The Termination of Executive Employment Relationships in Italy

When a multinational group manages, restructures or terminates the employment of a senior executive in Italy, it faces a body of law that differs in important respects from the rules applicable to non-executive employees. Italian law recognises the dirigente, the senior executive, as a distinct category of employee, and the legal and economic consequences of an exit are governed by an interaction of statute, collective bargaining, the individual contract and case law.

This article explains how the principal components of an executive exit operate under Italian law: 

• the statutory Trattamento di Fine Rapporto (TFR)
• notice periods (preavviso)  and indemnity in lieu of notice (indennità sostitutiva del preavviso)
• the supplementary indemnity (indennità supplementare) that collective agreements provide where a dismissal is found to be unjustified
• and post-termination restrictive covenants, in particular non-compete clauses under Article 2125 of the Civil Code. 

The article is aimed at general counsel, HR directors and senior executives, and adopts a balanced perspective useful to both employers and individuals.An important caveat is that many of the figures that matter most in practice — the length of notice, the calculation of the supplementary indemnity (indennità supplementare), procedural steps and welfare entitlements — are not fixed by statute but are determined by the applicable national collective bargaining agreement (CCNL), which differs by sector and is revised at each renewal.

The legal status of executives in Italy

Article 2095 of the Civil Code divides subordinate employees into four categories: dirigenti (executives), quadri (middle managers), impiegati (white-collar staff) and operai (blue-collar workers). The dirigente is the most senior category of subordinate employee and is usually described as an employee who, with a high degree of professionalism and genuine autonomy in decision-making, promotes, coordinates and manages the achievement of the undertaking’s objectives.

The classification depends on the substance of the role, not on the job title. A person who is formally labelled as a dirigente but who does not in fact exercise genuine managerial autonomy may be treated by the courts as a pseudo-dirigente and granted the protections available to non-executive employees. Whereas, the genuine executive is subject to the lighter regime described below. 

The employment relationship of a dirigente is governed by four interacting layers of rules, which must always be read together:

• Statutory provisions of general application: principally the Civil Code (e.g. Articles 2118, 2119, 2120 and 2125) and selected protective statutes, some of which expressly exclude executives.
• Collective bargaining agreements for executives (CCNL): sector-specific national agreements that provide most of the practical detail on notice, indemnities, procedure and welfare
• The individual employment contract: which often contains the most important terms for a senior hire, such as incentive plans, restrictive covenants, garden leave, benefits and bespoke severance arrangements.
• Case law: principles developed by the Court of Cassation and the lower courts, on the concept of “giustificatezza” and on the procedural guarantees applicable to executive dismissals.

Unlike non-executive employees, genuine executives are generally excluded from the statutory dismissal protection regime based on giustificato motivo under Law No. 604/1966, although specific statutory protections still apply to them. These protections are for example in cases of discriminatory or otherwise null dismissals. 

Article 2119 of the Civil Code concerning dismissal for “giusta causa” continues to apply to executives. The main protection against arbitrary dismissal is therefore found in the requirement of giustificatezza, as developed by collective bargaining agreements and case law, rather than in the statutory framework applicable to non-executive employees. 

In practice that means that genuine executives are not normally protected by the ordinary rules on non-executive dismissals, but termination is still controlled through the concept of giustificatezza under the applicable collective agreement and case law. A dismissal that is discriminatory, retaliatory, in bad faith, or clearly inconsistent with its stated grounds is considered null or unjustified, with the consequences provided for by mandatory law and by the collective agreement.

The relevance of the applicable executive collective agreement

Because statute leaves the field comparatively open, the applicable CCNL for executives has decisive importance. There is no single nationwide agreement for all executives; different national agreements apply depending on the employer’s sector. For many multinational employers, the most relevant agreements are the following: 

• Executives in the industrial sector: the CCNL for dirigenti of industrial companies (associated with Confindustria), typically applicable to manufacturing and many industrial groups.
• Executives in the commercial and tertiary (services) sector:  the CCNL for dirigenti of companies in the tertiary, distribution and services sector (associated with Confcommercio).
• Executives in the credit and financial sector: separate arrangements applicable to banking and financial institutions.
• Executives in the insurance sector: a distinct sectoral framework.
• Other regulated or sector-specific contexts: e.g. agriculture, cooperatives, transport and others, each with its own rules.

The two agreements most often encountered by the multinational employers are the industrial-sector and the commerce/tertiary-sector CCNLs, because they cover a large share of the international groups operating in Italy. 

The applicable CCNL can affect several key aspects, including the length of notice periods, the amount and structure of any supplementary indemnity, the procedural steps required before and during termination, and complementary welfare, healthcare and supplementary-pension entitlements. It can also influence settlement and conciliation practices and the post-termination treatment of executives, for example access to executive welfare schemes. 

Before advising on or carrying out any executive exit, the precise CCNL in force — and its current renewal text — must be identified and carefully examined. Notice and indemnity figures in particular are revised periodically, so the mechanisms can be described in general terms but the actual amounts must be verified in the relevant CCNL rather than taken from generic examples.

