The applicability of an exemption regime requires the taxpayer to provide rigorous proof of fulfilment of all factual prerequisites giving rise to compensatory damages.
The Court of Cassation, Tax Division, by Order No 8615 of 27 March 2023 returned to examine the complex subject of the taxation regime applicable to the compensation due in connection with demotion suffered by the worker.
The case on which the Court was called upon to rule related to a dispute between the Italian Revenue Agency (Agenzia delle Entrate) and a worker who, in the context of a legal proceedings for demotion, reached an out-of-court settlement with her employer who paid her a sum by way of ‘compensation for moral, professional and biological damage’.
Since there was no distinction between the compensatory headings, the Italian Revenue Agency deducted Italian Personal Income Tax (Imposta sul reddito delle persone fisiche, ‘IRPEF’) from the amount received by the worker, who, therefore, brought proceedings seeking its reimbursement. The Provincial Tax Commission rejected the worker’s application. In contrast, the Regional Territorial Court reversed the decision, upholding the application against the Italian Revenue Agency, and declaring that the exemption regime applied to the sums under discussion.
On the subject of taxation of employment income or similar, the Italian Income Tax Consolidation Act No 917/1986 (Testo unico delle imposte sui redditi, ‘TUIR’) identifies the category of replacement income for employment income. Article Section 6, paragraph 2 of TUIR provides that thefollowing constitute income, of the same category as that replaced and/or lost, regardless of the reason for the payment: (i) income earned as replacement income, including as a result of the assignment of the related receivables; (ii) indemnities received, including in the form of insurance, as compensation for damages consisting in the loss of income, excluding those resulting from permanent disability or death.
The rationale behindthe legislation is that only the payments, emoluments or compensation that have resulted in the enrichment of the subject should be considered taxable.
For this purpose, a distinction is made between (i) loss of profit, i.e. the loss of income that is recognised as belonging to the same category as lost or replacement income (under Article 6, paragraph 2 of TUIR); (ii) consequential damages, i.e. the restoration of assets, namely compensation intended to cover the financial loss and not to replace lost income.
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The Court of Cassation, in its recent Order No 3361 of 3 February 2023, reiterated its consistent approach concerning the allocation of the burden of proof in anti-discrimination judgments, specifying that the allocation criteria do not follow the ordinary criteria of Article 2729 of the Italian Civil Code, but rather the special ones that establish a concession in favour of the applicant.
The burden of proof in discrimination matters
Under Article 25, paragraph 2-bis of Italian Legislative Decree No 198/2006 (Equal Opportunities Code) any treatment which, by reason of the state of pregnancy, maternity or paternity, including adoption, or by reason of the ownership and exercise of the corresponding rights, places the worker in at least one of the following conditions, constitutes discrimination:
With reference to the allocation of the burden of proof, Article 40 provides that where the applicant provides factual evidence, including statistical data on recruitment, remuneration schemes, assignment of tasks and qualifications, transfers, career advancement and dismissals, capable of establishing, in precise and consistent terms, a presumption of acts, agreements or conduct which are discriminatory on grounds of sex, the burden of proof as to the non-existence of the discrimination lies with the defendant.
The Court of Cassation interpreted this provision to mean that it ‘does not reverse the burden of proof, but only mitigates the ordinary evidentiary regime in favour of the applicant, providing that the employer, in line with the provisions of Article 19 of Directive No 2006/54/EC (as interpreted by the EU Court of Justice 21 July 2011, C-104/10), bears the burden of proving the non-existence of discrimination, but on condition that the applicant has previously provided the court with facts, also inferred from statistical data, capable of establishing, in precise and consistent terms, even if not serious, the presumption of the existence of acts, agreements or conduct which are discriminatory on grounds of sex’ (Court of Cassation No 25543/2018).
Consequently, the Court of Cassation stated, ‘the burden is on the worker to allege and demonstrate the risk factor and the treatment he assumes to be less favourable than that reserved for persons in similar conditions, while at the same time deducing a significant correlation between these aspects, while the employer must deduce and prove unequivocal circumstances, capable of excluding, for the sake of clarity, seriousness and consistency of meaning, the discriminatory nature of the termination’ (Court of Cassation No 23338/2018).
