Guide on minimum wage in Italy

Introduction

Italy, as is well known, is the only OECD country where wages are falling rather than rising, while the cost of living is rising. It is also one of a few EU countries without a minimum wage law. 1 21 Member States have specific minimum wage laws, while in 6 others (Italy, Denmark, Cyprus, Austria, Finland and Sweden), the minimum wage is set by collective bargaining.

A bill on minimum wage is currently before the Italian parliament, but it does not specify how much the minimum wage should be. According to a study,  2 Report of the Clean Clothes Campaign, 2024, available at
https://www.abitipuliti.org/wp-content/uploads/2022/06/Salariodignitoso_aggiornamento2024.pdf  the amount should be EUR 11.50 per hour of work.

To date, the minimum wage has been determined by collective agreements (the National Collective Bargaining Agreements, NCBA for short).

Recently, however, this principle has been challenged in part by the Supreme Court, which intervened by recalling that selecting an NCBA is not sufficient to ensure compliance with the principles of “remuneration proportionate to the quantity and quality of work” and “sufficient to ensure the worker and his or her family a free and dignified existence” set out in article 36 of the constitution.

In fact, the Supreme Court has recently partially overturned its own historical orientation, stating that where the NCBA adopted stipulates minimum wages that are too low, the judge must assess the wages provided for by other collective agreements in related sectors or refer to other criteria, such as the ISTAT index (Italian Statistics Institute) or the value of the unemployment allowance (the so-called NASpI). 3 Italian Supreme Court ruling no. 28320 of 10 October 2023.

Is the role of collective bargaining for wage determination in crisis? That is a complex topic for another venue, but here it is necessary to remind companies that there are more than 992 collective bargaining agreements filed with CNEL (the National Council for Economy and Labour).  4 17° Report periodico dei Contratti Collettivi Nazionali di Lavoro vigenti depositati nell'Archivio CNEL (17th Periodic Report of National Collective Labour Agreements in force deposited in the CNEL archives), CNEL, 2023, available at
https://www.cnel.it/Portals/0/CNEL/Reports/CCNL/17_report_CCNL_vigenti_giugno_2023.pdf?ver=2023-07-11-131505-757  On the one hand, the choice of NCBA is therefore a very difficult and delicate operation. On the other hand, it is very difficult to counter the “dumping contract” phenomenon (and this difficulty may help to understand the rationale behind the Supreme Court’s latest decisions).

In this context of great confusion and uncertainty, a potentially drastic increase in wage disputes can be expected.

To provide direction to companies in such a complex framework, we have prepared this expert guide on minimum wage in Italy.

Summary

1. Enforcement of “minimum wage” in Italy
   Excursus: What does “erga omnes” mean exactly? And why do NCBAs not have it?
   Excursus: We all live in a “yellow union” and contractual dumping
    
2. Ruling no. 28320of the Supreme Court of October 2023 and its practical implications
   1.   Content of the ruling
   2.   Practical implications
   Expert tip: How can the risks for employers best be mitigated?
    
3. Outlook

I.               Enforcement of “minimum wage” in Italy

As mentioned, in Italy there is no statutory minimum wage that is binding on employers. Instead, depending on a company’s sector of activity, minimum wages are regulated in collective bargaining agreements which are applicable to employment relationships. These collective agreements, or NCBAs, are negotiated by the unions but do not have general and immediate applicability to all the employees working in an economic sector or industry. Instead, NCBAs apply only to those employees who are either members of the unions or are de facto made subject to the NCBA by the employer, who has an interest in having some homogeneity in the treatment of employees.

In other words, no NCBA in Italy has the scope and effectiveness of a law, which is to say that it does not satisfy the so-called “erga omnes” principle (i.e. general application).

It follows that employers who do not adhere to any employers’ union would have no obligation to provide a certain treatment to their employees, effectively imposing their own conditions.

In this situation, the Italian courts have taken it upon themselves to grant employees a minimum level of wages and, in time, also a minimum threshold of protection with regard to provisions such as annual leave and sick leave.

In practice, when judges were asked to assess the sufficiency of wages received by employees, they turned to article 36 of the constitution, which states that remuneration must be “proportionate to the quantity and quality of work” and “sufficient to ensure the worker and his or her family a free and dignified existence”.

