Italy’s Article 18 Woes

Italy is in turmoil at the moment.  At the root of much consternation are reforms to Italy’s labor legislation and in particular something known as Article 18.

Article 18 is part of Italy’s “workers’ statute”, the body of Italian law which governs employee rights.  This article states that Italian employers must reinstate unfairly dismissed workers. Italy’s courts decide whether or not sackings are justified.

Even in instances in which misbehaving workers are sacked in Italy, they tend to be reinstated by sympathetic judges much more often than not. At times, this can cause problems for employers.

Italy’s business owners would like to be able to rid themselves of workers who don’t and some believe Article 18 goes too far in terms of protecting the rights of employees. Italy’s workers, on the other hand, think they need protecting from unscrupulous employers.

In its present state, Article 18 effectively dissuades companies in Italy from sacking anyone ever, although it only applies to companies with more than 15 employees.

One consequence of Article 18 protection is that Italian companies have become ever more reluctant to take on new staff.  Article 18, combined with issues such as bureaucracy, corruption, and a slow court system, also put off all but the very biggest foreign companies from setting up operations in Italy.

Another problem reputedly caused by the effect of Article 18 is that companies cannot easily downside during economic downturns. As a consequence of this, companies in Italy which could have weathered economic storms by reducing numbers cannot do so. In some cases, this means business shut down forever. Without the restricting effects of Article 18, businesses could lay off some workers, weather the economic storm more easily and, once the waters calm, expand and, potentially, take back on the laid off workers. In other words, without Article 18, tough economic times would not kill off as many business in Italy permanently. Or that’s the theory.

Note: Changes to Article 18 did not occur in 2012 but the subject is once more being discussed in 2014. Italy’s economy in 2014 is in an even worse state than it was when this article was written in 2012. What is written here continues to be relevant.

Precarious Italy

Even legislation introduced in Italy to promote short term work contracts has not led to long term employment, even if this was supposed to be the objective. In fact, quite the opposite happened – and the Italian language has been graced by a specific term to refer to short term contract employees – “precario“.

Employees with short term, effectively temporary, work contracts rarely find themselves with permanent jobs upon the expiry of the “precarious” short term contracts, even if the intention of their introduction appeared to have been to enable employers to give employees a kind of ‘test drive’ to evaluate their performance before taking them on permanently. Temporary work contract pay levels are not high, either. What happened after the introduction of the short term contract system in Italy is that employers used the precarious contracts as a way to cut labour costs.

Demand has exceeded supply in Italy’s current labour market for more than a decade, so when a temporary contract comes to an end the employee concerned is almost invariably sent home. A fresh new precarious employee may well be taken on as a replacement.  Rinse and repeat, every two years or so. This is good for certain companies, but not so good for workers, especially those who’d like the stability a long term work contract offers.

Pay levels for these brief contracts are often derisory, but precarious employees are expected to work as long and as hard, if not more so, than their permanent colleagues.  This many do, in the vain hope of being taken on permanently when their contracts expire.  Rarely does this happen, despite assurances and promises from certain employers. Such assurances can turn out to be false.

Many of the employees affected by the precarious contracts are young.  Often they are graduates.  Youth employment in Italy stands at over 30% – (in 2014, youth employment is now over 40%).

Socioeconomic Consequences for Italy

The resulting precariarity of the short term contract employees has had and is having socioeconomic consequences for Italy. Individuals with short term contracts simply cannot find long term employment and begin some semblance of a career.

Not having a permanent job means that mortgages and other loans are out of the question, as is starting a family.  Short term poorly paid jobs have depressed consumer spending and Italy’s housing market.  Around 700,000 Italians are ‘precarious‘ workers, although that figure goes well over one million, if Italy’s VAT registered employees are tacked onto the total.

Another negative effect of the short term contracts is that Italy’s bright young things are becoming deluded.  Those who can are leaving Italy to work in other countries – many of which, ironically, do not possess overly protective Article 18 type laws.  Oddly, the absence of an Article 18 equivalent does not appear to worry those Italians who leave Italy for the UK and elsewhere.

Time For Change

Something needed to be done to make Italy’s employment market more flexible, but at the same time encourage companies to take on more full time employees – hence the attempt by the Monti government to either alter or eliminate Article 18.

The Berlusconi government did attempt to reform Article 18, but caved in to union pressure way back in 2002.  Incidentally, right up until Berlusconi was ousted in late 2011, his government was still talking about tackling Article 18. Berlusconi’s government did an awful lot of talking but very little tackling.

