Business transfers and employee rights Italy

06 December 2005

Caterina Rucci

(1) The sources


Italian rules on transfer of undertaking include four different laws:

(1) The Civil Code of 1942 (section 2112)

(2) Law n. 428 of 1990 (section 47)

(3) Legislative Decree n. 18 of 2001

(4) Legislative Decree n. 276 of 2003 (section 32).

This latter legislative decree is also known as ‘legge Biagi’, after the name of the employment law professor killed by the terrorist group Brigate Rosse in March 2002 apparently as a consequence of his consultant activity for the Government and his role with regard to this legislative decree. When Marco Biagi was killed, actually, he had just finished a first draft of the enabling act (‘legge delega’) on the basis of which the Government would later issue the legislative decree n. 276 of October 2003[1] which has been drafted mainly by a younger professor and former pupil of Marco Biagi, Michele Tiraboschi.

(2) The development of the Italian legislation on transfer of undertaking: from the Civil Code to the first enactment of European Directive n. 77/187


All of the above mentioned laws are still currently in force – the relevant civil code section having been substantially amended by all the subsequent laws – and they are deeply reciprocally connected, since almost all of them have amended and/integrated the previous ones.

Such connection, however, does not mean at all that these laws have a common aim. It has been recently noted that any analysis of these laws, taken by one by one, tends to give rather ‘the impression of a building yard where none of the subcontractors seems aware about the main project …’.[2]

Each of these laws, in fact, seems inspired by quite different aims and philosophies.

The main aim of the original (1942) text of section 2112 of the Civil Code was to protect the employees’ rights by establishing joint and several responsibility of transferor and transferee for the rights the employees had at the time of the transfer. In 1942, however, such guarantee was limited to those rights of the employee about which the transferee had been informed – before the transfer itself – directly or through the company records of the transferor.

It should also be noted that the original 1942 text of section 2112 did not include any guarantee of the continuation of the employment relationship after the transfer, which was coherent with the fact that in 1942 there was no protection at all against dismissal and the same civil code was still based on an ‘at will’ employment.

(3) Introducing Trade Unions’ influence on transfer of undertakings and the enforceability of their rights of information and consultation


Law 428 of 1990 is the first Italian enactment of Directive n. 77/187: it introduces the principle that transfer of undertaking has no effect on continuation of employment relationships and constitutes, in itself, no legitimate reason for termination.

It should be pointed out that the rule of automatic continuation of employment constitutes an exception to the general principle – set by section 1406 of the civil code – according to which contracts, including employment contracts, cannot be assigned to third parties (in this case a new employer) without the consent of the concerned parties, i.e. the employees. This point will become very important in the debate about the borders of the concept of ‘transfer of undertaking’ subject to sect 2112, as later modified by all subsequent laws and also as interpreted by the European Court of Justice.

The new law of 1990 also introduces the principle according to which the transferee’s responsibility (joint and several) is no longer limited to rights of the employees which were known to the transferee by direct information or subsequently resulting from the transferor’s acquired company records. This makes proper employment due diligences even more important, since the transferee is now considered responsible for any right the employees concerned had at the time of transfer notwithstanding if the transferee was or not aware of them.

The same law 428 of 1990 also introduces trade union influence on transfers of undertaking. Trade union and employees’ representatives are now entitled to full information about the transfer itself and to possible (if they so require) consultation on the transfer itself and its consequences for the concerned employees.

The new law guarantees such information and consultation rights, specifically recognising the entitlement of trade unions to a preventive proceeding (first introduced in 1970) which is named ‘procedimento per la repressione della condotta antisindacale’. The new law provides that trade unions are specifically entitled to such a proceeding, which is aimed at granting restrictive or mandatory injunctions if the Courts deem that the behavior of the employer was aimed at causing detriment to trade unions (‘condotta antisindacale’). Even though a decision of year 2000 of the Corte di Cassazione has definitively excluded the possibility that the lack of fair information and consultation can result in voidance of the contract of transfer (Cassazione 4 January, 2000 n. 23), it might be considered that such injunctions can however suspend the effects of the transfer on employees. This can result in a quite important and costly decision if the reinstatement of transferred employees back to the transferring company is ordered while the proper carrying out of the information and consultation process is pending

The said law of 1990 also introduces the right of the transferee to immediate application of its own collective agreements – provided it is already applying them to his other employees and they are of same level as the one applied by transferor – independently of the natural expiry of the collective agreement previously applied by transferor to transferred employees.

The same law also introduces the possibility of signing individual settlement agreements with the employees to be transferred, by which the vendor can be released from any obligation towards his previous employees. Such agreements, however, have to be signed before a judge and/or special bilateral committees in order not to be any more challengeable afterwards.