But how could the judges determine if a wage was “sufficient” and “proportionate”? The answers, according to Italian case law, were in the NCBAs. In this way, the enforceability of NCBAs was vastly increased, and employers were forced to adopt NCBAs and apply them in their companies.

II. Ruling no. 28320 of the Supreme Court of October 2023 and its practical implications

The ruling no. 28320 of the Supreme Court of 10 October 2023  5 On this day, the Supreme Court actually adopted six decisions stating the same position as 28320/2023. For the sake of simplicity, we have considered and illustrated just one of these decisions.  has tried, on the one hand, to counteract the phenomenon of contractual dumping; on the other hand, it has left employers without concrete guidance in the already complex matter of how to select the right NCBA.

The crux of the ruling is that the minimum wage provided for by the NCBA applied in the company must be verified in light of article 36 of the constitution, so as to ascertain its effectiveness.

In the words of the court, “the fact that the wage is provided for in a collective bargaining agreement concluded by unquestionably representative unions is not in itself enough for the wage to be considered lawful, since the court may declare it null and void if a careful review of the wage leads to the conclusion that it is insufficient to guarantee a free and dignified life.”

1.     Content of the ruling

In the case before the Supreme Court, employees working as security guards and doormen claimed that their hourly wage of around EUR 5.49, provided for by the NCBA, was below the poverty line and therefore non-compliant with article 36 of the Italian constitution.

The Supreme Court stated that the right to an “adequate” wage guarantees employees an “adequate relationship between their wage and the quantity and quality of the work performed”; the right to a “sufficient” wage entitles employees to “a wage which is not less than the minimum standard required for a decent standard of living”, i.e. to “a total wage that does not fall below the minimum level considered necessary at a given historical moment and under the specific living conditions to ensure a free and dignified life for the worker and his or her family”.

Therefore, the Supreme Court argued, it is up to the judge hearing the case to determine the specific amount of any appropriate wage.

In practice, according to the Supreme Court, the judge must perform a two-step operation, first of “destruction” and then of “reconstruction”.

Accordingly, the judge must first verify that the wage at issue is below the constitutional minimum, e.g. by comparison with other NCBAs applied in the sector, and consequently declare the relevant contractual clause null and void.

Thereafter, the court must determine a fair wage by reference to a collective agreement governing a “similar sector or similar tasks”, or even other parameters. In this process, the judge has ample discretionary power, but should consider “economic” parameters such as the ISTAT level of the absolute poverty line or the amount paid as unemployment allowance (NASpI) and the income limit to access a disability pension.

In light of the above, as the employees involved were subjected to an NCBA applied in a different sector, the employer was sentenced to pay the differences in wages.

2.     Practical implications

As mentioned, the ruling makes the already confusing situation even more unpredictable for employers. In practice, it potentially means that employers cannot rely on the NCBA with absolute certainty but should additionally review the minimum wage stated in the specific NCBA in order to avoid future payment claims from employees. In its ruling no. 960 of 3 January 2024, the Milan Court of Appeal applied the case law of the Supreme Court and even deviated from a collective bargaining agreement adopted by the main trade unions in the sector (CGIL, CSIL, UIL and UGL), which had unanimously agreed on a new wage system.

As it will therefore be up to the respective judge to determine the adequate level of wages in the event of a legal dispute, from the outset, employers are exposed to the risk that employees may challenge the specific level of wages, and the court may share their opinion, despite the fact that the minimum wage is regulated in the NCBA signed by the employer. This could have the effect of forcing employers to “play it safe” and agree to a higher wage than provided for in the NCBA.

On top of that, the selection of an NCBA is already difficult for employers, given the large number of existing NCBAs. Simply determining the scope of an NCBA (i.e. how the sector is defined) is already associated with uncertainties for the employer. An example that can be mentioned in this respect is the ruling no. 96352 of the Milan Court of 11 December 2023, in which the employer as the defendant had applied the collective bargaining agreement for cleaning employees, even though the work involved loading and unloading transporters. The court declared that points of reference for the selection of the right NCBA include, for instance, the work actually carried out and the object of the company.