It follows, on a practical level, that in anti-discrimination proceedings, the employee who invokes the unlawfulness of the conduct is required to prove – also by means of presumptive evidence – that the treatment is less favourable than that received by colleagues in similar conditions. The employer, on the other hand, in order to exclude her, will have to demonstrate that the decision would have been made with the same parameters also in respect of any worker without the risk factor who would have been in the same position (on the same basis, among many see: Court of Cassation, judgment No 1/2020).
Moreover, the need to make corrections to the normal criteria of the burden of proof in cases of discrimination – which makes it undoubtedly difficult for the worker to offer valid evidence in support of his or her allegations – had already been noted by the Community rules, to the extent that they offer all the individual Member States the freedom to provide for a less burdensome system of allocation of the burden of proof, expressly providing that ‘Member States shall take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent to prove that there has been no breach of that principle… [This Directive] shall not prevent Member States from introducing rules of evidence which are more favourable to plaintiffs’. (Directive No 2006/54/CE).
The facts of the case and the outcome of the proceedings of first and second instance
The case originates from the appeal under Article 38 of Italian Legislative Decree No 198/2006, brought by a female apprentice to obtain a finding of and redress for the allegedly discriminatory conduct of the employer in relation to the withdrawal of the professional apprenticeship contract. The worker complained, in fact, that out of approximately two hundred apprentices hired on a permanent basis, the applicant’s non-recruitment was related to her two pregnancies during her apprenticeship.
The court of first instance upheld the worker’s appeal against the decree rejecting her application issued at the end of the interim stage. The court ordered the company to cease the discriminatory conduct and to remove its effects, reinstating the employee in the job previously occupied, with the reconstruction of her career in legal and financial terms, as if the dismissal had never occurred.
The Court of Appeal reversed the first instance ruling, stating that the evidence put forward by the worker in support of the discriminatory nature of the employer’s conduct lacked the precision and consistency required to establish a presumption of discrimination that could only be overcome in the presence of negative evidence offered by the employer.
The territorial court observed that ‘the dismissal is a neutral act in itself, lacking consistency, even more so in the specific case where the notice of dismissal was communicated approximately 17 months after the second maternity leave; similarly, the extension of the training contract for a period corresponding to that of the absences due to pregnancy, maternity and illness, constituted a neutral factor inspired by the principle, for the protection of both parties to the contract, of guaranteeing the effectiveness of the training’.
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The Italian Court of Cassation, by order No 1095 of 16 January 2023, held that for the purpose of reclassifying a relationship of self-employment into a subordinate one, it is possible to use subsidiary evidence (such as the continuity of service, compliance with a predetermined schedule, the receipt of a fixed monthly fee, the absence of risk and an organisational structure on the part of the worker) where there is no direct evidence of employer direction.
The facts of the case
The Supreme Court’s decision arises from proceedings brought by an IT consultant who had worked under multiple consecutive self-employment contracts, on behalf of the principal, as a system assistant at the judicial offices of Arezzo.
The Court of Pisa, in the first instance, had rejected the application for reclassification, confirming the self-employment nature of the relationship in the absence of proof of the employer’s direction.
The worker appealed against this decision before the Florence Court of Appeal complaining that the first-instance judge had not given enough importance to all the evidence that, although not sufficient to demonstrate employer direction, was sufficient to constitute proof of the subordinate relationship between them.
In the context of the second instance judgment, the territorial Court, overturning the decision of the first instance judge, held that there was an employment relationship based on the following evidence:
The company appealed against the judgment of the Court of Appeal before the Italian Court of Cassation.
The Italian Court of Cassation’s decision
The Italian Court of Cassation rejected the appeal, confirming that the Court of Appeal, having failed to find direct evidence of so-called ‘employer direction’, had correctly resorted to circumstantial evidence which, in this case, constituted suitable and significant evidence of a para-subordinate relationship.
Therefore, even in the absence of employer direction, the Court of appeal found that the existence of a subordinate relationship had been proved as (i) there was control over the hourly and daily workload; (ii) the remuneration was commensurate with the working days; (iii) the employee had no financial risk; (iv) the employee performed his services at the requested times; (v) the generic details of the services to be provided under the collaboration indicated in the contract and the absence of an obligation to achieve results.
