Preamble

On July 2, 2018, the Cabinet issued the so-called “Dignity Act” (in Italian Decreto Dignità) which is the first initiative of the new Government on employment law. In detail, the amendments to the existing employment law concern the rules to be applied to fixed term contracts set out in Legislative Decree no 81 of 2015 and the indemnities granted in case of unlawful dismissal of an employee hired under the so called “increasing protection” system regulated by Legislative Decree no 23 of 2015. Lgs. n. 23/2015.

These amendments were published on the Official Gazette on July 13, 2018 and enter into forces on 14 July 2018.

As the Government decided to set out the new rules by means of an emergency law, the  decree will be effective for 60 days and subject to a confirmation process held by the Houses of Parliament. As a result it could be confirmed – with or without amendments – or, rejected. If rejected it will be no longer effective.

The purpose of this note is to draw your attention, in particular, to the new rules in relation to fixed term contracts - that are the subject matter of this comment – as they will immediately affect the use of such contract by many employers.

Fixed term employment agreement

The new rules provide for the decrease of the maximum period available for such contract and the reintroduction, at least in part, of the need to specify in the contract the reasons why a fixed term of duration was agreed.

Term

As a consequence of the new rules, the maximum extent of a fixed term contract will be 24 months instead of the former limit of 36-months.

The possibility to extend the contract for further 12 months upon authorization released by the Local Labor Office (as set forth by Section 19, par. 3, Legislative Decree no 81 of 2015) will still be available.

Reasons justifying the inclusion of a term

The Dignity Act reintroduced the necessity that - in certain circumstances - the provision of a fixed term in a contract must be based on the existence of a number of predetermined reasons.

In particular, the justifying reasons shall be:

• (a) temporary and objective reasons for temporary needs
• (b) need to replace, on a temporary basis, other employees;
• (c) reasons related to temporary, significant and not programmable increases of the ordinary activity.

From a first analysis of the new justifying reasons, it is clear that they are very strict and they limit the possibility to identify, in concrete, any occasion in which a justification in line with the law is effectively foreseeable.

As to the third possible reason under letter (c), the provision according to which the need has to be not only “related to temporary and significant increases” but also “not programmable” seems to exclude the possibility to manage temporary but predictable needs (for example, in the retail sector, the peak of sales during Christmas period), limiting such possibility only to situations that are not predictable (for example in case of unexpected orders).

Besides, assess when an increase is “significant” is not straightforward and, as such, will trigger disputes and litigation.

When the justifying reason has to be included?

The Dignity Act provides the possibility to enter into a first contract “without any supporting reason” (e.g. without the need to indicate a supporting reason) with a maximum duration of 12 months (including also extensions). This means that an employee - without any former fixed term contract with the same employer – may be hired with a fixed term contract “without any supporting reason”:

• for a period of 12 months;
• for a shorter period (for example, 6 months), with the possibility to extend “without any supporting reason” until a maximum of 12 months (including the former contract).

The indication of the justifying reasons will be necessary in the following cases:

• the hiring for a period exceeding 12 months (up to the maximum duration of 24 months);
• the execution of a new fixed term contract to carry out the duties of the same contractual level and legal category as the previous contract (i.e. renewal of the contract), regardless of the duration of the new contract and of the former ones). Therefore, if the company enters into a fixed term contract with an employee - who, previously, was employed under a fixed term contract – envisaging duties of the same contractual level and legal category as the previous contract, the new contract must always set out the supporting reason;
• the extension of a fixed term contract without any supporting reason, in which the total duration of the relationship exceeds 12 months.

Extension of a fixed term contract

The Dignity Act has also modified the provisions related to extensions, reducing their number from 5 to 4.

The Dignity Act provides that the extensions may be granted:

• freely (e.g. without the necessity to indicate one of the justifying reasons provided by the Dignity Act) if the relationship, including the extension, lasts up to 12 months;
• in all the other cases, only in the presence of the abovementioned justifying reasons.

Fixed term costs

The rules are generally aimed at discouraging the use of fixed term contracts: indeed, the Dignity Act provides an increase of the social contribution provided by Section 2, paragraph 28 of the Law no. 92/2012 (1,4% of the taxable income for social contribution), equal to 0.5 percentage points for each “renewal”, applied to any subsequent fixed term contract with the same employee.

It seems that this change in the rules is not applicable to the extensions of the same fixed term contract but just to the renewal.

Time limit for challenging the term

The Dignity Act also provides an extension of the period after which the possibility to challenge the inclusion of the term in the contract is time-barred: the employee who wants to challenge the lawfulness of the term included in the contract has to give notice of this intention within 180 days - and not 120 days as before - from the termination of the relevant contract.

Implementation

The new provisions apply:

• to those contracts that will be executed after the entry into force of the Dignity Act;
• to the renewals and extensions of the contracts currently in place effective after the entry into force of the Dignity Act.

The effects of the new provisions are immediate and must be respected in case of extensions of contracts already in force. As a consequence:

• if the relationship is entered for 24 months or more, it cannot be extended beyond the current deadline: it has to be converted into an open-ended contract or the relationship has to be terminated;
• if the relationship is entered for 12 months or more (but for less than 24 months), it can be extended if: (i) the new maximum duration of the relationship (including all the extensions) is in total up to 24 months; (ii) the justifying reasons – in line with the law - are clearly stated in the contract; (iii) the contract has not been already extended for 4 times.

The content of this article is only for information and does not constitute professional advice.

For further information contact Michele Bignami.