In addition, the standards by which the courts will determine the adequacy of wages in future remain in question.

III.  Outlook

Statutory regulation of a specific minimum wage is not expected in Italy in the near future. It is true that proposed legislation in this regard is pending at national level, and there is also an EU directive that must be transposed into national law. However, none of these regulations provide for a statutory fixed minimum wage for all sectors (such as e.g. in Germany).

1.     EU directive

The Minimum Wage Directive (EU 2022/2041) does not force the Member States to set statutory minimum wages. It intervenes mainly in the following areas:

(i) adequacy of legal minimum wages;

(ii) promotion of collective bargaining on wage-setting;

(iii) effective access of workers to the protection guaranteed by a minimum wage.

For countries without a law on minimum wage, the directive sets standards for how statutory minimum wages should be set, updated and enforced. In particular, the directive promotes the development and strengthening of collective bargaining. For these purposes, it is stipulated, inter alia, that Italy shall:

(i) promote the development and strengthening of the social partners’ capacity to participate in collective bargaining on wage-setting, in particular at sectoral or intersectoral level;

(ii) after consultation with the unions, or by agreement with them, or following a joint request by the unions, establish an action plan – subject to review at least every five years – aimed at promoting collective bargaining. With such a plan, Italy shall establish a clear timetable and concrete measures to gradually increase the coverage of collective bargaining, while fully respecting the autonomy of the unions.

In addition, the Member States are to define so-called action plans to increase collective bargaining coverage if the rate is below 80% (cf. recital 25 of the EU directive).

The aim of the directive is to “adjust” minimum wages in order to achieve “decent living and working conditions”.

In recital 28, the directive states that “a basket of goods and services at real prices established at national level can be instrumental to determining the cost of living with the aim of achieving a decent standard of living” and adds, in relation to the standard of living to be achieved through a fair minimum wage, that “[i]n addition to material necessities such as food, clothing and housing, the need to participate in cultural, educational and social activities could also be taken into consideration”.

It should be noted that the Supreme Court included these criteria in its ruling and took them into account when reaching its decision.

2.     Proposal for a national law

In the past, the first attempt at a national legislative solution failed. The so-called “Legge Vigorelli” was struck down by the Supreme Court, as this law only contained an affirmation of the existing minimum wages under collective bargaining agreements.

The Supreme Court argued that it was not admissible for private parties, such as the unions, to became de facto lawmakers, and that NCBAs could not be considered an expression of the will of the Italian people.

Since the adoption of the Minimum Wage Directive (EU 2022/2041), there have been numerous proposals for minimum wage legislation.

These proposals included the following:

• Proposals that set a legal minimum wage, indicating its amount in the text of the law and providing for its updating according to the price index (AC 3439, AS 658, AS 2510), subject to prior agreement between workers’ and employers’ trade unions (AS 310) or to their participation in a specially established commission (AC 947 and AS 2187).
• Proposals that established a statutory minimum hourly wage applicable to sectors not covered by collective bargaining (AC 947 and AS 1132) and, according to several bills (AC 862, AC 1542, AC 3439, AS 310, AS 2187, AS 2510), allowed no derogation for the worse by collective agreements.
• Proposals that required sectors not covered by NCBAs to apply the minimum wages laid down by NCBAs for related sectors (AS 1259) or a combination of them (AS 658).
• Proposals that deferred the determination of a statutory minimum wage and its updating to an implementing legislative decree, issued after consultation with the unions (AS 862) or a commission representing the unions (AS 1132 and AC 1542), but indicated the basic parameters (AC 862 and AC 1542).

After much debate and controversy, none of these proposals were adopted by the Italian parliament.

There is, however, another proposal on which the government has been working.

Originally, the proposal included an indication of the amount of the minimum wage, which was low (EUR 9 per hour of work).

After further controversy, the proposal was changed, the reference to the amount was removed, and it was stipulated that the government has six months from December 2023 to ensure compliance with article 36 of the constitution through general objectives such as the promotion of NCBAs and the fight against wage dumping.

In light of the above, Italian wage regulation is bound to change in the near future. Adopting a proactive approach will be key for employers to navigate these unclear scenarios, and our experts are at your disposal to assist in the process.