Italy: Dismissal for Objective Justified Reason is a “Three-Stages Complex Case” — Legal Relevance is Always Retroactive

The case is of an employee who had been placed on leave until a conciliation meeting scheduled at the Labour Office for 8 February 2019. The employee was dismissed retroactively with effect from that same date, by letter dated 9 February 2019, received on February 11. On February 8, the employee had also submitted a two-year leave request to the Italian Social Security Institute (INPS) to care for his disabled mother, which was rejected due to the INPS’ assessment that no employment relationship existed on the date of the request.

The employee filed a claim – rejected by the judge of first instance – for the declaration of the termination of the employment relationship on 11 February 2019 when the dismissal letter was received. The Court of Appeal, confirming the judgement of the first instance, rejected the appeal, ruling that Article 1, paragraph 41 of Law no. 92/2012 is mandatory, and thus, gave retroactive effect to the dismissal as of the initial notice of the procedure.

The employee challenged the decision before the Supreme Court, complaining that the Court of Appeal should had carefully considered the employer’s choice not to interrupt the employment relationship during the procedure, and also clarifying that Article 1, paragraph 41 of Law no. 92/2012 is a rule, which may be waived in melius in favour of the employee with regard to the moment when the termination effect is deemed to have occurred.

Indeed, dismissal for objective justified reason must be considered a “complex case” consisting of three distinct phases: (i) notification of the intention to proceed with dismissal, (ii) conciliation attempt, and (iii) termination of the employment relationship. The “legal relevance” of the dismissal is always retroactive – referring to the start of the procedure – whilst the “termination effect” depends on the employer’s specific choice, which can follow one of two paths.

The first scenario occurs when, after the start of the procedure, the employment relationship is effectively terminated. If the employer explicitly state, either in the initial notice or in the dismissal letter, that notice will be served, then the termination effect occurs only at the end of the notice period, which starts from the beginning of the procedure. Conversely, if no reference to notice is made by the employer, even in the dismissal letter, then, the termination effect is retroactive to the starting date of the procedure, and the employee is entitled to payment in lieu of notice.

The second scenario arises when the procedure is initiated, but the employment relationship is not interrupted. In this case, the period in which the employment relationship actually continued must be considered by law as “worked notice.” Therefore, if notice was served, only any remaining contractual notice period exceeding the days already worked will need to be fulfilled. If notice was not given, the termination effect will occur upon receipt of the dismissal communication, and the employee will be entitled to a proportional payment in lieu of notice, based on any residual notice period.

In light of the above, the Court summarised its conclusions by stating that an employee’s right to notice cannot be waived under any circumstances. Therefore, if notice was provided, the termination effect will occur at the end of the relevant period, “even if calculated from the first act of the complex case.” If no notice is given, payment in lieu of notice must be made, either calculated from the initiation of the procedure if the employment relationship was interrupted or proportionally from the termination communication if the relationship continued.

As a result, the challenged judgment was referred to the Court of Appeal, which must now rule in accordance with the principles set forth above.

Key Action Points for Human Resources and In-House Counsel

Practical Points

• The legal relevance of the dismissal for objective justified reason always refers back to the procedure’s initiation, but the actual termination effect depends on the employer’s choice and handling of notice: (i) if notice is given, termination takes effect at the end of the notice period starting from the procedure’s initiation; (ii) if no notice is given, the termination may take retroactive effect or occur upon receipt of the dismissal letter, with the employee entitled to the appropriate indemnity in lieu of notice.