In view of all the above, the Italian Court of Cassation dismissed the appeal filed by the company and ordered it to pay the litigation costs.
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The Italian Court of Cassation, with order of 11 October 2022, No 29720, confirmed that ‘any equipment, ancillary or accessory which could actually constitute a protective barrier, however small or limited, with respect to any risk to the health and safety of the worker in compliance with Article 2087 of the Italian Civil Code’ falls within the definition of Personal Protective Equipment (PPE).
A Company – the employer – filed an appeal before the Italian Court of Cassation against a judgment of the Bari Court of Appeal. The Bari Court of Appeal judgment had confirmed the first instance decision, recognising the worker’s right to compensation for damages due to the Company’s failure to wash the clothing used by the worker to perform the work. In particular, according to the judges of first and second instance, the vest and the high visibility jacket, the waterproof jacket against the bad weather, the work trousers and the protective gloves should ‘all be considered personal protective equipment’.
Referring to numerous precedents, the Italian Court of Cassation judges reconfirmed that, due to the constitutional importance of the right to health as well as the principles of correctness and good faith as the foundations of the employment relationship, the provisions of Article 2087 of the Italian Civil Code – i.e. the employer’s obligation of take all appropriate measures, according to experience, technique and specific characteristics of the work, to prevent damage to the worker’s physical health and individuality – must be interpreted broadly.
From this it follows, as stated in the order, that the employer is required both to provide the necessary clothing to its workers and to prevent the onset and spread of infections by also arranging the related washing. This obligation, in fact, becomes indispensable for the effectiveness of the clothing, thus falling within the measures necessary to protect the physical health and ethics of workers under the aforementioned Article 2087 of the Italian Civil Code.
For these reasons, the Italian Court of Cassation rejected the appeal filed by the company, ordering the appellant to pay the costs.
The Italian Court of Cassation’s approach
The ruling in question – which is the most recent on the subject – confirms a by now consolidated Court of Cassation approach clarifying that the legal concept of PPE should not be limited to equipment specifically created and marketed for the protection of specific risks but must be interpreted broadly to include any equipment, ancillary or accessory that protects, even in a limited or in a minimal way, the worker from the risks to which he or she is exposed in performing his/her work (see, as stated in the order in question, Italian Court of Cassation No 16749 of 2019; No 17132 of 2019; No 17354 of 2019; Italian Court of Cassation No 5748 of 2020; Italian Court of Cassation No 17100 of 2021).
The Italian Court of Cassation, with judgment No 33134 of 10 November 2022, established that there is no unjustified absence if a worker delivers the medical certificate of illness after receiving the disciplinary complaint.
The facts of the case
Following an unjustified absence lasting seven days, a worker was dismissed for just cause. Both the Florence Tribunal and Court of Appeal held that the dismissal was unlawful because there was no basis for the dismissal. This is because, from the analysis of the facts of the case, it emerged that, on the date of giving notice of the dismissal, the medical certificate – which retroactively covered the entire period of absence subject to the disciplinary dispute – had been sent to the employer. The judges on the merits observed that two distinct provisions of the national collective bargaining agreement (Contratto Collettivo Nazionale del Lavoro – CCNL)applied to the employment relationship, namely unjustified absence and late or irregular justification, sanctioning the first with dismissal and the second with a fine but continuing the employment relationship. In view of this contractual framework, the dismissal for just cause imposed by the employer was therefore to be considered unlawful, with a consequent order against the employer to reinstate the worker and to pay compensation of damages commensurate with the months not worked, in addition to the payment of social security contributions.
The employer company filed an appeal to the Italian Court of Cassation against the decision of the Italian Court of Appeal.
The judgment of the Italian Court of Cassation
The Italian Court of Cassation, in rejecting the appeal filed by the company, confirmed the unlawfulness of the worker’s dismissal. Starting from an analysis of the disciplinary regulation contained in the Textile and Clothing CCNL applied to the employment relationship, the Court highlighted that, from a literal reading of the regulations, it appeared that the parties to the CCNL intended the sanction of dismissal to apply only in the case of an unjustified absence and not to late justification of the absence.
It follows that the delivery of the medical certificate after the start of the disciplinary action means that there is no unjustified absence and only late justification of the absence, with the consequent unlawfulness of the sanction of dismissal.
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