The Court of Appeal of Milan, in its judgment no. 470/2024, again addressed the issue of whether the income from the sale of stock options may be included in the remuneration for the purposes of calculating notice and severance pay. The Court ruled that, in the present case, the income from the stock options was of a continuous and not occasional nature and therefore was an essential part of the remuneration. The Court thus overturned the decision no. 246 of 7 May 2024 issued by the same body, triggering a discussion on the issue.
The dispute originated from an appeal by an executive dismissed for just cause. The dispute concerned, inter alia, the inclusion in the calculation of the remuneration of the amounts resulting from the exercise of stock options which the manager claimed to be part of the remuneration due to their regular and non-occasional nature, as they had a predetermined frequency, forming part of three-year or four-year plans. The Court of first instance rejected the latter argument, excluding such income from remuneration on the grounds that there was a company regulation that excluded it from the calculation of the global remuneration.
However, the Court of Appeal decided to adopt a different perspective, referring both to Article 2099 (paragraph 3) of the Civil Code, which states that «the employee may also be remunerated in whole or in part by profit-sharing or product-sharing, by commission or by benefits in kind», and Article 2120 of the Civil Code, which states that «unless otherwise provided for by NCBAs», the remuneration relevant to the calculation of severance pay «shall include all sums, including the equivalent of benefits in kind, paid in connection with the employment relationship on a non-occasional basis, with the exception of those paid by way of reimbursement of expenses».
The Milan Court therefore ruled that stock options constituted a form of remuneration by way of profit-sharing provided for by Article 2099 of the Civil Code and also stated that, pursuant to Article 51 of the Italian Income Tax Code (i.e. “TUIR”), «all sums and values in general, (…) even if they do not come directly from the employer», as could be the case with a payment made by another group company, are considered to be the employee’s income. Continue reading the full version published on Norme e Tributi Plus Lavoro del Il Sole 24 Ore.
With order no. 17450 of 25 June 2024, the Italian Court of Cassation – confirming its previous position – ruled that in the event that an employment relationship which is only ‘formally’ one of self-employment is found to be a subordinate employment relationship the indemnity regime typical of fixed-term contracts does not apply, but instead the compensatory regime applies, starting from the formal notice.
A journalist, who had entered into multiple fixed-term self-employment contracts with the company over a period of almost 12 years, brought an action before the courts to obtain a finding of the existence of a permanent employment relationship, and to order the employer to pay full compensation for damages, equal to the wages accrued from the formal notice following the expiry of the last self-employment contract and until effective reemployment.
The Italian Court of Appeal partially upheld the said claim, finding, on the one hand, the subordinate nature of the employment relationship between the parties, but rejecting, on the other, the claim for compensation in the terms requested by the worker.
With regard to the latter aspect, the Italian Court of Appeal specified that, even with reference to fixed-term employment contracts that are only formally autonomous, the compensation regime typical of fixed-term contracts applies, i.e., the all-inclusive indemnity to the extent of between a minimum of 2.5 and a maximum of 12 monthly instalments.
The worker referred the proceedings to the Italian Court of Cassation, with a cross-claim by the company. The Italian Court of Cassation found preliminarily that, in relation to a permanent employment relationship, the compensation regime relating to fixed-term contracts does not apply.
According to the Italian Court of Cassation Judges the legislation relating to fixed-term contracts (providing for an amount varying from 2.5 to 12 monthly instalments) applies in the event of a declaration of unlawfulness of the term set out in the employment contract, which did not cover the present case.
The Judges held that, if a self-employment contract is reclassified – which presupposes a thorough judicial investigation conducted on the basis of indicators that reveal the parties’ rights, obligations and powers – the worker is entitled to full compensation for the damage, equal to the remuneration accrued from the formal notice until reemployment.
In the light of the foregoing, the Italian Supreme Court upheld the worker’s ground of appeal, quashing the contested judgment and referring it for a second review by the Court of Appeal.
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Dismissal for a justifiable objective reason is unlawful if the employer does not prove that it has offered the worker lower-level positions, even on a fixed term basis.
Before proceeding with a dismissal for a justified objective reason, the employer must demonstrate that he/she has explored all possible solutions to relocate the worker within the company.
This principle was affirmed by the Italian Court of Cassation, with order no. 18904 of 10 July 2024, thereby reinforcing employers’ repêchage obligations.
Consequently, the Court concluded that dismissal is unlawful where alternative employment positions exist at the time of termination, even in lower or fixed-term jobs, and the employer has not offered these jobs to the employee.
The Court reiterated that the burden of proving that relocation is impossible falls entirely on the employer.
Companies must therefore manage human resources carefully, documenting any attempt at relocation, to avoid a dismissal being held to be unlawful.
