CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

An employee may be dismissed:

  1. with just cause: when the employment relationship cannot be continued, even temporarily, either because of a material breach of contract or another reason causing a deterioration of the relationship between the parties; or
  2. for a justified subjective reason: in case of a material breach of the employment contract (less serious than the case of justified cause); or
  3. for a justified objective reason: where the company is either closing, is being restructured, or there is no longer a need for the individual’s position or division. Notice served at the end of a disciplinary procedure (a ‘disciplinary dismissal’) is classified either as a dismissal with just cause or for a justified subjective reason.

A claim for unfair dismissal can be made if the reason for dismissal was not one of a number of ‘fair reasons’ (e.g. conduct, capability, "some other substantial reason", statutory ban or redundancy).

Most employees need a particular length of service to bring a claim for unfair dismissal. At present this is two years’ service. However, all employees can bring a claim for unfair dismissal if the reason for dismissal is deemed to make the dismissal automatically unfair (e.g. for whistleblowing or for family reasons such as dismissals for reasons connected to pregnancy, parental leave, or requests for flexible working).

Even if the dismissal is deemed to be for a fair reason, to avoid a successful claim for unfair dismissal the employer must still follow a fair procedure and act reasonably in dismissing the employee.

If the reason for the dismissal involves discrimination against the employee (because of a protected characteristic such as sex, race, age or disability), employees may make a discrimination claim irrespective of their length of service.

Employees with two years of service have the right to request a written statement of reasons for dismissal. Employers must provide the statement within 14 days of the request.

Irrespective of length of service, employees dismissed during pregnancy or statutory maternity or adoption leave are automatically entitled to a written statement of reasons for dismissal without having to request it.

An employment agreement can be terminated by the employer and the employee can be dismissed in two different ways: with cause, when the employee has committed one of the breaches specified in the labour laws, or without cause, when the employee is dismissed at the employer’s discretion, due to redundancy or other reasons that do not necessarily need to be specified.

The difference between dismissal with cause and without cause lies in the severance payments that the employer must make to the employee upon dismissal (see below).

The labour legislation determines that an employee can be dismissed with cause for the following reasons:

  1. dishonesty;
  2. sexual harassment or inappropriate behaviour;
  3. the employee competes with the employer’s line of business or carries out other business prejudicial to the employee’s work, on his / her own or through third parties, without the permission of the employer;
  4. the criminal conviction of the employee, resulting in the employee being incarcerated and not able to attend work;
  5. poor performance;
  6. frequent drunkenness or drunkenness at work;
  7. disclosure of company secrets;
  8. insubordination or indiscipline;
  9. the employee abandons his work;
  10. insult, defamation or slander, or physical offence, carried out at work against any person, except in legitimate self-defence or in defence of a third party;
  11. insult, defamation or slander, or physical offence, carried out at work against the employer or superior, except in legitimate self-defence or in defence of a third party;
  12. frequent gambling;
  13. losing the professional qualification necessary to perform work due to the employee’s fault; and
  14. being involved in actions contrary to the national security, as duly evidenced through an administrative proceeding

The following employees have the right to stability, and cannot be dismissed without cause from their employment:

  1. pregnant employees cannot be dismissed without cause from the date the pregnancy is confirmed until five months after giving birth to the child;
  2. an employee who suffers an accident at work and is prevented from attending work for at least 15 days cannot be dismissed without cause for a period of one year, counted from the date the employee returns to work; and
  3. an employee elected president of the internal commission for accident prevention cannot be dismissed without cause from the date he registers to run for the position until one year after the end of his / her tenure.

In addition to dismissal of the employee with cause or without cause, the employer and the employee can amicably agree to terminate the employment agreement. In such a case, lower severance payments are due (see below).

1.2 Form

Must be in written form (with the exception of domestic help and employees subject to a probationary period), and signed by the employer’s legal representative. Notice may be served by telegram.

Employees may be dismissed orally or in writing. In misconduct and capability dismissals the ACAS Code of Practice states that the employee should be invited to attend a meeting to explain their version of events. A letter should then be sent to confirm the reason for the dismissal and the date of dismissal in writing to avoid any dispute over the effective date of termination. A right of appeal should be offered. Failure by the employer to follow the Code of Practice does not give an employee a remedy for breach. However in the event that an unfair dismissal claim is successful and there has been non-compliance with the Code the tribunal has the power to increase the award of compensation by up to 25%.

The employer must notify the employee of the dismissal in writing. In addition, the parties must execute a term of termination, and the employer must register the dismissal in the employee’s employment booklet and inform the competent authorities.

1.3 Notice period

Other than in fixed term contracts, the length of the notice period is set by national collective contracts and varies according to the length of service and the employee’s qualifications. No notice period is needed for dismissal with just cause. In dismissals for a justified objective reason and / or a justified subjective reason, the employer may renounce the notice period and pay the employee compensation in lieu of notice. Notice is not required for dismissals during fixed-term contracts or during probationary periods.

There is a statutory minimum notice period of between one and 12 weeks, dependent on length of service.

