Debate begins on flexibility in small firms

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At present, Italy's Workers' Statute, which sets out certain employment rights, does not apply to firms with fewer than 15 employees. In January 1999, the Prime Minister, Massimo D'Alema, proposed that - in order to encourage the growth of small firms - the provisions of the Statute, should, as a temporary measure, also not be applied to firms which grow over the 15-employee threshold.

The Italian production system is characterised by the strong presence of medium-to-small firms. According to the Istat national statistical office's census for 1996, firms employing fewer than 10 workers account for 94.8% of the total, and only 0.07% of firms have more than 250 employees. A further distinctive feature of Italy is the presence of systems or networks of small firms located mainly in certain north-eastern and central regions of the country. These firms operate in traditional sectors like textiles, clothing, footwear or furniture, but also in machine tools.

As far as industrial relations are concerned, small firms differ from larger companies in that the provisions of the Workers' Statute (law No.300 of 1970) do not apply to firms with fewer than 15 employees. These firms differ from larger companies in two main areas:

• dismissals. As regards individual dismissals, firms with fewer than 15 employees can more easily fire workers. By contrast, dismissals in firms with more than 15 employees must be for "just cause" - otherwise the workers concerned have the right to reinstatement in their jobs. As regards collective dismissals, only firms with more than 15 employees are obliged to notify and consult the unions; and
• trade union rights. Workplace representation is not envisaged in firms with fewer than 15 employees, although "inter-company delegates" may be elected. Moreover, trade union assemblies may not be held at workplace. A further difference lies in the way in which time off for trade union activity is calculated. Changes in this field may be introduced by the bill on workers' representation currently being discussed in parliament (IT9804226F).

The Prime Minister's proposal

During a meeting held at the Bocconi University in Milan at the end of January 1999, Prime Minister Massimo D'Alema addressed a number of issues concerning the Italian production system. He argued that it was necessary to devise, jointly with the unions and employers' associations, mechanisms to foster the growth in size of firms with fewer than 15 employees. A crucial aspect, he declared, were the rules that apply to firms with more than 15 employees. In fact, he claimed, numerous small firms prefer not to exceed the 15-employee threshold in order to avoid the constraints imposed on them.

In Mr D'Alema's view, therefore, greater flexibility should also be introduced for firms with more than 15 employees. In a similar manner to the provisions of "gradual alignment" and "discount" agreements - which provide for wages lower than those set by sectoral collective agreements in certain circumstances (IT9706207F) - the Prime Minister has suggested that for a limited period of time (two years, for instance) the rules of the Workers' Statute that normally hold for firms with more than 15 employees, should not be applied to small firms undergoing growth.

Mr D'Alema's proposal has initiated a wide-ranging debate on flexibility in small firms. Confindustria, the main employers' organisation, has reacted favourably to the proposal. On several occasions in the past, Confindustria's chair, Giorgio Fossa, has argued that the existence of the 15-employee threshold hampers the growth of small firms. Moreover, the rigidity of the Italian labour market is seen by the employers' association as one of the main obstacles to employment creation. Unlike flexibility at work-entry level, where a number of changes have been made (eg the introduction of training/work contracts, temporary agency work, fixed-term contracts, reform of the job placement system), nothing has changed in "job-exit" flexibility (ie the ease of dismissal). Confindustria hopes that the Prime Minister's proposal will eventually give rise to new legislation in this area.

The reaction from the trade union confederations, however, has been extremely hostile. According to the general secretary of Cgil, Sergio Cofferati, in Mr D'Alema's view trade union rights and the rules on dismissals are implicitly seen as obstructing the growth of firms. This, says Mr Cofferati, is extremely wrong: rather, union rights and protections should be extended to cover all types of employment relationships. Furthermore, Sergio D'Antoni, secretary of Cisl, has expressed opposition to the Prime Minister's proposal, declaring that the best way to foster employment growth is to act on economic development. For this purpose, the government should respect the pledges made in the "social pact" signed in December 1998 (IT9901335F). Mr. D'Antoni has also pointed out that many small firms have many fewer that 15 employees - in fact, there is a large number of firms in Italy with only three or four employees.

Criticisms have been voiced on the political front both by the opposition parties and by some parties in the governing coalition, including left-wing elements in the Democratic Left (Democratici di Sinistra) and the Italian Communists' Party (Partito dei Comunisti Italiani) - a split from the Communist Refoundation Party (Partito della Rifondazione Comunista).

Commentary

Flexibility is one of the most controversial issues on the agenda for the social partners. In the employers' view, the reduction of rigidities is a major factor in encouraging growth and job creation. In particular, they consider the difficulties encountered by firms with more than 15 employees in making individual dismissals as one of the main factors that impede new recruitment. According to the trade unions, by contrast, flexibility cannot be seen merely as a way to reduce workers' protection - there is not only numerical flexibility but also functional flexibility, working time flexibility and wage flexibility (IT9710214F).

Since the second half of the 1980s, the rules regulating the employment relationship in Italy have been made progressively more flexible, a process managed jointly by the social partners. As a consequence, a polarisation has opened up in the Italian labour market between workers enjoying extensive protection and those who are less protected, like the employees of firms with fewer than 15 employees and those hired on "atypical" work contracts.

Establishing a relationship between greater flexibility in dismissals and employment growth is somewhat problematic. The consolidation of small firms seems to depend more on factors like, for example, entrepreneurship (many small firms are family-run enterprises), investments or access to credit. One might, however, instead hypothesise that greater freedom to dismiss might facilitate labour market entry because firms could easily hire, but also fire workers according to production trends. (Marco Trentini, Ires Lombardia