What you need to know before hiring in Italy: A guide to terminations

As you establish your business and bring on your first Italian employee, terminating them is likely the last thing on your mind. Understanding the fundamentals of terminating an employee in Italy, however, is an essential part of expanding your operations abroad.

The Italian Civil Code and collective bargaining agreements safeguard employees from unfair individual dismissals and outline the proper handling of termination procedures. Companies must comply with certain legislative decrees by providing a valid dismissal reason and fulfilling payment requirements to prevent claims of unlawful dismissal and costly legal disputes.

Follow along for the rundown on Italian termination requirements, and how hiring through an EOR can save you from potential legal issues down the line.

5 essential things to know before hiring in Italy

• Establish terms of dismissal in your employment agreement per the Italian Civil Code and national collective bargaining agreements. The employment contract must include a termination clause that spells out the length of the probationary period and notice periods in case of dismissal. Make sure you’re complying with minimum statutory requirements.
• Italian laws don’t recognize at-will employment. You can only terminate employees for just cause. If there’s an unfair dismissal, the employee can take the employer to court.  
• Dismissed employees that believe they were unfairly dismissed can file a claim with the Employment Tribunal. The employee can challenge the dismissal in writing within 60 days of the dismissal date with the employer and file a claim with the court within 180 days.
• In all cases, severance pay is required upon termination. Severance pay, also known as trattamento di fine rapporto, will depend on the employee’s annual salary and will be divided by 13.5.
• Employers must notify employees of collective dismissal. If dismissed employees aren’t notified of the collective dismissal in writing ahead of time, the court can order their reinstatement, plus back pay with a minimum of five months’ salary.

Termination rules in Italy: What are acceptable grounds for firing an employee? 

Per Italian employment law, lawful termination falls under two broad categories: just cause and justified reason.

• Just cause (giusta causa): If an employee commits serious misconduct such as theft, lying, causing harm to someone, or displaying gross negligence, the employer reserves the right to terminate the employee's employment contract without any prior warning.
• Justified reason (giustificato motivo): It's important to have objective reasons for the dismissal. Justified reasons may include redundancy, relocation of the business, or an employee's poor performance. However, you must provide notice before dismissing an employee under this category.

Employers cannot dismiss employees during trade union appointment, their parental leave (and until the child is one years old), or employees who have been married for one year or less—unless there's just cause. The company, however, can terminate an employee's employment contract during the probationary period without reason as long as there’s written notice. Specific rules apply to employees who are executives (dirigenti).

What are the mandatory notice periods and termination pay for Italian employees?

The national collective bargaining agreement determines the notice period to end an employee's contract. The notice period varies based on the duration of service, level, and employee's position. In most cases, the resignation notice period is shorter than the dismissal notice period. 

If an employer decides to terminate an employee, the employer can choose to make a payment in lieu of notice. However, the employer is still required to make social security contributions.

In all cases where an employment contract is terminated, the employer must pay the dismissed employee the following:

• Severance pay (trattamento di fine rapporto): In every situation, the employer must provide severance payments, regardless of whether the employee resigns or is terminated with just cause. The amount to be paid is calculated by dividing the total annual salary by 13.5 and this figure is adjusted annually to keep pace with inflation.
• Pro-rata supplementary monthly payments: If the employer provided these payments during the employment contract, they must continue to do so until the contract is terminated. The employer is responsible for paying any outstanding amount until the termination date.
• Payment in place of holidays not taken: When an employee is dismissed and still has unused holiday time, they have the right to an indemnity for that time. 

The easiest way to comply with Italian termination requirements

Managing termination requirements can be a daunting task for companies that have employees all over the world. Employers must deal with different just-cause regulations, probationary and notice periods, and varying severance pay laws in different countries without assistance. Any oversight in the dismissal of employees could lead to penalties for the company.

An alternative is to hire through an EOR, which can monitor termination requirements for you.