Types of employment contracts.
What are the main types of employment contracts in Italy?
Our team of qualified lawyers and labor consultants regularly assist clients in relation to employment contracts, intra-company transfers in Italy and payroll.
Our services include:
- Reviewing employment offers
- Drafting employment contracts
- Reviewing employment contracts
Italy’s “Jobs Act” labor reform – A more flexible labor market.
Italy has recently implemented a substantial reform of the labor market (known as “Jobs Act”) aimed at creating a modern, competitive and non-discretionary environment.
- Limited reinstatement to cases of discrimination proven by the concerned employees;
- Limited Indemnity amounting to 2 months’ salary per each year of seniority;
- Out-of-court settlements (the new law on dismissal encourages the parties to find a prompt and amicable out of court settlement; example: should the employee accept an offer of 1 month per year of seniority, up to a maximum of 12 months, a substantial tax exemption applies);
- Court litigation (the court litigation has dramatically fallen (approx. 70% reduction of court cases concerning dismissals and end of fixed term) and the length of first degree employment Court litigation has fallen to 7 months))
- New powers for the employer that has now a wide power to freely decide the duties to which the employee must be assigned to during the employment relationship;a new unemployment benefit program, with more stringent requirements to activate benefits;
- a renewed active labor market policy system, through more effective employment incentives and improved employment services, to enhance demand and labor supply matching;
- a revision of wage supplement scheme for redundant workers;
- the establishment of a single inspection agency to coordinate activity and avoid multiple controls in the same plant;
- a three year cut in employers’ social contributions (up to € 8,060 a year);
- no local tax surcharge (IRAP) for newly hired permanent workers.
Employment contracts (contratto di lavoro) are required by law for each member of staff employed. The two main types of labor contracts are:
- temporary employment contracts (contratto a termine and contratto a tempo determinato), and
- permanent employment contract (contratto a tempo indeterminato)
Employment contracts regulate the main aspects of the working relationship between employer and employee including job title, salary, responsibilities and duties, entitlement to sick pay and holidays, and applicable probationary and notice periods.
Part-time employment contracts must be in writing and specify the hours of work (e.g. by day, week, month and year). Pay and other entitlements of part-time employees are normally pro-rated to those applicable to full-timers in the same job entitlement. Ancillary clauses to part-time contract can be added, which allow employer a wider flexibility:
- “elastic clauses” (clausole elastiche) which permit an employer to increase working time;
- “flexible clauses” (clausole flessibili) which permit an employer to vary working hours during the day.
Fixed term contract
Companies can hire employees on a fixed-term contract for arrangements limited by time. Fixed-term contracts can last up to 36 months, including any extension. Quantitative limits are normally set by the NCAs; alternatively, the law states that the overall number of fixed-term contracts may not exceed the 20% threshold of the workforce hired on a permanent basis.
Fixed-term contracts cannot be used to replace workers on strike or to replace employees temporarily laid-off or involved in collective dismissals in the past few months.
“On call” Jobs (Lavoro a chiamata o intermittente)
On call” job contracts provide that an employee declares his/her availability to work over a certain period, during which he/she can be called in, even for a few days, only with short-term notice. The individual contract may provide that the employee is bound to work if called by the employer. In this case, in addition to the normal remuneration paid for the working activity currently carried out, the employee is eligible for an additional 20% of the wage set by the NCAs. This contract must be drafted in writing.
Apprenticeship is an open-ended contract with a vocational training content. The employer can hire apprentices within certain quantitative thresholds depending on the number of employees hired and must ensure that the apprentice acquires professional skills and qualifications.
Temporary Agencies Contracts (Contratto di somministrazione di lavoro)
Temporary contracts, on a fixed-term or open ended basis, can only be agreed to qualified employment agencies. Workers must benefit from the same legal and economic conditions available to employees of the user company. Employers may not use staff supply contracts to replace workers on strike to replace employees temporarily laid-off or involved in collective dismissals in the previous few months.