Law 428 of 1990 also creates more flexibility in case of winding up and/or general crisis of the transferred business, providing that mandatory rules on joint and several responsibility can be derogated in these cases: this should encourage the potential transferee to acquire businesses without having to incur excessive economic burdens.

(4) Legislative decree 18 of 2001. The additional requisite of ‘pre-existence’ when transferring a ‘part of business’ and the strange connections between transfer of undertaking and mass redundancies. The Ansaldo cases.


In 2001, the new legislative decree 18 of 2001 came into force, just two months before the new European Directive n. 2001/23. This new law introduced – even if not so required by any prior or subsequent European Directive – the requirement of the so called ‘pre-existence’ of the part of business as condition for the transfer itself of (such) part of business.

As a consequence, in order to transfer a part of a business under s 2112 of the civil code (and therefore without the need for the employees’ consent), such part of business must have been an independent and autonomous entity before the transfer itself.

The need of this pre-requisite represented a central issue for the Italian system on transfer of business, and for the Italian legislation on mass and individual redundancies. Italy has in fact one of the most strict and protective laws on individual dismissals (extended to collective ones in 1991), and such legislation is also applied and interpreted in a quite severe way by most Courts, resulting in frequent (more than 80% of terminations are disputed) and very expensive decisions on termination. The employee who wins a termination case – provided his employer was subject to s 18 of law 300 of 1970 – is in fact entitled both to reinstatement and to damages equal to all salaries due from termination to reinstatement, plus social contributions for the same period. As an alternative to reinstatement the employee can ask for a 15 months indemnity, in addition to the said damages.

Such consequences also apply to collective dismissals if the information and consultation procedure and/or the criteria for the choice of employees to dismiss and/or all the required bureaucratic statements have not been strictly complied with. In all these cases, even smaller violations (or assumed violations) of the collective dismissal procedure can result in the voidance of all dismissals, and in the reinstatement of the employees with all said consequences as for salaries and damages to be paid by the employer.

This accounts for the reason why – while all other EC countries were experiencing and adopting broader and broader concepts of transfer of undertaking mainly aimed at the protection of employees – Italy on the contrary introduced a totally new limitation of this concept, setting the requirement of the pre-existence of the part of business.

The truth is that Italy – as a consequence of its severe and cost-involving legislation in individual and collective dismissals – experienced in the same years a frequent ‘misuse’ of legislation on transfer of undertaking, aimed at a more economic and easy methodology of implementing mass redundancies. In other words, companies tend to prefer to transfer employees to smaller businesses, not subject to stronger protection against termination, in order to get rid of redundant personnel. Especially for companies with less than 15 employees, in fact, it is far easier and less expensive to terminate their personnel, since at worst they may be condemned to pay an indemnity ranging from two and a half to six months’ salary, without any risk of reinstatement.

In effect, belonging to a company with more or less than 15 employees can be far more important – from the employee’s point of view – than the protection of continuation of employment and the joint and several responsibility of vendor and purchaser for the rights deriving from the employment contract: for this reason attempts have also been made, even if never accepted by the Courts, to consider the (existing) entitlement to protection against termination as a right which should ‘follow’ the employee also in the new company as an acquired right, even if the transferee would in principle not be subject to such legislation.

A quite clear ‘misuse’ of legislation on transfer of undertaking has occurred (or was held to have occurred) in the two Ansaldo cases which were decided by the Corte di Cassazione at the end of 2002 but related to facts happened before the law of 2001 (Cass. 25 October 2002, n. 15105; Cass. 4 December 2002, n. 17207). In these two cases the Court of Cassation deemed that no transfer of undertaking according to s 2112 of the civil code had occurred since the part of business to be transferred had no previous autonomy and was comprised of employees coming from very different company functions, who had been assigned to a purported ‘autonomous entity’ which was transferred to the future supplier of the services rendered by the various departments.

In the Ansaldo cases the consequence of the denial of the pre-existence of an autonomous part of business was that, since in the Court’s opinion no transfer of undertaking had taken place, the employees who had objected to the transfer and claimed against it – assuming they did not ‘belong’ to the transferred part of business since no ‘part of business’ existed according to section 2112 c.c. – were in the end considered as (still) employees of the vendor since their consent to the transfer of their employment contracts had never been given according to s 1406 of civil code.

(5) The new law, in force since 24 October 2003, Cancellation of ‘pre-existence’: transferor and transferee are now entitled to creation and definition of the part of business for transfer


Two years later, in October 2003, legislative decree 276 of 2003 cancelled the requirement of ‘pre-existence’. Instead of this pre-requisite, the new law enables transferor and transferee to ‘define’ the economic entity that will be transferred: this does not mean, however, that they are now entitled to pick up the employees to be transferred one by one and then ‘decide’ that this group will constitute a (transferable) part of business. The transferor and transferee, however, are now entitled to create, just for the transfer itself, new ‘parts’ of the business, which did not exist as such before, by putting together different activities (presumably typical business-wide functions) which did not constitute an autonomous entity before, and to transfer the concerned people and assets under s 2112 (i.e. without the need for the employees’ consent).