Main types of dismissal of executives

Under Italian law and practice, the main types of dismissal of executives can be grouped as follows. Their terminology overlaps with that used for non-executive employees, but the regime and the remedies are different.

A dismissal of an executive should be looked at from three distinct angles: (1) how it is carried out – with or without notice; (2) the grounds the employer relies on; and (3) what is missing if the dismissal is challenged, and the consequence that follows. The three tables below keep these angles separate so the categories are not confused

Table 1 – How the dismissal is carried out (notice)

This concerns only whether notice is given; on its own it does not determine whether the dismissal is lawful (see Table 3)

Table 2 – The grounds relied on (reason)

This concerns the reason for the dismissal. Just cause (Table 1) is the gravest form of a conduct-based dismissal, not a separate ground.

Table 3 – What is lacking when the dismissal is challenged, and the consequence

For an executive the outcome turns on two separate tests, plus the nullity regime – so there are three distinct defects, each with its own remedy. The first two can stack: a no-notice dismissal that is neither just cause nor giustificato owes both indemnities. The TFR is always payable.

Economic and legal consequences of dismissal

The financial outcome of an executive exit is the sum of several distinct components. Which components apply in a specific case depends on the type of termination and on the applicable legal and contractual framework:

• TFR (end-of-service indemnity): owed on any termination, for any reason and is an accrued entitlement rather than a penalty.
• Indemnity in lieu of notice: owed where the employer terminates with notice but does not require the executive to work  during the notice period; it is not owed in cases of genuine just cause.
• Supplementary indemnity (indennità supplementare): owed where the dismissal is found to lack giustificatezza, and its amount is set by the applicable CCNL, scaling with seniority and, in some cases, with age
• Specific damages: may be due in particular cases, for example breach of collective-redundancy procedures, violation of contractual protections or of the duties of good faith and fairness, or other quantifiable losses (including reputational damage where it can be proven).
• Reinstatement (reintegrazione): reserved for cases where the dismissal is null under mandatory law, such as discriminatory, retaliatory or otherwise void dismissals, and it is not an ordinary remedy for executives in cases of mere lack of giustificatezza

TFR (Trattamento di Fine Rapporto): how it works

TFR is a statutory deferred indemnity payable to every subordinate employee, including executives, on termination of employment for any reason.  It accrues over the entire duration of the employment relationship and is normally paid as a lump sum at the end.

Calculation

For each year of service the employee accrues a quota equal to the annual remuneration that is relevant for TFR purposes divided by 13.5. Fractions of a year are calculated proportionally; as a rule of thumb, service of 15 days or more in a month is normally treated as a full month for TFR purposes. 

The amounts set aside each year are revalued at 31 December of each year by applying a composite rate consisting of a fixed component of 1.5% plus 75% of the increase in the ISTAT consumer-price index compared to the previous December. As a result, TFR grows over the course of the executive’s tenure and can represent a substantial amount for long-serving senior staff. 

The exact remuneration base used to calculate the TFR can be influenced by the CCNL and by the individual contract. The parties must therefore check which components of remuneration are included, for example certain variable terms or benefits in kind, in light of the contract, the CCNL, and the applicable case law. 

The supplementary indemnity for executives (indennità supplementare)

The supplementary indemnity is the executive-specific remedy for an unjustified dismissal (licenziamento privo di giustificatezza), that is, for a dismissal lacking giustificatezza. It is not created by statute but by collective bargaining, and each CCNL defines whether it is owed, its minimum and maximum amounts, and how it scales over time. 

The CCNL normally links the amount of the supplementary indemnity to the executive’s length of service and, in some agreements, also to the executive’s age or to other criteria. Because of contractual origin, the figure cannot be stated generically, and the applicable CCNL must always be consulted for the current range and parameters. 

In practice, the supplementary indemnity is often the principal economic exposure in a contested executive dismissal and the main variable in exit negotiations. It is added to the TFR and to any indemnity in lieu of notice, and it can therefore significantly increase the overall cost of termination. 

Key contractual and practical issues in executive exits

For senior hires, the individual employment contract often has as much impact on the economics of an exit as statute and the CCNL. Certain clauses in the contract may increase or reduce the employer’s exposure and strongly influence the negotiation of a termination agreement.

Non-compete clauses (Article 2125 of the Civil Code)

Post-termination non-compete covenants are valid in Italy only if they satisfy the strict requirements of Article 2125 of the Civil Code. A non-compete is null and void unless it: 

1. is in writing
2. provides the employee with adequate consideration (corrispettivo)
3. and is limited as to subject matter (oggetto), territory (luogo) and time (tempo). 

These conditions are cumulative and the absence of any one of them makes the clause invalid. 

As to duration, the restriction may not exceed five years for executives and three years for other employees. Any agreement that purports to last longer is automatically reduced to the statutory maximum. 

As to scope and territory, the constraints must not be so broad as to compromise the executive’s ability to earn a living. A non-compete covenant that covers every type of activity over an unlimited area will tend to be considered invalid, because it prevents the executive from exercising any reasonable professional activity.