Categories of employees.
Under Italian law, there are 4 categories of employees:
- Executives (“Dirigenti”);
- Middle managers (“Quadri”);
- White collar employees (“Impiegati”);
- Blue collar employees (“Operai”).
Given the existence of a large number of NCAs and their extensive use by the employers, employment agreements in Italy normally consist of simple hiring letters which refer to the items required by the law including, the identity of the parties, place of work, employment start date, trial period (if any), duration of the employment (in case of fixed-term employment) and enrollment, employee’s duties) and to the provisions contained in the applicable NCAs.
Despite the fact that collective agreements normally define general principles that regulate the employment relationship of executives, general and specific conditions are often negotiated through individual agreements.
Middle managers are defined as employees who, while not top executives, are continuously engaged in duties that contribute significantly to promoting the company’s growth and achieving its goals. According to a limited number of collective agreements, employers are required to insure middle managers against claims for civil liability brought by third parties as a result of negligence in their duties.
Employment contracts can be made in any language, provided that both parties are able to fully understand the content of any provision therein.
Start of the employment relationship
At the establishment of any employment relationship, the employer must notify the competent public employment service (“Centro per l’Impiego”) at least 24 hours prior to commencement. This notification also fulfills the obligation to notify the relevant social security institutions (i.e. INPS and INAIL).
If provided for by law, an employer must also stipulate insurance policies against risks and damage suffered by third parties caused by employees fulfilling their employment duties.
The statutory trial periods are the following:
- 3 months, for employees not assigned to managing functions;
- 6 months, for all other employees.
However, the probation period is commonly set in the relevant NCAs depending on the category of the employee.
During the trial period, either party may freely terminate the working relationship at any time, without any notice, obligation or payment of the relevant indemnity in lieu.
Holidays and leaves
A local saint’s day (variable on the local tradition of each city) is also considered a public holiday for the relevant territory. Public holidays that fall on the weekend do not entitle absence from work on the nearest weekday, but employees are entitled to their normal pay. Statutory annual vacations amount to 4 weeks.
The employer normally decides when workers can take vacation based on company and production interests and taking into account (where possible) employees’ needs. NCAs normally provide for, in addition to the statutory minimum, a further period of paid vacation that is increased with seniority service.
The law states that at least two weeks have to be taken in the same year. Up to two weeks of unused vacation may be postponed, but it must be taken within 18 months following the accrual year.
Employees are entitled to pay in lieu of unused vacation upon employment termination.
Employees are entitled to 3 days of paid sick leave charged to the employer. Pay replacement benefits are provided by the social security system from the 4th day of illness to the 180th day. Certain NCAs require employers to top up social security benefits to 100% of salary. During sickness, the contract is suspended and the employees’ seniority is protected.
Employees cannot be dismissed before the end of a minimum period prescribed by the applicable collective agreement. After that period, an employer may terminate the contract.
Pregnant female employees are entitled to 5 months of maternity leave, from the second month prior to the due date to the third month after birth. The last 3 months can be extended to 7 months in specific cases. Pay replacement benefits are provided by social security. Any work that might be considered harmful is forbidden during pregnancy.
During maternity leave the employment is suspended and seniority is protected.
Non competition agreements
According to Article 2125 of the Civil Code, written non-compete covenants are allowed provided that:
- adequate compensation is granted to the employee;
- duration of the agreement does not exceed 3 years for normal employees and 5 years for executives; and
- it is circumscribed from a business and territorial standpoint.
Italian law does not provide specific criteria with regard to identifying adequate compensation and the scope of activity or territory. Therefore, in case of disputes, such criteria are determined by the Court on a case by case basis.
In the event of a temporary crisis, the employer may use the “redundancy fund” (“Cassa Integrazione Guadagni”, CIG) which is a collective suspension from work of the blue and/or white collar employees, allowing the latter to continue receiving up to 80% of the normal wage charged on a special fund held by the social security institute.
Contact us for more information about employment contracts in Italy