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In relation to accidents at work, the appointment of a supervisor is not sufficient to avoid the employer’s conviction. This was established by the Italian Court of Cassation, Criminal Section, judgment of 10 June 2024, no. 23049.
The Italian Court of Cassation clarified that the employer must exercise reasonable vigilance to prevent the establishment of practices contrary to the law that may endanger workers. Therefore, in the event of an accident or injury, the employer’s ignorance does not exclude his or her fault for failure to monitor the supervisor’s conduct.
In the case before the Court, a worker suffered serious and permanent injuries as a result of the use of chemical reagents while cleaning machinery. In carrying out this activity it appeared that the worker was not equipped with adequate protective equipment and had not received the necessary training.
The first instance Court convicted the employer, finding a causal link between the negligent conduct and the criminal event and stressing that the injurious event could have been avoided by appointing a person with more experience as the supervisor.
The Italian Court of Appeal, overturning the first instance judgment, on the one hand acquitted the employer observing that the supervisor had proven experience, and was therefore appropriate for the tasks and role assigned to him and, on the other, characterised the worker’s conduct as eccentric and unpredictable.
The Italian Court of Cassation, quashed the Court of Appeal’s decision. The Italian Court of Cassation held that the Court of Appeal had not taken into account the fact that the worker involved had not received adequate training, and noted that, given the nature of his duties, he should not have been involved in activities involving the use of chemicals.
The Italian Court of Cassation also stated that for safety purposes the employer is required to ensure proper training of workers regardless of the operational experience they may have acquired over time and held the employer liable for failure to supervise the supervisor’s work.
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In judgment no. 128 of 16 July 2024, the Italian Constitutional Court declared Article 3, paragraphs 1 and 2 of Italian Legislative Decree no 23/2015 to be unconstitutional. The Court made this finding on the basis that the provision does not provide that the mitigated reinstatement protection also applies in cases of dismissal for justified objective reasons (giustificato motivo oggettivo, ‘GMO’), where the non-existence of the material fact alleged by the employer is directly proven in court, which is not connected with any assessment regarding the employee’s re-employment.
A worker, hired on a permanent basis by a staff supply agency, brought legal proceedings challenging his dismissal for a justified objective reason.
The applicant alleged that he had carried out several assignments for the user, for a total duration of less than two years, and that, when the last assignment ceased, the employer – in the absence of further redeployment prospects – had activated the procedure of making him available for lack of job opportunities, under Article 25 of the National Collective Bargaining Agreement (Contratto Collettivo Nazionale di Lavoro, ‘CCNL’) for Staff Supply Agencies. As a result of the procedure the user informed the worker of the termination of his employment for justified objective reasons.
The worker disputed that there were no vacancies in positions requiring his professional skills because they had actually been allocated to other workers.
Therefore, the worker demanded, as his main claim – under Article 3, paragraph 2 of Italian Legislative Decree no. 23 of 2015 – reinstatement to his position, in addition to compensation equal to the last reference salary for the calculation of severance pay from the day of dismissal to the actual reinstatement. In the alternative he sought payment of the compensation referred to in paragraph 1 of the same provision.
Hearing the case, the Court of Ravenna raised questions on the constitutionality of Article 3, paragraphs 1 and 2 of Italian Legislative Decree no. 23/2015, insofar as the rule provides for the exclusion of reinstatement where the court finds that the fact underlying the dismissal for justified objective reason does not exist.
As a preliminary point the Court noted that although the reasons underlying the dismissal on the grounds of justified objective reason cannot be reviewed on the merits, the principle of necessary causality of the employer’s dismissal requires that the material fact on which the employer’s actions are based must exist.
The Court continued that otherwise this would create an unreasonable difference between that this scenario and the parallel scenario of a disciplinary dismissal which, if based on an unfounded allegation, leads to reinstatement.
Moreover, this would allow the employer party to arbitrarily choose, in the case of a dismissal based on an unsubstantiated fact, to classify it as a dismissal for a justified objective reason rather than as a disciplinary dismissal, for the sole purpose of avoiding the risk of reinstatement.
In light of the above, the Italian Constitutional Court upheld the questions raised with reference to the breach of Article 3, 4 and 35 of the Italian Constitution. The Court declared the unconstitutionality of Article 3, paragraphs 1 and 2 of Italian Legislative Decree no. 23/2015, insofar as it excludes reinstatement where the court finds that the fact underlying the dismissal for a justified objective reason does not exist.
Finally, the Court clarified that the issue of unconstitutionality does not arise, however, if the material fact alleged by the employer as the basis for the dismissal exists, but the dismissal is based on a breach of the repêchage (obligation to relocate) obligation. It follows that a breach of this obligation only gives rise to the right to compensation set out in Article 3, first paragraph, of Italian Legislative Decree no. 23 of 2015.
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