The consideration must be adequate in proportion to the sacrifice imposed and must be determined or at least determinable from the outset. Italian courts assess adequacy on a case-by-case basis, and there is no statutory minimum amount. A consideration that is merely symbolic, or left indeterminate or dependent on a purely discretionary future element, can render the clause void. 

Employers who rely on a non-compete to protect their business in respect of an Italian executive should therefore ensure that the covenant is narrowly tailored and supported by a clearly quantified payment. Executives, conversely, should carefully assess whether the consideration is genuinely adequate and whether the scope of the non-compete is likely to be enforceable.

The pre-termination review checklist

Before dismissing an executive or starting negotiations for an agreed exit, the following points should always be reviewed:

• The applicable CCNL, sector and current renewal text, must be identified in order to determine notice, indemnities, procedure and welfare.
• The executive’s classification and role must be checked, in order to verify whether the individual is a genuine dirigente or a so-called pseudo-dirigente (falso dirigente), because this changes the entire protective regime 
• The individual employment agreement must be examined for bespoke severance provisions, change-of-control clauses and any contractual enhancements over the CCNL 
• Notice period and indemnities must be calculated including the length of notice, the calculation of the indemnity in lieu, and the remuneration base used for those purposes.
• Non-compete clauses must be reviewed to verify their validity under Article 2125, including scope, duration and adequacy of consideration, as well as the employer’s strategy on  whether to enforce or waive the covenant.
• Confidentiality obligations and trade-secret protection must be considered, including any duties that survive termination. 
• Garden leave clauses should be analysed to confirm the employer’s right to place the executive on leave during notice and the resulting effects on duties and benefits. 
• Incentive schemes such as stock options, bonuses, MBOs, long-term incentive plans, and similar arrangements must be reviewed with attention to vesting rules, good-leaver and bad-leaver provisions, malus and clawback, and the treatment of unvested awards on exit.
• Benefits in kind such as company cars, housing, insurance and other fringe benefits should be considered, including whether their value forms part of the remuneration base for calculating indemnities.

Settlement and protected venue (sede protetta): A settlement reached in a protected venue– for example before labour authority, in a union-assisted setting, or before court – is more robust against later challenge, whereas waivers of mandatory rights signed outside such venues may be open to challenge.

Practical guidance for multinational employers and senior executives

For employers and in-house counsel

Employers should identify the correct CCNL and confirm that the individual is a genuine dirigente before deciding the strategy for an exit. For executives, the realistic objective is often a negotiated and well-documented exit rather than a dispute focused on reinstatement, and the main exposure is usually the supplementary indemnity provided by the CCNL, whose potential range should be modelled from the outset. 

Where the grounds for dismissal are based on conduct, employers must observe the guarantees of Article 7 of the Workers’ Statute. Where the grounds are organisational, employers must ensure that the stated reason is genuine and consistent with the facts and that executives are properly considered in any collective-redundancy procedure under Law 223/1991 which, since Law No. 161/2014 (following the EU Court of Justice ruling in case C-596/12), expressly applies to executives: they are counted toward the dimensional thresholds, and a dedicated indemnity of 12 to 24 months’ pay is owed for breaches of the procedure or the selection criteria.

Any case involving a protected status or a potential null dismissal should be treated as high-risk, both in terms of remedies and of reputational impact. Settlements should, as far as possible, be concluded in a protected venue to secure finality and reduce the risk of subsequent claims.

For executives

Executives should negotiate at entry the terms that will matter on exit including notice periods, any contractual severance above the CCNL level, good-leaver treatment of incentive awards, and the consideration and scope of any non-compete. On exit, they should verify that TFR has been correctly calculated and revalued, and that any claim of giusta causa is genuinely supported by the facts and by proportionality. 

Executives should also check which remuneration items, including variable pay and benefits in kind, form part of the base used to calculate notice indemnities and other amounts, in light of their regularity and of the applicable case law. They should bear in mind that an unjustified dismissal converts into an entitlement to the supplementary indemnity provided by the CCNL, while a discriminatory or otherwise null dismissal may open the way to reinstatement and stronger remedies, subject to applicable time limits.

Conclusion

Executive severance in Italy is not a single statutory entitlement but a layered framework in which the Civil Code provides the baseline , the sectoral CCNL supplies most of the operative detail, the individual contract defines the bespoke economics, and the courts supervise the boundaries. For multinational employers, the practical message is that executives are governed by a specific regime and cannot be managed on the assumptions that apply to non-executive employees or to at-will jurisdictions.

For executives, the same framework offers meaningful, although mainly economic, protection, complemented by stronger remedies in cases of null or discriminatory dismissals. In every case,  the decisive details depend on the applicable collective agreement, the individual contract and the facts, and should be checked against the current CCNL and assessed with qualified Italian counsel before any step is taken.

AdvaLux is for the international executive. We work with executives on crafting fair employment contracts and severance packages, and if this article helped answer some questions for you, we are ready to assist.