Friday, September 23, 2011

Italy: Recent Developments and Trends in Italian Labor Relations

By Massimiliano Biolchini, Partner, Baker & McKenzie, Milan, Italy

The entire Italian labor law framework and system of industrial relations are presently undergoing a legal earthquake, the effects and consequences of which are still difficult to fathom.

This is mainly the inevitable outcome of a chronic lack of regulation concerning enforceability of national and local collective bargaining agreements. In fact, more than 60 years after the Italian Constitution came into force, no trade union organization has ever sought recognition for a legal status which, under article 39 of the Constitution, would grant them the power to negotiate collective agreements which would be binding for all employees of a certain industry (for national or territorial collective agreements) or business unit (for shop collective agreements). The collective agreements negotiated by the major unions have de facto been applied to all employees until now, but in recent months several disruptive events cast serious doubts on a system that seems to no longer be working.

1. Two different collective agreements applicable in the same industry?

The need for an urgent reform of union representation became dramatically evident in 2009, when the major union federations at national level split up and the biggest and most representative one (CGIL) refused to sign the industry national collective agreement, in both the metalworking sector (which covers business strongholds such as telecoms, engineering and information technology), and the tertiary and commercial sector (which includes retail and service companies).

In April 2011, the Turin Labor Court (home of FIAT) upheld a petition by CGIL-FIOM (the metalworkers’ union affiliated to CGIL) and issued several much debated injunctions to force defendant companies to restrict application of the 2009 collective agreement for the metalworking sector to only non-CGIL-FIOM affiliates, while requiring CGIL-FIOM affiliates to remain subject to the previous collective regulation signed also by CGIL-FIOM in 2008 and due to expire at the end of 2011[1]. The Modena Labor Court issued a similar decision in a case where FIOM had sued seven different employers (including Maserati, Ferrari and New Holland)[2]

In fact, for the first time, these judicial precedents have dramatically disrupted the principle that all employees in one company or business unit should remain subject to one single national collective agreement at a time. The principle of law asserted by this ruling was that companies implementing the metalworking collective agreement should simultaneously apply two different collective agreements: the one signed on October 15, 2009, which is binding to all members of the unions which signed it and the previous one of January 20, 2008, which is binding to affiliates of CGIL-FIOM and to those employees who are not affiliates of any union or have not agreed to be bound by the 2009 collective agreement.

The situation called for an urgent intervention of the collective parties or eventually of the law to fix a clear framework about union representation and enforcement of collective agreements. A few other precedents from the same Court of Torino and other cities have ruled the exact opposite of the above, making the legal framework unreliable and guidelines for employers even more impossible to fathom

Also the tertiary (commercial and distribution) sector did not seem immune from the risk of a potentially disruptive clash with CGIL and their relevant branch for the commercial sector, Filcams.

As a matter of fact, CGIL-Filcams (the branch of CGIL for the commercial and tertiary sector) also refused to sign the new national collective agreement which was executed on February 26, 2011 and which is nonetheless universally applied to all employees in the relevant business sector. As a result, CGIL-Filcams has started circulating threatening “cease-and desist” letters to hundreds of companies, claiming application of the previous collective agreement of 2008 to all their members. The matter is not academic or idle: among other provisions, the 2011 collective agreement has introduced a widely innovative regulation on sick-leave, aimed at repressing possible abuses by penalizing employees who tend to report sick too often. Also paid time off has been materially reduced for new hirings with seniority below 4 years and everyone expected that sooner or later employees affiliated to CGIL-Filcams would challenge the new regulation as not enforceable against them.

2. The FIAT case: the fight for a new set of industrial relations

Between the end of 2010 and beginning of 2011 an unprecedented tug-of-war between FIAT – the major national car maker - and CGIL-FIOM garnered the spotlight of national and international media, the outcome of which may break the ground of a completely new system of industrial relations in Italy.

A full analysis of the complex case at hand exceeds the scope of this article, but suffice to say that FIAT promised relevant investments in a new company set up to run new lines of business at the Mirafiori and Pomigliano d'Arco plants in exchange for a new corporate collective agreement which, according to CGIL-FIOM, violates the law and heavily penalizes employees. As a result of months of intense negotiations and fierce union actions with broad national resonance, FIAT signed a shop collective agreement (replacing the national one) with all national unions except CGIL-FIOM, in spite of the fact that the same agreement was also approved by a large – yet not overwhelming - majority in a referendum held among all affected employees in the plants. To ensure that the new rules are individually binding on each employee hired by the new company, the agreement provided that each one of them has to explicitly accept the new rules.

Moreover, in what CGIL-FIOM perceived was a true sleight-of-hand, FIAT has barred CGIL-FIOM from entering the new company, appealing to a 1970 article of law which admits union representation in a company only by those unions which signed a collective agreement applicable to the same company. As a result, CGIL-FIOM filed a claim in court for anti-union behavior against FIAT, aimed at making the new collective agreement null and void on grounds that the entire scheme pursued by FIAT is in sheer violation of TUPE/ARD principles of law.

The Court’s decision was finally released on July 16, 2011
[4]. The judge seemed to adopt a compromise position between the two opposing arguments: he declared that the shop agreement departing from the national one is valid and enforceable. At the same time, he ascertained an anti-union behavior in barring CGIL-FIOM from exercising and organizing union activities at the Mirafiori and Pomigliano plants. Therefore, FIAT was ordered to grant CGIL-FIOM all union rights under the Labor Statute (e.g. appointment of union representatives, paid union leaves, call of workers’ meetings to discuss work-related matters, etc.). An appeal has already been filed by FIAT and a final decision is expected later this year.

3. The (controversial) response from unions and the Government

All major union federations (including CGIL) and the Employers’ Association (Confindustria) quickly realized that that the application of different collective regulations to different parts of the same workforce for reasons of their accidental union affiliation is simply unsustainable and too cumbersome to be managed by companies.

