The Court of Cassation, in ruling no. 12932/2021, reiterated that the waiver of notice period by the employee and the related substitute allowance, formalised by a settlement agreement made after the notice of dismissal, does not affect the obligation to pay social security contributions to INPS.

Facts of the case

In this case, a bank, after having dismissed approximately 90 executives, signed a settlement agreement with them in which it was agreed to change the dismissal title from dismissal to consensual termination, with a simultaneous waiver by the executives of their notice period and related substitute allowance. Despite the agreement reached between the parties, the social security institution took legal action against the company claiming payment of social security contributions on the notice period substitute allowance.

The local Court of Appeal, reforming the decision of the first instance, upheld INPS’s claims, noting that the employment relationship was terminated with effect from the receipt of the letter of dismissal in which, instead of serving the notice period, the executives were paid the notice period substitute allowance. The substitute allowance constituted an element of remuneration that had already become part of the executives’ assets, and as such was subject to an obligation to pay contributions.

On this point, the Court of Appeal considered it irrelevant that a settlement agreement had been reached between the parties whereby each executive, a few weeks after the notice of dismissal, had waived the notice period and related substitute allowance.

Objecting to the court’s ruling, the losing company appealed to the Court of Cassation.

The Supreme Court of Cassation’s ruling

The Court of Cassation reiterated, as a preliminary point, that the obligation to pay contributions:

• is of a public nature, since it arises ex lege, and cannot be affected by the negotiated intention of the parties to regulate the obligation to pay in a different manner or to settle the dispute arising from the employment relationship by means of a settlement agreement; and
• being payable by the employer for the notice period following dismissal, it exists irrespective of whether the remuneration to which it relates has been paid or whether the employee has waived it.

According to the Court of Cassation, the fact that the notice period substitute allowance is subject to social security contributions follows from its nature as remuneration. Therefore, “it is at the moment in which the dismissal becomes effective that the employee’s right to the notice period substitute allowance arises and the consequent obligation to pay contributions: if the dismissed employee waives their right to the indemnity, such waiver cannot have any effect on the public obligation, which pre-exists at the time of the waiver and is regardless to it because the abdication comes from a party (the employee) other than the owner (INPS).”

In the Court of Cassation’s opinion, once the dismissal has been announced, the notice period substitute allowance – which falls within “everything that the worker is entitled to receive,” because of its intrinsic retributive value, is part of the autonomous and distinct insurance relationship which is completely irrespective of the disbursement and, to the defensive argument, if it is part of the worker’s assets.”

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According to the Court of Cassation, the employer and employee’s settlement agreement change the termination title from dismissal to consensual termination while waiving the notice period and the substitute allowance takes place after the employment termination. The obligation to pay contributions has already arisen in the insurance relationship, and the employer remains liable to pay INPS the contribution on the notice period substitute allowance.

Other related insights:

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• Unused holidays: right to the payment of the relevant allowance