The contract of employment can provide for a longer notice period. Failure by the employer to comply with the contractual notice period can result in a claim for ‘wrongful dismissal’.

Except in cases of termination with cause, where no prior notice is required, or if a longer notice period is stipulated in the employment agreement, employees must be notified of the dismissal at least 30 days in advance.

In addition to the 30-day notice period, the employee must receive payment in lieu of an additional “notice period” equivalent to the salary for three days per year of employment up to a maximum of 90 days. If no dismissal notice or less than a 30-day notice is given, the employer is obliged to pay the employee the salary that would otherwise be due for the full 30-day
notice period.

1.4 Involvement of works council

Works council members may not be dismissed within a year of the termination of their appointment. The union need not be notified prior to the dismissal of an employee. The employer must notify the works council (‘Rappresentanze Sindacali Unitarie’ and ‘Rappresentanze Sindacali Aziendali’) of any intention to make collective redundancies.

No general legal requirement for involvement, but staff forums may be involved in the case of collective redundancies (see below).

Not necessary.

1.5 Involvement of a union

If there is no relevant works council, the employer must notify the most representative unions of its intention to make collective redundancies.

No involvement normally other than in the case of collective redundancies (see below) or if the employee exercises their right to be accompanied by an appropriate trade union representative to a disciplinary meeting.

No involvement normally, other than in the case of a program of collective voluntary dismissal (see below).

1.6 Approval of state authorities necessary

Not required.

Not necessary.

Not necessary.

1.7 Collective redundancies

Collective redundancy is the dismissal by an employer employing more than 15 workers of five or more employees in the same establishment, or at different establishments located in the same province within a period of 120 days. The employer must notify the works council and the Employment Office of its intention to make collective redundancies. Unions may ask for a joint examination in order to reach an agreement; failing this, the employer may notify the affected employees of their dismissal one by one with notice. To initiate redundancy, the employer must inform the employee representatives and the appropriate industry union in writing of its intention. Where there are no local representatives, the company must notify the full-time officials in the relevant union(s). The company must also notify the labour authorities. Within seven days of union representatives being informed, the parties must conduct a joint examination of the reason for the surplus labour and the proposed dismissal, of the possibility of redeployment, and of the use of solidarity contracts or the introduction of flexible working time to forestall dismissals. Should the union not ask for a joint examination, the employer must notify the competent local job office to continue the procedure.

The consequences of unlawful dismissal are different for employee hired before 7 March 2015 and those hired after.

For employees hired before 7 March 2015, the consequence of unlawful collective dismissal when there is a violation of the criteria for the selection of employees to be dismissed is the reinstatement of the employee and the payment of a ‘reinstatement indemnification’ (a maximum of 12 months’ salary).

For other cases of unlawful dismissal, the only consequence is the payment of a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 24 months’ salary). The dismissal is then effective.

For employee hired after 7 March 2015, reinstatement and payment of a ‘reinstatement indemnification’ (a maximum of 12 months’ salary) can only be ordered following an oral dismissal or a discriminatory dismissal.

In other cases of unlawful dismissal, the employer only has to pay a ‘reinstatement indemnification’ (between a minimum of six and a maximum of 36 months’ salary, depending on the length of service with the employer, the lack of reasons behind the dismissal, and the damages suffered by the employee). The dismissal is then effective.

If 20 or more employees are proposed to be made redundant at one "establishment" within a period of 90 days or less, consultation with employee representatives (who may be trade union representatives) must begin at least 30 days (or 45 days if 100 or more employees are to be made redundant) before the first dismissal takes effect.

Additionally, employers are obliged to notify the Secretary of State (for Business Innovation and Skills) where they are proposing to dismiss as redundant 20 or more employees within a 90-day period.

The Secretary of State must receive notification at least 30 days (or 45 days if 100 or more employees are to be made redundant) before the first dismissal takes effect.

A copy of the notification must also be provided for the employee representatives.

There is no requirement in Brazil for any specific measure to be taken in case of collective redundancies. However, the employer may elect to agree with the employees’ union to a programme of collective voluntary dismissal. Under such a programme, the employer can be authorised to make reduced severance payments for employees who voluntarily choose to adhere to it. From the employer’s perspective, the programme allows the employer to pay less than it would otherwise pay to employees who are dismissed without cause. For employees, the programme can be beneficial as they may be able to receive some indemnification that they would otherwise not have be entitled to had they decided to terminate their employment agreement themselves.

1.8 Summary dismissals

Only for just cause.

Summary dismissal (dismissal without notice) is only lawful where the employee has committed a breach of contract that is sufficiently serious to entitle the employer to treat the employment contract as terminated with immediate effect. A typical example is where the employee has committed gross misconduct.

Summary dismissals (dismissals without notice) are only permitted for dismissals with cause. For dismissal without cause, a 30-day prior notice is generally required (see above). However, the employer may elect to provide financial compensation for the prior notice period. In this case, the employer has to pay to the employee the salary the employee would have earned during the 30-day prior notice, and the employee is not required to work during this period.

