Executive Termination in the US vs Italy

Introduction

In today’s global business environment, understanding the international differences in executive termination is essential for managing leadership transitions, mitigating legal and financial risks, and maintaining organizational stability. This article outlines the distinctions in executive termination between Italy and the US, highlighting how the differences in their legal structure impact notice periods, severance entitlements, and the overall flexibility in executive termination.

Italy

In Italian labor law, executives (“dirigenti”) are considered a special category of employees. Their employment relationship is mainly governed by collective bargaining agreements (CCNL Dirigenti) and case law, which provide fewer statutory protections than those afforded to other categories of workers.

During executive termination, the remedies and entitlements depend largely on the relevant CCNL. Unlike other employees, executives typically do not have a statutory right to reinstatement in cases of unlawful termination. The main remedies are financial, except in limited cases of null dismissals (such as discriminatory executive termination), where courts may apply stronger protections.

In order to challenge a dismissal, the executive must first send a written, out-of-court objection within 60 days of receiving the termination notice. Following that, there is a 180-day deadline to file a lawsuit. Case law is divided on whether this 60/180-day deadline applies when an executive seeks only a supplementary indemnity under the fairness standard known as giustificatezza.

Justification

Italian law grants employers greater discretion in disposing of executives than ordinary employees. However, dismissals must still meet the standard of justification, a principle developed by case law and collective agreements. For example, the Court of Cassation has ruled that discriminatory dismissals can never be justified (Cass. 9665/2019). This means that executive termination cannot be arbitrary or pretextual. Due to the high level of trust inherent in executive roles, grounds that might not justify dismissal of an ordinary employee could justify dismissal of an executive.

The principle of justification must also be read in light of the duty of good faith and fairness under Article 1375 of the Civil Code. Given their important position, executives are expected to maintain a broader scope of loyalty and trust than other employees.

Indemnity

After termination, executives are entitled to payment in lieu of their contractual notice period if they are not asked to work through it. They are also entitled to accrued benefits such as the thirteenth-month salary, unused holidays, severance pay (TFR, or severance pay), and any additional entitlements set by the CCNL.

If the termination is deemed unjustified, executives may also receive supplementary severance indemnities. The amount depends on seniority and sector-specific agreements:

Industry executives : notice periods range from six, eight, ten, or twelve months; supplementary indemnities range from four to twenty-four months of salary.

Commerce executives: notice periods follow the same six-to-twelve-month framework; supplementary indemnities range from four to eighteen months of salary, with automatic increases after 12 years of service and based on age.

United States

In the U.S., executive employment is generally shaped by contract. While the default rule is “at-will employment” — meaning either party can terminate at any time, for any lawful reason — most executives negotiate employment agreements that limit at-will termination and specify when severance is due.

“Causes”

Employment agreements typically define “cause” for termination narrowly. Grounds may include:

• Conviction of a felony, especially one involving dishonesty or fraud
  
• Misuse of company assets for personal gain
  
• Misconduct intended to harm the company’s business or reputation
  
• Material breach of company policy or the employment agreement
  
• Habitual misuse of alcohol or drugs that materially impairs job performance
  

If executive termination is justified under “cause”, severance is usually not payable.

“Good Reason”

Many contracts also include a “good reason” clause, allowing an executive to sign and still receive severance. Common triggers include:

• Significant reduction in authority, duties, or reporting line
  
• Material reduction in compensation (outside of broad-based pay cuts)
  
• Required relocation more than 30 miles from the current workplace
  
• Breach of the employment agreement by the company

Severance

Severance pay in the US is not mandated by law and depends almost entirely on the contract. No severance is usually owed if the executive resigns voluntarily (without good reason), the contract expires, or the termination is for cause. Therefore, executives typically negotiate very specific definitions of “cause” and “good reason” to reduce ambiguity and litigation risk. Employers, meanwhile, aim to keep the definitions broad enough to preserve flexibility.

Reinstatement

Although US courts can theoretically order reinstatement under certain statutes (eg, discrimination or whistleblower laws), reinstatement of executives is exceedingly rare. Courts generally prefer monetary remedies such as damages or settlements, given the breakdown of trust that typically accompanies disputes at the executive level.

Conclusion

In Italy, executive termination is shaped by structural legal protections and the principle of justification, with severance and notice possible in certain cases. In the US, termination is largely governed by at-will employment and contractual terms, with rare reinstatement and financial settlements serving as the primary remedy. Understanding these differences is essential for executives and companies to manage leadership transitions, mitigate risks, and ensure fair and effective outcomes across global borders. For executives navigating severance and termination labor laws, we at AdvaLux are here to assist. Our team of experienced professionals can provide helpful guidance in negotiating exit packages, protecting executive reputation, and safeguarding future interests.

-Julia DiSilvestro