The labour market in Italy: will reforms alone

create employment? From the Fornero Law to the

Jobs Act: changes in the labour market in the last two years

September 2014

2012: the request comes from Europe!  

The Monti Government used this slogan to introduce its labour market reform. Its aim was to make the labour market The European Commission had repeatedly urged Italy to make structural reforms. The Government decided to begin with the labour market.

“inclusive and dynamic, able to stimulate employment, social and economic growth and permanently reduce the unemployment rate”.  

On March 23, 2012 the Council of Ministers approved the Bill “New Provisions for the Labour Market with a Growth Perspective”. Few changes were made to the Bill during its short passage through Parliament (it was approved on June 27, 2012 with a vote of confidence in the Senate and the Chamber). Minister Elsa Fornero commented the result of this mediation between political parties as being

“a good balance ”.    

Approval of the Fornero Reform

Before that? Legislative initiatives regarding the labour market from 1997 to 2003

Labour market deregulation between 1997 and 2003 had indeed helped to increase employment, but at a price. Some privileges had been eliminated: !   less incentives to invest in improving workers’ skills; !   stagnation of productivity; !   no incentive to establish new industrial relations.    Dualism  of this market: !   on the one hand older workers enjoyed greater protection

with open-ended contracts; !   most younger workers were less protected with various

kinds of atypical and fixed-term employment contracts.

How to solve this dualism?

Italy needed to: !   reduce the imbalance between old and new workers; !   satisfy the EU’s requests by increasing exit flexibility and

establishing productivity-linked wages.

Novelties of the Fornero Reform

Belgio 91

Lituania 22

Estonia 22

The most important novelties of Labour Law n. 92/2012 involved: !   entry flexibility; !   exit flexibility; !   safety net measures; !   training and active labour policies.

Although open-ended contract is

“the standard form of employment”,

for first-time workers there is no longer any need to justify recourse to a fixed-term contract of less than 12 months (the so-called causalone). This kind of fixed-term contract is non-renewable but can be extended for a maximum of 50 days with no obligation to convert it into an open-ended contract. volontà politica

Entry flexibility

Apprenticeships

Apprenticeships  are

the main means

of access to the labour market by young people. The number of apprentices per company is proportional to its size; the minimum duration of the contract is six months. Companies cannot hire new apprentices if, over the previous 36 months, they have not re-employed at least 50% of previously-hired ones. Every apprentice is employed based on an “individual training plan”.

Atypical contracts are allowed, but with measures against abuse

Project work (co.co.pro.): !   the project must be clearly defined and directly linked

to one or more objectives which do not generically coincide with the routine activities of the company. The tasks must not require a low level of skill or be of a repetitive nature;

!   the basic salary is proportional to the quantity and quality of the job; moreover, project workers are entitled to the same minimum remuneration applied in the same sector for comparable salaried workers;

!   the employer or employee can terminate the work contract before its natural expiration date but only for just cause, or the employer may terminate it for manifest professional unsuitability of the employee.

Fake VAT numbers: how to prevent them?

Coordinated and continuous work relations exist when: !   the relationship lasts for at least eight months per year in

two consecutive years; !   the workers earns more than 80% of his/her income from

this activity in the period of two consecutive years; !   the employee has a permanent workplace on the premises

of the company.

There are some exceptions, for example when the employee is enrolled in a public registry of professionals.  

Accessory work

Accessory work contracts can only be stipulated when: !   the worker’s activities are entirely occasional; !   when the worker’s maximum income is less than € 5,000

per annum. This kind of work contract is regulated in detail for the agricultural sector. Work can be performed for a firm or professional service providers if remuneration does not exceed € 2,000 per annum. Payment has to be made using dated and numbered vouchers.

° Goodbye access-to-work contracts!

Access-to-work contracts, suppressed as of January 1, 2013, were incorporated into the employment incentives for disadvantaged workers envisaged in the Fornero Reform. Training apprenticeships and orientation programmes have been regulated.

Exit flexibility: the reform of art. 18

Dismissal for just clause or justified reasons? The judge decides between reinstatement or compensation of 14 to 24 months’ salary.

Dismissal for economic reasons? Reinstatement is limited to the extreme case of “manifest lack of justification”

What does this mean? In short, it means that if the reason for dismissal is non-existent the workers is reinstated in his job. Conciliation between the worker and the employer is obligatory in the case of dismissal for economic reasons in order to reduce, as far as possible, the number of work-related cases which can only be entered upon if conciliation fails.    

The reform of art. 18: unsolved issues

The reform of article 18 was enacted because many people believed that it would deter companies from hiring workers during a period of economic growth since they would not be able to dismiss said workers during a recession.

Unsolved issues: !   the definition of ‘dismissal for economic reasons’ is unclear; !   the reform intended to streamline labour legislation will

only be successful if the conciliation process is also successful.

Safety net measures

The Social Insurance for Employment Scheme (ASpI) was set up for former salaried workers with either open-ended or fixed-term contracts, including apprentices, who receive a monthly unemployment benefit. !   to access the scheme salaried workers must have paid their

social contributions during the last two years priori to dismissal; !   the allowance, proportional to their salary, is limited to up to €

1,119.32, which will be reduced by 15% every six months and again by 15% upon completion of their 12th month of unemployment.

The ASpI is paid for a maximum of 12 months to workers up to the age of 55, and for 18 months for workers over the age of 55. During the three-year period 2013-2015 said allowance may be paid as a lump sum if the former employee intends to invest it in the start-up of an independent economic activity. The Ordinary and Extraordinary Wage Guarantee Fund remain almost unchanged.

