The Italian Court of Cassation, called upon to rule on the possibility of applying the joint and several liability provisions of Article 29 of Legislative Decree 276/2003 to service contracts other than those formally governed by Article 1655 of the Italian Civil Code (“contratti di appalto” in Italian parlance), with its recent judgment no. 26881 of October 16, 2024, has stated an important legal principle that extends beyond the issue of joint and several liability and impacts the entire legislative framework concerning fictitious labor outsourcing.
The judges of legitimacy, after reaffirming the background behind the joint and several liability stated in Article 29—that is, to avoid the risk of situations where workers suffer adverse consequences due to outsourcing practices—highlighted that, in the case of an atypical mixed-purpose agreement commonly used in large-scale retail, it is not a question of the precise classification of the contract, but rather “the need to determine whether a mechanism of outsourcing and detachment between the ownership of the employment relationship and the utilization of the labor activity was established, which could justify applying the guarantee provided by Article 29″.
Upon closer examination, however, the impact of this ruling seems to extend beyond the mere issue of joint and several liability because, regardless of the contract’s classification, it leads to the conclusion that the outsourcing arrangement and the resulting detachment between the formal holder of the employment relationship and the actual user of the labor are sufficient to justify not only the application of Article 29 but also of the entire regulatory framework designed to protect employees who are unlawfully used.
If as observed by the Court, the purpose of the analysis is to determine which party bears the “business risk“, it cannot overlook the other criteria outlined in the first paragraph of Article 29 of Legislative Decree 276/2003 to assess the lawfulness of a contract:
- the contractor’s organization of the necessary resources,
- the exercise of organizational and managerial power over the employees involved in the contract.
The three requirements mentioned are indeed the distinguishing features of a lawfulness contract as opposed to unlawful supply of labour. Although the Italian Court of Cassation, in this decision, focused on the business risk criterion, it is clear that assessing the lawfulness of the contract must also consider the organization of resources and personnel.
This holds true regardless of the legal classification of the contract governing the relationship between the parties, in any case where there is a separation between employer and user. Naturally, this does not apply if the labor supplier is an agency expressly authorized by the Ministry of Labor.
Furthermore, this interpretation should not be surprising if we consider that labor law as a whole generally prioritizes substance over form.
Consequently, any outsourcing arrangement lacking the required criteria risks being non-compliant with the law and may therefore be reclassified as irregular or fraudulent labor supply.
The ruling underscores the importance for companies to exercise caution with regard to these types of arrangements in light of increased judicial scrutiny, including in criminal matters, as evidenced by recent investigations into the fashion and logistics sectors and also by the italian legislator, who, with Decree Law 19/2024, has toughened the penalties for illicit or fraudulent labor supply, increasing the fines applicable in the event of violations and introducing imprisonment of 1 to 3 months depending on the severity of the violation.
In cases where the contract is deemed unlawful, the contracting company may face a range of adverse consequences, including the right of the supplied workers to demand the establishment of an employment relationship with the actual user from the beginning of the supply and to claim any unpaid wage and contribution differences that may have accrued.
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