The Constitutional Court strikes down the indemnification criteria for unlawful dismissals set forth by the Jobs Act of 2015

Background

In the last few months, first the Parliament, then the Constitutional Court, have intervened on the rules enacted within one of the main labour law reform passed in the last years, enacted in 2015 and known as Jobs Act, regarding the indemnification criteria which the courts are required to apply in case of dismissals declared as unlawful.

The Jobs Act of 2015 had introduced, inter alia, a groundbreaking mechanism for quantifying monetary indemnities in the event dismissal is judicially regarded as unlawful, to apply by the courts in respect of non-executive employees hired on an open-ended basis since the 7th of March 2015 onwards.

According to the original wording of the Jobs Act, in the event a dismissal for disciplinary or economic reasons was regarded as not legally grounded by a court, the employer was obliged by the judge to pay out the employee an indemnity amount determined only on the basis of the individual’s seniority.

In particular, such indemnity was corresponding to an amount equal to 2 months’ salary per each year of service, in a range from minimum 4 to maximum 24 month’s salaries (except for specific situations such as dismissals held discriminatory, due to work inability, etc., subject to special rules).

After more than three years from its enactment, in August 2018 the Parliament has intervened on the aforesaid discipline and, with the aim of strengthening the protections for dismissed employees, has amended the Jobs Act by extending the range of the indemnity between minimum 6 and maximum 36 months’ salary, keeping it linked to the work seniority in the measure of 2 months’ salary per each year of service.

 The judgment of the Constitutional Court

With a verdict issued on November 8, 2018, the Constitutional Court ruled that the indemnification criteria set out by the Jobs Act, also considering the amendments made in August, are not aligned nor compliant with the Italian Constitutional Chart.

In detail, the Constitutional Court has held that the indemnification mechanism set out by the Jobs Act of 2015, since linked to the employee’s work seniority only, is in contrast with the constitutional principles of reasonableness, equableness and the right to work, which have to actually ensured in respect of any individual.

Furthermore, according to the  constitutional judgment, the rules on dismissals contained in the Jobs Act of 2015 are not in line with the laws of the European Union, particularly with the European Social Charter enacted in 1961, which provides that employees who are dismissed without legally valid reasons have right either to receive a fair compensation or adequate remedies.

 Future scenarios

As an effect of the ruling at issue, Italian courts will no longer apply any automatic indemnification criteria linked to the employee’s seniority as set out by the Jobs Act. Although the law does currently provide any alternative route to be followed, it is predictable that, in the current lack of guidelines set out by the law, courts will generally determine the amount of the indemnity for unlawful dismissal on a case by case basis, within the range from 6 to 36 months’ salary, taking into account not only the employee’s seniority but also other features of the matter case (i.e. number of employees and size of the company, behavior and economic situation of the parties, etc.).

In such perspective, the verdict of the Constitutional Court would bring a benefit to the employees with a short seniority, since should their dismissals be regarded as unlawful by a court, they may have chances to receive a monetary indemnity even quite higher than the one which they would have received pursuant to the Jobs Act’s rules.

It is likely that a new act of law is enacted in the next few months in order for clarifying the rules to be applied by the judges for quantifying the indemnity, hence solving out the situation of uncertainty which is currently affecting not only the courts, but also and above all, the employers.

The verdict issued by the Constitutional Court does not impact on judicial cases which have been already defined by means of final verdicts or on the settlement agreements already executed with dismissed employees.

Finally, it is worth mentioning that the significant changes to the discipline of indemnifications for unlawful dismissals follow a structural law reform on fixed-term employment agreements passed in August 2018, which has introduced significant restrictions concerning duration, extensions and renewals of such type of contracts.