Training and active labour policies

Permanent apprenticeships are encouraged, i.e., recurrent v o c a t i o n a l t r a i n i n g a n d continuing improvement of the worker’s skills during his/her working life. .

And so spoke Renzi. As soon as his Government was sworn in, he announced a Jobs Act for March 2014, ,

to create employment rather than regulate it.

 

On  March 12, 2014, the Council of Ministers approved Decree Law n. 34/2014 “to enhance the employment rate and simplify burdens on businesses”. An urgent measure focusing on entry flexibility and youth employment to be achieved thanks to the simplification of fixed-term contracts and apprenticeships. The Government stated its intention was to “jumpstart employment”. In the introduction to the provisions in the text of the Decree Law, the Government declared the measure was adopted “due to the continuing employment crisis in which businesses have to operate”.

The Fornero Reform? A little muddled

The Decree Law was approved by the Chamber of Deputies during a second reading on May 15, 2014 after a vote of confidence. It was then converted into Law n. 78/2014. The only notable change to the text involved the number of times fixed-term contracts could be renewed. Renzi commented that

the most important thing was to maintain “the entire package drafted by the Government”.  

.

 

Jobs Act was signed into law in May 2014

Jobs Act: main points

!   The length of fixed-term contracts has been extended from 12 to 36 months for any work task.

!   Only 20% of an employer’s workforce may be hired on fixed-term contracts. Employers with under 5 staff members can always stipulate fixed-term contracts.

!   Fixed Term Contracts can be extended only 5 times within any given 36 month period (the Decree Law envisaged 8).

!   Financial sanctions equivalent to 20% of the salary for the first fixed time worker breaching the threshold, increasing to 50% of the salary for each additional breach.

Apprenticeship

!   Companies with more than 50 employees: hiring at the end of the training period is obligatory for at least 20% of the apprentices stabilised in the previous 36 months.

!   Every apprentice must follow a written individual training plan, and at least 35% of the hours envisaged in the contract must be dedicated to training.

!   Regions are responsible for training which may also be provided by companies or trade associations.

!   The school-work programme was introduced on an experimental basis for students in the last two years of high school.

Youth Guarantee: the EU Plan for youth unemployment

A register of young workers under 29 years of age has been set up as part of the Youth Guarantee Plan to facilitate employment and strengthen the link between labour supply and demand. .

No more paper DURCs    

The Single Insurance Contr ibut ion Payment Certificate (DURC) has b e e n a b o l i s h e d a n d replaced by an on line, real t i m e t o o l t o v e r i f y contr ibut ion payment regularity (validity 120 days after issuance).

   The Minister of Labour and Social Policies is required to perform a 12 month review of these new regulations to the two branches of Parliament, illustrating: !   its impact on trends in employment; !   fixed-term and apprenticeship contracts; !   age groups, geographical areas etc.

Litmus test: Report to Parliament

!   The position of the Government which appears to believe that rigid employment contracts, rather than the lack of demand, is the main problem affecting the labour market in Italy.

!   Greater entry flexibility is not considered a remedy to create economic growth and make business more competitive, on the contrary. Many people consider that the precarious nature of employment relationships deters companies from investing in the workforce.

!   The new provisions regulating an apprenticeship contract makes it increasingly similar to a fixed-term contract.

!   Creating new jobs, especially for young people by, once again, changing labour market rules is misleading. Growth and a new industrial policy is the recipe to create new employment.

       

Criticisms

When the Jobs Act was approved, the Minister of Labour Poletti said that the results of the reform would start to show after approximately 10 months. Five months have already passed so it’s too early to make a post-implementation assessment...

.but how is the labour market faring in Italy?

Poletti says: we’ll see the results in 10 months    

Leaving aside ideological standpoints and legislative technicisms, the latest statistics provided by ISTAT refer to June 2014 and indicate that: !   the total number of unemployed persons, 3,153,000, has

dropped 2.4% compared to May 2014, !   but has risen by 0.8% compared to June 2013. The positive effects of the Jobs Act are yet to come, but in the meantime no positive signs appear on the horizon. And so…

will the reforms alone create employment?

What is the employment/unemployment level in Italy?

Making fixed-term contracts easier is helpful only if they are stepping stones and ultimately converted into open-ended contracts. The reform will be beneficial only if a sizeable number of fixed-term contracts are converted into open-ended contracts. Between 1998 and 2010 there was an increase in the number of fixed-term workers and a drop in the percentage of stabilised workers; this trend has increased year by year. It’s too early to say what will happen in the future, but if this trend continues and the stabilisation rate drops, it’s very likely that the majority of new employees will be fixed-term workers.  

What’s the solution? Some people are demanding a system to encourage the conversion of fixed-term contracts into open-ended contracts, a solution which in the past has produced good results.

After the Poletti Decree: more fixed-term contracts, more precarious workers?

The debate between the detractors and supporters of Art. 18 has regained new momentum, but – surprisingly – the former ideological positions characterising the debate are now a thing of the past. The proposal currently on the table is to let workers collaborate in the management of enterprises envisaged by the Constitution of the Italian Republic (Art. 46), but never implemented. Even the CGIL - to date the most strenuous defender of Article 18 - has proposed

“a pathway to modernise industrial relations in Italy”.

   

From Art. 18 to the first forms of industrial democracy?

Article 4 of the Fornero Law envisaged the possibility to establish several different ways to involve the workers.            

A cultural shift?

Will this be the #svoltabuona (#goodturningpoint) that will modernise industrial relations in Italy and allow workers to actively participate in the management of their enterprise?