Crisis management
Martyn Cornell speaks with LABLAW founding partners Luca Failla and Francesco Rotondi to find out how companies in Italy are managing the crisis on the employment frontNo less than anywhere else in Europe, Italy has been badly hit by the recent global economic downturn. The country’s GDP is down almost six percent year-on-year in the second quarter of 2009, and also down 4.6 percent for the third quarter. According to Luca Failla, founding partner of Italian employment law firm LABLAW, “It has been an extremely tough year for the Italian workforce. Many of our clients, large, medium and small, have been obliged to reduce their workforces as well as renegotiating employment contracts with the trade unions. We started to see an increase in the implementation of cost cutting measures, such as collective dismissals, last year in September and October. I do not think we are out of the woods yet. These challenges will most likely continue into the first half of 2010. Despite the positive press about green shoots and recovery, we feel that businesses will continue to be cautious in the second half of 2010 as well.”
To the surprise of many, Italy’s famously volatile workforce has failed to react in extremis. “We haven’t had any massive national strikes in the past 12 months despite the drastic rise in downsizing operations. This, for the Italian market, seems a bit strange.” Failla continues, “ I think people have realised that this is a global crisis and we all have to pull together to get through it. Employers, workers, unions and politicians have tried to deal with the social problems caused by the recession and its impact upon companies and jobs in as fair a way as possible. In the past it was much more confrontational, Italian trade unions were not willing to discuss plant closures when a company wanted to shut down operations in Italy just to open in another location such as Eastern Europe or the Far East. We are now, however, facing a new situation. The difference is that we are not closing plants for outsourcing – but instead – for survival. It is never easy to agree to a dismissal, to lose your job, or to be unemployed. Everyone is aware of the global economic crisis we are facing. We are both reacting and preparing for the future as no one knows how it will all unfold in another 12 – 24 months time.”
One of the tools that has helped Italy survive the recession so far, without major social upheaval, is what is known as Cassa Integrazione Guadagni (CIG), the Italian wage guarantee fund. This particular fund helps companies that must lay off workers, or alternatively reduce their hours, because of pressing circumstances or temporary market situations that cannot be blamed either on the employer or on the employee. Depending on their size, and the industrial sector, businesses can have up to 80 percent of their workers’ normal wages paid by the state for up to three months.
In addition to this, there is also Cassa Integrazione Guadagni Straordinaria (CIGS), that is, the ‘extraordinary’ wage guarantee fund, which assists companies in crisis for up to two years, helping them cover staff wages, and hence minimising the impact on their employees, while they either restructure their organisation, face a bankruptcy procedure, or prepare for a total shut-down. “The number of cases of CIGS payments by the state, since 2008, has increased by 400 percent. A lot of companies are asking the state for assistance – especially after the summer break.” Indeed, the latest official figures show that the number of working hours covered by Cassa Integrazione schemes rose from 1.5 percent in September 2008 to a substantial 10 percent in September 2009. At the same time employment in Italy fell 3.3 percent as a result of the impact of the global economic downturn. Family spending also dropped two percent during the same period.
One reason why the CIGS system is so popular with companies, and in particular with human resources managers, is that it helps them avoid the problems that laying off or dismissing workers causes in terms of the loss of skills. Skills and knowledge will be crucial factors in helping companies recover quickly once the recession ends. “The choice between simply laying off employees, dismissing them, or going for a salary support scheme depends on the individual company’s approach,” says Francesco Rotondi, a founding partner of LABLAW. “HR managers get very upset when they are asked by the CFO to reduce staff. The HR manager’s approach is different to the CFO’s approach. They ask, ‘Why?’ It causes real damage in future years. They know they are losing not just professionals but losing skills and losing knowledge as well. That is why they always attempt to negotiate. They are aware of the social impact of collective dismissals on both the individuals to be let go and the staff which will remain. In my experience, most HR managers try to avoid dismissals. Instead, they try in any way possible to use either the CIG scheme or to negotiate a reduction in salaries in order to safeguard jobs.”
It is in situations like these that LABLAW works closely with clients discussing strategy and drafting agreements to present to the trade unions. LABLAW, which was founded by Failla and Rotondi in 2006, specialises exclusively in employment and labour law. Housed between its two offices in Milan and Rome, LABLAW has 30 lawyers available to assist clients 24 hours a day, 365 days a year. A firm of this type is not particularly common for the Italian market. That is not to say they do not exist. LABLAW is in fact, according to independent research carried out by Legal 500 in 2008, one of the top employment law firms in Italy.
