Pre-retirement and expansion agreement

The purpose of this brief note is to summarise and analyse the measures introduced by Law No. 178 of 30 December 2020 (the “2021 Budget Law”) on expansion and pre-retirement agreements.

The new provisions extend the possibility of entering into an expansion agreement (which has existed in the Italian legal system since 2015) to those employers that have at least 250 employees, drastically reducing the access threshold to this instrument, which has so far been reserved to very large companies (over 1,000 employees) in the event that it is used to facilitate ending the employment of staff now close to retirement, subject to fulfilling the requirements set out in point 2 with, at the same time, the recruitment of new professionals.

This provision - introduced at a particularly complicated time for businesses with a freeze on redundancies extending from 23 February 2020 and confirmation in the 2021 Budget Law that it would remain in force until 31 March 2021 - allows reducing the workforce - again with the written consent of employees - as members of staff approach retirement age, of benefit for employees who decide to take advantage of it, while ensuring an influx of new professionals.

Access to this form of “pre-retirement” guarantees outgoing employees the right to receive retirement benefits equal to the pension benefits accrued at the date of termination of their employment (based on calculations provided by the INPS) until the earliest possible date of their retirement.

Therefore, in practice, given that the age requirement for a retirement pension is currently 67, staff can opt for early retirement from the age of 62, provided they satisfy the minimum contribution requirement.

1. The Expansion Agreement

In its original formulation, Article 41 of Legislative Decree No. 148 of 14 September 2015 known as the Expansion agreement was introduced, for the two-year period 2019-2020 through Article 26-quater of the "Growth Decree" (Decree-Law No. 34 of 2019, converted with amendments into Law No. 58 of 2019).

In particular, it is an instrument aimed at large companies, with a payroll exceeding one thousand, affected by re-industrialisation and re-structuring initiatives, and also by changes to corporate procedures.

Specifically, in the context of processes for re-industrialisation and re-structuring of businesses which involve, in whole or in part, a structural change in business processes aimed at progress and the technological development of operations, as well as the consequent need for a workforce with different professional skills and their more rational deployment and, in any case, providing for the recruitment of new professionals, the company may initiate a consultation procedure with a view to entering into an agreement with the Ministry of Labour and Social Policies and with trade unions that are comparatively more representative at national level or with the company or individual trade union representatives.

Therefore, by signing an expansion agreement, the employer can access a series of measures to simplify and reduce labour costs and to promote the replacement of professionals, in particular:

i. The special State scheme to subsidise wages (“CIGS” in the Italian acronym), with a reduction for currently employed staff who cannot access the “early retirement” of their scheduled working time, up to an aggregate percentage of 30% of working hours for staff impacted by the expansion agreement;

ii. possibility of early exit for workers who are no more than 5 years from the normal pension entitlement date.

This second measure merits a specific examination given its significant impact on the employment system.

2. The new provisions introduced by the Budget Law on early retirement

Article 1, paragraph 349 of the 2021 Budget Law, which amends the provisions of Article 41 of Legislative Decree No. 148 of 14 September 2015, introduced major changes to the rules for 2021.

In particular, employers who have at least two hundred and fifty work employee units – compared with one thousand units previously required by the law – in 2021 in the scope of no-objection accords and subject to the explicit consent in writing of the staff concerned, may terminate the employment relationship of employees who

i. are not more than sixty months from the first effective retirement pension start date

ii. have accrued the minimum contribution requirement or early retirement requirement

paying, for the entire period and until the first effective date of the pension scheme, a monthly indemnity, commensurate with the gross pension benefits accrued by the employee at the time of termination of employment, as determined by INPS.

If the first effective date of the pension is that provided for early retirement, the employer shall also pay the relevant pension contributions to obtain the entitlement.

For the entire period of theoretical NASpi entitlement to the worker, the payment by the employer of the monthly allowance is reduced by an amount equivalent to the sum of the NASpi [new social insurance benefit] and the payment by the employer of the relevant pension contributions to access the early pension entitlement is reduced by an amount equivalent to the sum of the notional contribution referred to in Article 12 of Legislative Decree No. 22 of 2015, without prejudice in any case to the criteria for calculating the notional contribution.

In addition, for companies or groups of companies with at least 1,000 employees that implement reorganisation or restructuring plans of particular strategic importance, in line with European programmes, and that, when indicating the number of workers to be recruited, undertake to recruit at least one for every three employees who have consented to early retirement within the deadlines indicated above, the reduction in the payments to be made by the employer, referred to in the previous period, applies for a further twelve months, for an amount calculated on the basis of the last monthly instalment of the theoretical amount due to the employee as NASpi.

In order to implement the expansion agreement, the employer concerned must submit a specific application to the INPS, accompanied by the submission of a bank guarantee of solvency in relation to the obligations. The employer is also obliged to pay to INPS the funds for the benefit and for the notional contribution on a monthly basis.

In any event, in the absence of this monthly payment, the INPS is obliged to refrain from paying the benefits.

This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For further information please contact Michele Bignami.