Thanks to the passage of the Dignity Decree by the Italian Parliament last summer and the recent decision of Italy’s Constitutional Court, the employment law regime in Italy has changed direction. The problem is that the direction it has taken is uncertain, creating concern both for employers and employees. The current situation is that parts of the Jobs Act – the major employment law reform in Italy that came into force in 2014/2015 –  have been struck down either by the new legislation or by the court decision and in certain areas a legal vacuum has been created. To fill the void, a political solution may be required.

As noted in my last Blog entry of 2018 (See Italian Constitutional Court partially repeals Jobs Act rules – What’s next? Link), the Italian Constitutional Court handed down a major decision that declared unconstitutional the compensation rules set out in the Jobs Act for claims of unlawful dismissal on the grounds that these rules were not in line with the principles of “reasonableness and equality” and that they were in conflict with the concept of “protection of work” as granted by articles 4 and 35 of the Italian Constitution.

In a nutshell, the Constitutional Court criticised two specific features of the compensation rules as set out in the Jobs Act: first, the way that compensation in the case of unlawful dismissal is calculated, and second, the ceiling provided for the amount of the compensation in such cases. In its decision, published at the end of December 2018, the Constitutional Court provided the following explanations for its decision:

 

–     The calculation of compensation in the case of unlawful dismissal on the basis of length of service only, as provided by the Jobs Act, is unconstitutional because in addition to length of service, other aspects must be considered in order to render the calculation “personal” to the damage actually sustained by the employee who was unlawfully dismissed. Furthermore, the calculation should be made at the discretion of a judge, who may consider a multitude of factors (including but not limited to length of service), within the limits set out by statutory law.

–     Limiting the compensation amount in the case of unlawful dismissal to two months’ of annual salary, as provided by the Jobs Act, is unconstitutional since the compensation in such cases has to be “adequate in order to discourage unlawful dismissals” and this rule may not be respected in all cases if a two-month ceiling is imposed.

The result of the Constitutional Court’s decision is a “crippled” Jobs Act and much uncertainty for employers and employees.

The minimum and maximum levels of compensation in cases of unlawful dismissal are still fixed by statutory law, but the exact amount of the compensation is decided by a judge – at his or her own discretion – and is no longer calculated according to a predictable, mathematical formula. The paradoxical effect is that it is now possible to award higher compensation than that which was allowed under the previous legal framework. One of the objectives of the Jobs Act was to lower dismissal compensation in order to encourage employers to increase hiring. With its recent decision, the Constitutional Court has compromised this legislative objective, but the main problem created by the decision is another: it has stripped away the valuable certainty and predictability of costs and liabilities in cases of dismissal litigation. This will not only penalize employers but will also reduce the chances of litigation settlement, which can harm employees, and increase the volume and length of litigious cases, blocking up already full court calendars and adding to legal costs.

There are many benefits to having laws that set out with reasonable certainty the methods of calculating compensation in the event of unlawful dismissal. Many European countries already have such laws. For example, in Spain compensation is based on length of service and in Belgium the indemnity in lieu of notice (if not agreed by the parties) is calculated by a mathematical formula. The Constitutional Court decision does not make it impossible to have the same types of laws in Italy, but a balanced, new piece of legislation is likely be required before this can happen.

One way forward could be to keep the length of service as the main element for the calculation for compensation, adding other elements already used by other statutory laws, such as the number of employees, size of the company, and the conduct and specific characteristics of the relevant parties. In fact, a “constitutional formula” might be comprised of three elements: first, length of service (as in the Jobs Act), second, number of employees, and third, considerations relating to the behavior and characteristics of the parties and other factors, which may even include the age of the employee, to be determined at the discretion of a judge, which would lead to a “personalized” calculation of the compensation.  Naturally, there must also be a ceiling on the total compensation that is reasonable.

The discussion is open.

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