Mario Monti, despite facing a similar level of pressure from Italy’s unions – in particular the argumentative and influential CGIL union, does not look as if he will cave in.  The stagnation in Italy’s economy, brought about in part by the effects of Article 18, has caused even Italy’s unions to appreciate that action is necessary.

Doing what needs to be done is not proving easy though, and proposed modifications to Article 18 have provoked threats of a general strike.

Not even all of Italy’s employers are content as they fear reforms to Italy’s labor laws may not go far enough.  If this turns out to be the case, Italian companies will not invest in staff and foreign companies will not invest in Italy. Not that they do anyway.

What is everyone worried about?

The Workers’ Fears

If Article 18 disappears, Italy’s workers, those who do have jobs, fear that their employers will sack them on a whim. Alternatively, employers will expect employees to work all hours the Almighty sends and if they refuse, they will be fired.

Mobbing

Another phenomenon in Italy which may lead to impromptu sackings, if Article 18 ceases to exist or is watered down, concerns something known using the English term “mobbing“.  This has nothing to do with angry birds protecting their progeny.  Instead it is the Italian term for instances of sexual harassment and constructive dismissal.

Stories of mobbing are legion in Italy. A simple search on Google.it for “mobbing sul lavoro”  – mobbing at work – revealed 90,000 results for 2011 alone.

Mobbing may also be sparked when an employee does not see eye to eye with his or her superior, if, for example, the boss orders an employee to do something illegal.

When “illegal” sexual advances are rejected, the unfortunate, often female, employee is sacked or faces working conditions which cause them to leave.  In non-sexual harassment cases of mobbing, employees are hounded until they go.

Italy’s employees worry that if Article 18 goes, they will have no protection from bosses who are unscrupulous scum bags.  The general perception of bosses in Italy is that they are money grabbing devils.

Not All Italy’s Bosses are Devils

The economic downturn has lead to a string of suicides by entrepreneurs in Italy, often small business owners saddled with ever increasing debts.

In one case I’ve heard, a business in northern Italy is going bust because its owner did not make enough of employees redundant in time to save the business.  The business owner refused to lay off staff – not exactly the act of a heartless scumbag and not an isolated case either.

After living in Italy for well over a decade, I have also heard of a number of cases where grateful employers reward hard working employees.While some of Italy’s bosses and business owners may be dastardly devils, by no means all are heartless princes and princesses of darkness.

Employee fears remain though.

The Employers’ Worries

Not all of Italy’s employers are too happy with the elimination of Article 18 because the replacement or re-formulated version, if it ever becomes law, will still not permit them to dismiss worthless under-performing employees easily.  Under current proposals, even if employees can be given their marching orders, employers will still have to compensate them with between 15 & 27 months salary – and it will be a judge who decides how much.

As mentioned before, Italy’s judges tend to find in favour of employees, so dismissing employees could become very expensive.  This will deter bosses from sacking poorly performing workers – as is already the case.  And, of course, employers will be reluctant to employ anyone in the first place.

Another concern of Italy’s employers is the sheer cost of staff in Italy – employer contributions, plus generous and obligatory severance pay make employees an expensive commodity in Italy.

If the costs of employment do not come down, no amount of reforms are likely to encourage businesses in Italy to employ more people.  Similarly, foreign companies will also feel that Italian employees are too expensive and they will look to other countries where costs are lower.

Really, Italy could do with offering foreign businesses incentives to set up shop in Italy, but this is not something which is being talked about.

An Uncertain Reform

Whether the reform will make a real difference is very hard to tell, even if it does make it through Italy’s parliament, and there are signs it may not.  Pushing through the reform to Article 18 may even bring down the Monti government.

Regardless of the current reforms, if the cost of employing people in Italy does not fall, the number of employees will not necessarily increase.

A Dangerous Reform

Past attempts at employment law reform in Italy resulted in deaths, such as that of government adviser Marco Biagi.  While Negotiating Italy’s job law reforms in 2012, Labor Minister Elsa Fornero apparently feared for her life and was escorted wherever she went by a small army of bodyguards and police.

A Question of Mutual Distrust

In a nutshell, in Italy employees do not trust employers who in turn do not trust employees.  Despite the reform, it will still be devilishly difficult to remove Italy’s dodgy employees. Moreover, it will remain virtually impossible for companies to downsize during periods of economic gloom. Fast forward to 2014 and businesses are closing down right, left and centre. Had Article 18 been amended at the time this article was written, things may have been a little different.

The whole Article 18 thing is a classic example of the sense of mutual distrust which pervades the Italian character, and which has led to an “it’s better for me to rip someone else off, than be ripped off first” mentality.

——-

Image by Alfred T. Palmer