This means that – since the autonomy and independence of the part of business is no longer a pre-requisite – the transferor and transferee may now ‘create’ a new and not pre-existing part of business to (be) transferred, provided it can be considered (for the future) an independent and autonomous part of business, potentially capable of autonomous existence and activity on the market, even though such entity in most of cases will just be ‘added’ to an already existing organization within the transferee’s business.

This change in legislation has a relevant effect also from a systematic point of view: as to transfer of undertaking from employment law perspective, Italy has now a new (and autonomous) concept of business or part of business, which is quite different from the one adopted for commercial or corporate issues and based on s 2582 of the civil code. This change involves, however, a new problem, identified by the first comments on new law: since the parties are entitled to identify the part of business to transfer at the time of the transfer, and since trade union information and consultation should start at least 25 days before any binding agreement is reached (as specified by the 2001 legislative decree), does this mean that negotiation will be carried out without trade unions even knowing exactly the perimeter of the part of business to be transferred nor all the people belonging to it?

On the one hand this would mean that trade unions should start consultation before getting full information, which could prevent them from proper and active negotiation with the parties of the transfer.

On the other hand, practical experience of transfer of undertakings often shows, especially in case of transfer of business comprising mere outsourcing of functions to the future supplier of the service, that often the exact number of functions and services to be outsourced can be exactly defined only at the end of commercial negotiations of the supply contract, which is often negotiated at the same time as the contract of transfer of part of the business.

Even those critics who deem this entitlement of transferor and transferee to be meaningless (and without any effect on cases such as Ansaldo cases), owing to the fact that parties of a contract always had the power to define and identify what they sell – should however consider that the possibility to identify (and substantially to create) the part of business to transfer at the time of transfer will now enable companies to adopt a more flexible reorganization of their companies, by limiting the activities carried out directly to their pure ‘core business’ or better to what – according to constant changes in a global market–seems from time to time to be the part of activity they can better carry out directly.

It should however be noticed that at least in one of the Ansaldo cases, it transpired that the real common denominator for transferred employees was not really their belonging to one of the several transferred company functions but the fact that they all belonged to the same burden centre identified by a specific code, and this as a consequence that all of them had been previously been suspended from work for a certain time, while (part of) their salaries were paid by Cassa Integrazione Guadagni[3]: in other words, these employees had already been considered as redundant by the transferor (even if during Cassa Integrazione Guadagni intervention the employment relationship is suspended only and not terminated), and had then come back to work.

No decision on claims against the new law is known at this time, nor on the specific point of the new entitlement of the parties to identify and create the part of business to transfer at the time of the transfer itself.

Of course the potential danger that the new part of business is just artificially created in order to get rid of undesired personnel cannot be excluded at all: it should however be noticed that the requirement of the so called ‘pre-existence’ did not exclude it at all either, since the parties could even then just provide for timely ‘planning’ of the creation of such artificial part of the business, by assigning progressively and some time before the planned transfer(s) all undesired employees to specific departments which would then be considered as pre-existing part of businesses, to be transferred[4].

This contribution was taken from Business Transfers and Employee Rights (Lexis Nexis Butterworths, Looseleaf and service), by Dr John McMullen, Partner and Head of Employment law, Watson Burton LLP, Professor of Labour Law at the University of Leeds, UK, which was updated to Issue 6, August 2005.

[1] In Italy the Government is exceptionally entitled also to a legislative function by special statutes or enabling act, called ‘legge delega’ by which the Parliament authorises the Government to adopt legislative decrees within the limits set by ‘legge delega’. Legislative Decree 276 of 2003 was authorised by legge delega n. 30 of 2003.

[2] (De Luca Tamajo, 2004 ‘La disciplina del trasferimento di ramo d’azienda dal codice civile al decreto legislativo n. 276 del 10 settembre 2002, Mercato del lavoro, 2003, pp. 3-11).

[3] Cassa Integrazione Guadagni (CIG) is another quite typical Italian benefit: it differs from unemployment indemnity because it is paid to employees who are – temporarily, but for longer periods ranging to some years – suspended from work due to restructuring processes. Such processes are theoretically finalised to their going back to work. What actually happens is that such benefits – which requires a government authorisation – are usually granted to major companies before they proceed to mass-redundancies: for this reason CIG is also known as the ‘anteroom’ of mass redundancies, even if legislation excludes its intervention in such cases. It was traditionally normally limited to manufacturing area, and then also granted to distribution companies over 200 employees, from time to time it is extended to specific industry areas for shorter periods, often not independently from political and electoral issues.

[4] Roberto Romei, Il rapporto di lavoro nel trasferimento di azienda, Milano, 1993