In its recent judgment of 21 March 2023, the Court of Forlì confirmed the lawfulness of a penalty clause in a letter of employment if the worker does not take up employment on the start date agreed upon by the parties, even when the employment is subject to a probationary period.

The facts of the case

A company entered into a letter of employment with a manager subject to a six-month probationary period. The letter of employment contained the following clause: ‘If you do not take up actual service on the scheduled date of 15 October 2020, on your own initiative and/or for any reason attributable to you, you will be required to pay our Company, by way of a penalty, a sum corresponding to the indemnity in lieu of notice provided for in the event of dismissal under the applicable Collective Bargaining Agreement. Payment to our company must be made no later than 10 days after the occurrence of the breach of the agreed date of service. In this event, this contract shall be considered definitively and automatically terminated.’

Approximately one month before the scheduled starting date, the manager informed the Company of his intention not to take up his employment.

The Company applied for an injunction before the Court of Forlì, which granted the application and issued an injunction for the amount of the penalty agreed upon by the parties.

The manager lodged an objection against the injunction on the following grounds:

1. the manager’s communication that he did not wish to take up the employment should be classified as a withdrawal notice of the contract of employment and the relevant withdrawal was to be regarded as free of any consequences, since the contract provided for a probationary period, during which the regime of free withdrawal under Article 2096 of the Italian Civil Code applied;
2. the manager had given sufficient notice of his decision to avoid actual prejudice to the company. The absence of damage on the part of the company should have resulted, according to the manager’s defence representatives, in the absence of the right to payment of the penalty or, in the alternative, in its equitable reduction under Article 1384 of the Italian Civil Code.

The judgment of the Court of Forlì

The Employment Judge of Forlì, in rejecting the manager’s opposition, upheld the injunction issued.

The Court based its reasoning on the difference between entering into the contract and the commencement of the relationship, identifying the latter as relevant to be able to invoke the special regime of free withdrawal provided for the probationary period.

In fact the provisions of Article 2096 of the Italian Civil Code only come into effect with the actual taking up of employment and on condition that the parties have consented to the probation period, which, in the present case, had not occurred due to the manager’s refusal. This refusal could therefore not be classified as a withdrawal during the probation period but as a breach of the obligation to start work on the agreed date.

On the basis of these considerations, the Judge therefore held that the objection of incompatibility of the penalty with the agreed probationary period provision was unfounded. The two provisions, in fact, ‘have different subject matters and objectives and, in the present case, are intended to protect two different moments of the employment relationship’.

The Judge then held that the timeliness of the manager’s communication of his reconsideration was irrelevant because it was ‘invoked by a contractual party who is in any event in breach of contract and who is bound as such to compensate the damage attributable to him’.

Finally, with reference to the quantification of the penalty, the Court also disregarded the request for equitable reduction under Article 1384 of the Italian Civil Code, which had been advanced in the alternative by the manager. The Court pointed out that the penalty was not excessive either at the time of the agreement or at the date of the breach, the company having demonstrated that it had incurred significant costs to cope with the organisational impact caused by the vacancy in a strategic role (Administrative Director).

Other related insights:

Termination during the probationary period is null during dismissal prohibition if based on a need to reduce costs

Termination of the probation period: cases of lawfulness

With judgment no. 3147 of 1 February 2019, the Court of Cassation remarked that the employers can supplement the grounds for dismissal in the course of proceedings if these are insufficient or generic.

The facts

The Court of Appeal having jurisdiction, upholding the judgment of the Court of first instance, had declared that the dismissal of a manager, namely “Plant Manager“, was legitimate.

More specifically, the Court of Appeal had ruled that:

• the letter of termination of employment contained a brief although sufficient explanation, namely, the elimination of the position in consequence of the reorganization of the company and unavailability of other positions;
• the pre-trial assessments revealed that in fact the reorganization of the company had resulted in a different organization of the plant’s management activities.

The manager filed an opposition before to the Court of Cassation against the decision of the Court of Appeal.

The decision of the Court of Cassation

According to the Court of Cassation, the lower-degree courts have correctly interpreted Article 22, National Collective Labour Agreement for Industrial Managers of 1985, evaluating the content of its contractual clause and the relevance attributed by the parties to the lack or incompleteness of the grounds of dismissal, a relevance that can be appreciated by reading the entire provision.

More specifically, Article 22 sets out that “in the event of termination of permanent employment, the terminating party must serve a written notice thereof to the other party. In the event of termination on the part of the employer, this is obligated to specify at that time the reason thereof. If the manager believes that the reason given by the company is insufficient, or if this information is not provided at the time of the notice of dismissal, the manager can apply to the Arbitration Court referred to in Article 19 (…).”

According to the Court of Cassation, the judges of the lower courts have rightly explained that:

• even though it was concise, the reason was clear, therefore, specific, and put the manager in the position to clearly understand the reason for dismissal and
• the company – in its defence brief – had clarified the characteristics of the reorganization and
• the pre-trial assessments had confirmed that the company had been reorganized.

In detail, the Court of Cassation, confirming its previous approach, remarked that a manager’s dismissal should be considered illegitimate – and consequently the employer obligated to pay the supplementary allowance provided under the Collective Labour Agreement – if this is not based on any reasons or is based on flimsy excuses and therefore untruthful reasons.

In the case at hand, instead, the dismissal had occurred due to the elimination of the position of Plant Manager, in consequence of the reorganization of the company. Moreover, the above dismissal was unavoidable given that, as specified in the notice of dismissal, at the time of the facts at hand there were no vacant positions available for the manager.

The Court of Cassation also confirmed that, in the pre-trial phase, it had been proven that following dismissal no other director had been hired in his stead and that plant management had been taken over by the two figures hierarchically above the dismissed manager.

In consideration of all of the above, the Court of Cassation confirmed the following principle of the law “If the ground of dismissal of a manager has not been given (or it is insufficient or generic) the employer may – in observance of the principle of cross-examination pursuant to Article 19 (3) of the aforementioned National Collective Labour Agreement for Industrial Managers – make it explicit (or supplement it) within the context of arbitration proceedings; in addition, where the manager elects – in observance with the principle of alternation of available guarantees in labour disputes – to directly apply to an ordinary court of law – the same rights should be recognized to the employer in the course of the legal proceedings.” Otherwise, according to the Court of Cassation, the position of the employer would be compromised as an effect of an autonomous and unquestionable determination of the counterparty.