Italy: Changes to fixed-term contracts
The new rules governing fixed-term contracts are considered an important step in making employment relationships more flexible. Although employers’ association are generally positive, several issues temper their enthusiasm for the new rules. The trade unions have taken up differing positions, with CGIL alleging lack of consistency with the principles set out in Directive 1999/70/EC.
New regulation on fixed-term contracts
The rules governing fixed-term contracts were modified by Decree Law No. 34 of 20 March 2004 converted into Law No. 78 of 16 May 2014. The new legislation is in line with current developments in labour law, in which the legal system no longer regards fixed-term labour contracts with disfavour – reversing a trend that has lasted since the beginning of the 20th century. Indeed, the new economic and social context of recent decades has progressively consolidated the idea that there is a strong link between a more flexible employment relationship and rises in employment levels.
However, Council Directive 1999/70/EC clearly maintains that the stability of employment relationships is a key pillar to protect the weaker party to a contract. This directive – which implements the framework agreement on fixed-term contracts concluded by the European Trade Union Confederation (ETUC), the European Centre of Employers and Enterprises Providing Public Services (CEEP) and the Union of Industrial and Employers’ Confederations of Europe (UNICE, now BUSINESSEUROPE) on 18 March 1999 – confirms that open-ended employment contracts must be the general form of employment relationships. It envisages general principles and minimum requirements to be included in the rules governing fixed-term employment relationships. The directive has a two-fold objective:
- to ensure compliance with the principle of non-discrimination against workers employed under fixed-term contracts;
- to prevent abuse arising from the use of successive fixed-term working relationships.
The recent reform in Italy is not fully consistent with the constraints established by the directive. The reform:
- removes the obligation for the employer to indicate the specific (technical, productive, organisational or substitutive) reason (the so-called causale) for which fixed-term employment has been stipulated;
- abolishes the need for objective reasons for the extension of contracts;
- allows the possibility to extend contracts up to five times;
- establishes a maximum total duration of fixed-term contracts;
- sets out a maximum number of fixed-term contracts that can be stipulated by each employer;
- lays down an administrative sanction for violations of the maximum number of fixed-term contracts allowed.
By eliminating any reference to reasons, the legislator has shaped a system based on the employer’s freedom to make use of fixed-term contracts. This is limited by three external elements:
- a maximum duration of 36 months for fixed-term employment relationships;
- a maximum of five contract extensions;
- the possibility for the employer to hire temporary workers up to a maximum of 20% of the total number of employees.
Social partners’ position and consistency problems with the directive
The social partners, which were not involved in the reform, have taken up different positions.
Although the major employers’ associations have taken a positive and conciliatory approach to the reform, there are two issues that strongly reduce the scope of the new set of rules and, as a consequence, limit the interest shown by such associations.
The first issue relates to the quota clause to be applied to fixed-term contracts as the limit fixed at 20% by law could clash with the different percentage limit set out by almost all national collective bargaining agreements (NCBAs). In fact, the legislation expressly establishes that, when the new set of rules is applied for the first time (that is, until the adoption of new contractual arrangements), the different limitative clauses contained in collective agreements should not be affected. Moreover, it is deemed that there is no limitation for future collective bargaining which might thus waive the threshold set by law.
The second issue concerns the repeal of the obligation to state reasons within fixed-term contracts: this obligation survives in several collective agreements and cannot be cancelled by the new legislation. These circumstances could significantly slow down the process of liberalising fixed-term contracts. For this reason, employers’ associations, despite some positive declarations, seem to exhibit indifference towards the new set of rules, whose impact is severely constrained by different provisions contained in collective agreements.
As far as the union confederations are concerned, there is evidence of a rift.
On the one hand, the Italian Confederation of Workers’ Trade Unions (CISL) and the General Workers' Union (UGL) share the same approach to the reform and point out that the new set of rules on fixed-term contracts fosters forms of fair flexibility (that is, flexibility that is able to bolster the labour market).
On the other hand, the Union of Italian Workers (UIL) has rejected the new rules. UIL states that the reform not only seems to disregard production differences throughout Italy (characterised by the strong diversity, both quantitative and qualitative, of the labour market), but it also represents another failed opportunity to regulate the labour market by adopting a long-term perspective.
Strong criticism by CGIL
The reform has also been strongly criticised by the General Confederation of Italian Workers (CGIL), which has outlined possible inconsistencies between the new system and the directive. As a consequence, CGIL has filed a complaint with the European Commission about the breach by Italy of obligations descending from EU legislation.
The key point at issue is the alleged non-compliance of the new rules with the principle that open-ended employment contracts should be the general form of employment relationships.
In the opinion of the trade union, the total lack of causality in connection with contracts and extensions would expressly breach such a principle since the employer is allowed to hire employees under fixed-term contracts to satisfy even long-term business needs. According to CGIL, fixed-term employees could be kept in a condition of job insecurity not only for a 36-month period – the maximum length allowed by the rules – but also for a further 36 months by simply modifying workers’ job tasks. This factor, along with the possibility provided for in collective bargaining agreements to waive legal provisions, would give rise to a situation of semi-permanent job insecurity, making fixed-term contracts the new general form of employment relationships. In addition, the introduction of the new administrative sanction means employees can no longer resort to legal proceedings to convert their employment relationship into an open-ended one.
With reference to the case law of the European Court of Justice (ECJ), CGIL focuses on the removal of the obligation for the employer to indicate the specific (technical, productive, organisational or substitutive) reason (causale) why the fixed-term contract has been stipulated. The removal of this obligation allows the greatest possible freedom to stipulate, renew and extend fixed-term contracts, and gives rise to a strong risk of abuse of such contracts. This risk cannot be neutralised through the provision of a maximum total duration of fixed-term contracts.
CGIL also comments on the measures imposed on Member States by the directive to avoid the misuse of successive fixed-term contracts. Clause 5 of the framework agreement implemented by the directive demands that Member States adopt within their legal system one or more of the following measures aimed at establishing:
- objective reasons for justifying the renewal of fixed-term contracts or employment relationships;
- the maximum total duration of successive fixed-term contracts or employment relationships;
- the maximum number of renewals of the aforementioned contracts or employment relationships.
According to CGIL, the new rules do not comply with the obligations imposed by the directive, although they do provide for a maximum contract duration of 36 months.
Building upon ECJ case law, CGIL considers that the rationale of the directive (that is, the aim of avoiding the abuse of successive fixed-term contracts) precludes national legislation from permitting the use of fixed-term contracts as a means to cover the fixed and permanent needs of the employer. Essentially, the trade union holds that none of the proposed measures may be used to automatically justify the establishment of fixed-term employment relationships that in practice meet the employer’s long-term needs. Otherwise, employers would ultimately be able to avail themselves of the tools provided for by the directive so as to circumvent its purpose and thus evade its final objective.
Finally, there are also problems in relation to Clause 8, paragraph 3 of the framework agreement (the so-called ‘non-regression clause’), which precludes Member States from using the implementation of the directive to lower protection standards for workers. The prohibition is based on the assumption, which is not unanimously agreed upon in legal literature, that to prevent the non-regression clause from being easily evaded, it must not be grounded solely on national legislation.