Last year, in 2009, LABLAW won the awards for European Niche Firm of the Year from The Lawyer magazine and Labour Law Firm of the Year from the Italian TopLegal magazine, in addition to Best Employment Law Team of the Year – Italy from The New Economy. The firm was also previously recognised by World Finance in 2008 with the award for Best Italian Industrial Relations and Labour Law Team.
Consultation with trade unions is mandatory for companies, with more than 15 employees, looking to restructure their workforce through lay-offs, plant closures, reduced working hours, etc. This regulation, which is derived from EU law, follows precise procedures and timetables. For example, there is a period of seven days, from when the company informs the relevant trade unions that it is planning a collective dismissal, for the unions to decide whether to accept the dismissals or to evaluate the situation themselves. If the trade unions choose to evaluate the situation, then up to 45 days are allocated for a joint evaluation. This joint evaluation must include a study of the measures to deal with the social consequences of the lay-offs. If no agreement is reached between an employer and the trade unions within the given time period then there will be a further 15 day period for talks between the company, the unions and, in addition, representatives from the Italian employment ministry.
“It is extremely important to reach an agreement with the trade unions over the criteria a company will utilise for lay-offs, such as age, length of service, the level of their professional skill, family circumstances, and number of dependants, Failla says. “If a business does not reach an agreement on these matters with the trade unions then they of course are free to dismiss people. However, with this approach they risk being sued, fined, and taken to the industrial courts – in addition to being forced to re-employ the dismissed workers with compensation and back pay. In all, a much more costly proposition. This is why it is very important for businesses to reach an agreement with the trade unions before implementing any downsizing or restructuring procedure.”
“In general employment lawyers are retained by clients not only for the drafting of the proposal to the trade unions but also to participate in the trade union negotiations themselves”. Rotondi continues, “More often than not LABLAW sits next to clients at the negotiating table. This past year LABLAW has spent many hours in talks between clients and trade unions. Both parties generally prefer to meet on neutral ground to discuss and negotiate the company’s and employee’s futures. LABLAW offers this neutral ground to them in both of their Milan and Rome offices.”
“One of the benefits of LABLAW being a multi-client firm is that we deal with a large number of clients but a relatively small number of trade unions. This means that LABLAW tends to meet the same trade union representatives time and again, and naturally a rapport is built up.” As we all know, trust is very important during extremely delicate negotiations.
For multinational companies, Italian law insists that employees cannot be dismissed, or made redundant due to plant closures, because of economic problems which may be effecting an overseas branch of the business. For a collective dismissal to be considered fair, the employer must show, from the beginning of any Italian downsizing procedure, a precise link between the economic crisis affecting the parent company overseas (for example in the US or in the Far East) and the specific situation affecting the company’s Italian employees. It is no good saying, for example, “we are losing money on our operations in Indonesia, so we have to shut our plant in Bologna.” An Italian employment judge will rule that any dismissals of workers in Italy are unfair unless the company implementing the staff reductions can objectively demonstrate that a particular overseas crisis is having direct repercussions on the Italian subsidiary.
Italian employment law is also quite strict on transfer-of-undertakings procedures, with the courts concerned that on occasions so-called transfers of undertakings have been a way for companies to dismiss employees without going through the proper procedures. Article 2112 of the Italian law code addresses this situation specifically in a way that strengthens workers’ rights when confronted with a transfer of undertaking.
At the time of writing, changes to Italian labour law were under discussion. In particular, there are talks about extending the wage guarantee system to freelance, self-employed and contract workers. At the moment they have no protection, even if there are contributing, with the taxes that they pay, to the system. “I support this idea”, says Failla, “however, I would also like to see the law changed to give more flexibility to companies in their choices over how to proceed when they need to restructure their firms. The last time there was a major reform in employment and labour laws was in 1991 (Law 223/1991). Perhaps it is time to re-review these, modernise them for the times to make them more efficient. For example, fixed term employment contracts in Italy must be approved by a judge; this takes time and also puts pressure on an already maxed-out court system. In conclusion, there is a need for flexibility for companies, more security for flexible workers, and more efficiency all around.”
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