Italian Pandemic Decree Updates Layoff Freeze

By Dinah Wisenberg Brin September 28, 2020
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Milan Galleria

​The Italian government extended and updated layoff prohibitions, renewed employer wage support, and provided other emergency workplace measures under a pandemic-related decree issued late this summer.

The Aug. 14 decree also amends rules on fixed-term employment contracts and temporarily exempts certain employers from making social security contributions, legal experts noted.

"Those provisions, worth in excess of 25 billion euros [approximately $29 billion], are aimed at supporting businesses" adversely affected by the pandemic, said Massimiliano Biolchini, an attorney with Baker McKenzie in Milan. Emergency legislation in Italy has injected a total of 100 billion euros—approximately $116 billion—into the social and economic system, he said.

The August decree follows the Italian government's March directive similarly aimed at supporting businesses and workers economically harmed by the pandemic.

"All employers can benefit from the measures implemented by the decree, and they do not have to prove any financial distress," Biolchini said, although some organizations receiving extended wage-support funds will be required to make extra social security contributions.

"Individual and collective layoffs for redundancy have been frozen since March, although the decree introduces some flexibility for the first time since the beginning of the pandemic," he said, noting that the layoff freeze will end by Dec. 31. The dismissal restrictions don't apply to terminations for disciplinary or performance-related reasons.

Wage-Supplementation Funds

Employers that have reduced or suspended business activity because of the coronavirus can apply for access to a maximum 18 weeks of new wage-supplementation funds, in two nine-week periods, to be used from July 13 to Dec. 31.

They will be able to proceed with collective or individual layoffs only after availing themselves of those benefits for 18 weeks, the full support period provided under the decree, said Lea Rossi, an attorney with Toffoletto De Luca Tamajo in Milan.

Previously authorized wage-supplementation funds used even partially after July 12 apply to the first nine-week period under the new decree.

Companies using funds for the second nine-week period will have to pay an additional social security contribution amounting to 9 percent or 18 percent of employee salaries, depending on the revenue loss sustained, if any. Companies losing 20 percent or more revenue, or that started business activity after Jan. 1, 2019, won't have to pay the additional social security contribution.

In addition, employers that don't request access to the new wage-supplementation funds and who already benefited from previous state support in May and June will be exempt from paying social security contributions for a period equal to twice the hours of funds used, up to four months, with dismissals possible at the end of the exemption period, Rossi noted.

Layoff Rules

Employers that don't plan to seek the new wage-supplementation funds and choose not to, or can't, benefit from the social security contribution exemption may not carry out a collective or individual layoff until Dec. 31, the last day for requesting access to the wage-support funds, Rossi said.

The legal experts noted, however, that a company may dismiss employees collectively or individually if:

  • It permanently ceases operations through liquidation.
  • Declares bankruptcy without temporarily continuing operations.
  • Enters into a collective agreement with unions aimed at encouraging voluntary employee separations.

Even though the layoff ban doesn't apply to dismissals for poor performance or disciplinary reasons, employers should proceed carefully with terminations in this period to avoid any risk that the court would consider them to be economically motivated dismissals in disguise, Rossi cautioned.

Fixed-Term Employment Contracts

The decree also temporarily changes rules for fixed-term employment contracts.

Before the coronavirus pandemic, such contracts generally couldn't exceed 12 months, with employers needing to justify any extension beyond that period, according to Rossi. Normally, employers can extend fixed-term contracts for up to another year only for certain reasons, such as the need to replace other employees or because of a significant, unpredictable peak in business activity, she said.

Under the decree, companies can extend fixed-term contracts for up to 12 months without providing a justifying reason, so long as they announce the renewal by Dec. 31, said Rossi. The maximum length for such contacts remains 24 months, unless otherwise specified in collective bargaining agreements, she added.

Exemptions

Biolchini said the decree also introduced a social security contribution exemption up to six months through year-end for companies hiring workers on open-ended employment contracts, including those transforming fixed-term into open-ended agreements. It also reduced social security charges by 30 percent for employers with production facilities in southern Italy, he said.

Davide Boffi, an attorney with Dentons in Milan, wrote in a blog post that the decree includes a temporary exemption on social security contributions for fixed-term or seasonal employment agreements in the spa and tourism industries.

Italy's coronavirus state of emergency ends on Oct. 15, so employers in the meantime should look for any potential new provisions, including those covering remote working, or "smart-working" arrangements, wage-supplementation funds and financial incentives, Rossi said.  "Given the particular situation that we are facing, it is highly recommended [that] companies ensure they are constantly updated."

Dinah Wisenberg Brin is a freelance reporter and writer in Philadelphia.

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