-competition period. 

Emanuele Licciardi: 24:10 

So after determination of employment, what many employers have been doing in the years is paying this consideration along the employment relationship. So basically, having a portion of the monthly salary or the yearly salary paid as consideration for the non-compete and just making a very long story short, this has been considered as unlawful because the employee does not have a clear idea of which is the amount of money he will take as a consideration for the non-compete position at the very beginning of the employment. So what we suggest in this case is, when the employer they do want to have this sort of payment during the employment, is to provide the sort of racial clause in the agreement saying that in any case, whenever the employer is going to terminate, the payment of the consideration will be equal to that specific percentage of the final salary. And if the employer has not already paid that amount, we'll top up the amount that has been already paid during employment. 

Barry Stanton: 25:25 

That's interesting. I hadn't really thought about that as a potential way of doing it. Manuele, that's fascinating. Thank you very much, and I'm sure there'll be a lot of interest in that. 

Emanuele Licciardi: 25:34 

Thank you too, Barry, it's a pleasure. 

Barry Stanton: 25:38 

Thank you for joining us today. I hope you've enjoyed our conversation. If you want to listen to more episodes in this series, you can follow or subscribe to our podcast. Goodbye.