The absurd situation of the last months made clear how urgent was the intervention of either the legislator or the unions to fix clear and widely acceptable rules on union representation and the enforceability of collective agreements.

On June 28, 2011 the three major unions and Confindustria signed a general protocol pursuant to which shop collective agreements are enforceable on all employees, if signed by the majority of works council members. At the same time, shop agreements are allowed to derogate from national ones if the latter explicitly consent to the exception or in the context of a substantial economic crisis or significant investments by the Company to increase productivity. Such general protocol has been hailed by all commentators as a first important step towards a much needed and urgent reform of union relations and representation.

A further step, reaching out well beyond the intentions expressed in the June 28 protocol, was made by the government during the month of August 2011, when an urgent budget law-decree was enacted in order to face the impact of the financial crisis on the national economy.

In particular, article 8 of the “mid-Summer” law-decree provides that shop agreements may contain specific understandings aimed at increasing occupation and productivity.

These “specific understandings” are nothing other than provisions included in local or shop agreements signed between employers and most representative unions or works councils, which are allowed to derogate from statutory provisions of law and the regulation set forth by national collective bargaining agreements on wide-ranging subjects from classification and duties of employees, part-time, fixed-term and other flexible forms of work to temporary work and service contracts, working time, monitoring of working activities and, most notably, the consequences of dismissal (with the exception of cases of discrimination and maternity).

The same article 8 has also confirmed full enforceability of all shop collective agreements signed before the June 28 protocol and which have been approved by a majority vote of the affected employees. Nobody failed to notice – and some to loudly criticize – that the latter provision was obviously referring to the FIAT shop agreements in Mirafiori and Pomigliano, thus securing their enforceability against the risk that the appeal proceeding in Turin may overrule the decision taken in the first degree.

Article 8 of the budget law has been strongly criticized by many parts, particularly in relation to allowing the specific understandings to derogate from the law and the collective agreements. Some commentators have highlighted the risk of dismantling the Italian employment system and its protections, by allowing each company or even their local business units to enter into separate agreements with their works councils and establish their own peculiar rules, different from any other applicable locally or at national level. According to these commentators, this would be all the more dangerous in small and mid-size companies, where the internal works councils may be exposed to pressure by the employer or even blackmail by the employer of mass redundancies or relocation of activities abroad.

Particular concern has been raised in relation to the possibility of derogating from the legal protection against unfair dismissal afforded under the Labor Statute of 1970, a real stronghold of the unions for several decades.

In particular, article 18 of the Italian Labor Statute affords protection against unlawful or unfair dismissal to permanent employees working in a business unit employing more than 15 employees or a company employing more than 60 employees nation-wide. Employees unlawfully or unfairly dismissed can actually seek forced reinstatement into their previous job position and payment of damages, usually assessed in the number of monthly salaries missed from the date of dismissal up to the date of reinstatement, with a legal minimum of 5 months and deducting other income the employee may have derived in the interim from other working activities. In case of a favorable verdict, an employee can, however, use an option to reject reinstatement without need to state a reason: he or she will be entitled to payment of an indemnity in-lieu of reinstatement equal to 15 months, on top of the damages referenced above. Amending Article 18 of the Labor Statute, which came into force in 1970, has been a real taboo for the past several years, catalyzing strong union action and popular support any time that an attempt was made to reform it in a more employer-friendly way.

In the future, and for the first time in the history of modern employment and labor law in Italy, a shop agreement will be able to derogate from the provisions of Article 18, and rule for instance that in certain cases employees shall no longer be eligible to forced reinstatement but only to monetary damages, whose assessment may also be capped or increased.

A widespread debate arose among the media and legal commentators about the consistency of such regulations with several constitutional principles and the same tradition of employment law in Italy, which is centered on the primacy of statute law and the national collective agreements.

Lately, a national strike was called by CGIL (the largest Italian union) on September 6, 2011 against the budget law and its article 8. Since law-decrees have to be ratified by the Parliament within 60 days, or risk becoming void, the debate is still under way and we cannot predict what the outcome will be, also taken into consideration that, if confirmed, the new rules shall most likely be brought by CGIL in front of the Constitutional Court.

4. Conclusions

In the middle of one of the widest economic crisis in the modern history, strong forces are now pushing for radical reforms of the Italian employment and labor system, with the major Italian union federation, CGIL, standing alone to defend the fort of employment rights. Whatever the outcome of this major clash, a new trend is clearly dawning in the Italian labor system, gradually moving from a nationwide set of basic and strict rules indiscriminately applicable to all employees in a certain industry sector to more flexible and localized shop agreements, better suited to adapt to local and contingent needs.

On the other side, the August law-decree triggered a heated debate on the remedies against unfair dismissal. In other EU countries, by and large, reinstatement is the ultimate remedy for most serious cases and not the default sanction applicable to any case of unfair dismissal and regardless of the actual ability for the company to take the employee back. In Italy the discussion about any reform project on this subject is still highly ideological and any amendment to article 18 of the Labor Statute a real taboo, even though the economic crisis is apparently forcing all players to take a more pragmatic approach.

[1] FIOM CGIL v. Bulloneria Barge, April 18, 2011, Turin Labor Court; FIOM CGIL v. Tyco Electronics Amp Italia, April 26, 2011, Turin Labor Court.
[2] FIOM CGIL v. Emmegi spa and others, April 13, 2011, Modena Labor Court.
[3] FIOM CGIL v. Prima Industrie, May 2, 2011, Turin Labor Court; FIOM CGIL v. DM Elektron, May 17,2011, Tolmezzo Labor Court.
[4] FIOM CGIL v. Fiat, July 16, 2011, Turin Labor Court.