1.9 Consequences if requirements are not met

Employers with more than 15 employees

The reform implemented by Law 92 / 2012 and Legislative Decree 23 / 2015 amended by Law 96 / 2018 have introduced different systems for the protection of workers, which are applicable dependent upon the type of dismissal imposed and the reason for its unlawfulness:

Disciplinary dismissal

  • Unlawful because the act does not exist or is one of the acts for which the national collective bargaining agreement or disciplinary codes provide a conservative sanction:
    • reinstatement of the employee and payment of a ‘reinstatement indemnification’ (a maximum of 12 months’ salary). For employees hired after 7 March 2015 such sanctions are applicable only if the material fact behind the dismissal does not exist.
  • Unlawful in all other cases:
    • no reinstatement, but only payment of a ‘reinstatement indemnification’ (set at between a minimum of 12 and a maximum of 24 months’ salary). The dismissal is then effective. For employees hired after 7 March 2015, there is no reinstatement, but only payment of a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 36 months’ salary, depending on the length of service with the employer, the lack of reasons behind the dismissal, and the damages suffered by the employee). The dismissal is then effective.
  • Unlawful because of the lack of required motivation or failure of the disciplinary procedure:
    • no reinstatement, but only payment of a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 12 months’ salary). The dismissal is then effective. For employees hired after 7 March 2015, there is no reinstatement, but only payment of a ‘reinstatement indemnification’ (set between a minimum of two and a maximum of 12 months’ salary, depending on the length of service with the employer). The dismissal is then effective.

Dismissal for a justified objective reason

  • Unlawful (i) because of a lack of justification consisting of the physical or mental unfitness of the employee; or (ii) because it is ascertained that the dismissal was ordered before the retention period of the job had passed; or (iii) because the productive or organisational fact used as the basis for the dismissal does not exist:
    • reinstatement of the employee and payment of ‘reinstatement indemnification’ (a maximum of 12 months’ salary).
  • Unlawful for any other reason: no reinstatement, only payment of a ‘reinstatement indemnification’ (set at between a minimum of six and a maximum of 12 months’ salary). The dismissal is then effective.
  • Unlawful because the dismissal has actually been ordered for discriminatory or disciplinary reasons:
    • reinstatement of the employee (also if a manager) and payment of a ‘reinstatement indemnification’ (of at least five months’ salary). Alternatively, the employee may opt to receive an indemnification equal to 15 months’ salary (‘alternative indemnification’).
  • Unlawful because of a lack of the required justification or, if dictated by economic reasons, without having first complied with the required conciliation procedure:
    • no reinstatement, merely payment of a ‘reinstatement indemnification’ (set at between a minimum of six and a maximum of 12 months’ salary). The dismissal is then effective.

Employees hired after 7 March 2015 are not reinstated, but instead paid a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 36 months’ salary, depending on the length of service with the employer, the lack of reasons behind the dismissal, and the damages suffered by the employee). The dismissal is then effective.

Employers with 15 or fewer employees

Re-employment of the employee or payment of an indemnification of between two-and-a-half and six months’ salary (indemnification can be increased to up to 12 months’ salary in the case of an employee with long service).

For employees hired after 7 March 2015, re-employment or payment of an indemnification between one and six months’ salary, depending on the length of service with the employer, the lack of reasons grounding the dismissal, and the damages suffered by the employee.

Regardless of the number of employees, in case of a discriminatory dismissal or oral dismissal

Reinstatement of the employee (including a manager) and payment of a ‘reinstatement indemnification’ (of at least five months’ salary).

Alternatively, the employee may opt to receive an indemnification equal to 15 months’ salary (‘alternative indemnification’).

The employee may have various claims, such as an unfair dismissal claim where the primary remedy is financial compensation. However, there is also scope for the claimant to request reinstatement or re-engagement, and in very limited circumstances (e.g whistleblowing) the claimant can request interim relief, and if the tribunal grants this, then an employer must continue paying the claimant's wages until the date of the substantive hearing. Most employment-related claims in the UK are made in employment tribunals.

The employee may have various claims against the employer related to his dismissal. For example, in case of dismissal for cause, the employee may have a claim for unfair dismissal and require payment of the severance dues that would have been payable for a dismissal without cause. In case of a dismissal without cause, the employee may have a claim with respect to the severance payments received, or other employment-related rights accrued during the employment term which were not paid.

Employment claims are made before specialised labour courts in Brazil.

1.10 Severance pay

In any termination of an employment contract, the employee is entitled to a severance payment (‘trattamento di fine rapporto’). This is a deferred salary payment calculated as a percentage of the annual salary (including any amounts paid by the employer as fringe benefits and other special indemnifications).

The amount of the severance payment therefore increases yearly: when the employment terminates (whether on a voluntarily or due to dismissal), the employee has the right to receive the total relevant amount.

The employee is also entitled to an indemnity for unused holiday time, compensation in lieu of notice, and other accrued and pro rata payments.

The employment contract may provide for the employer to make a payment in lieu of notice, for example, equal to the salary that the employee would have earned during the notice period. If this is not provided for in the contract, the parties can agree for such a payment to be made, for example, as ‘damages’ for breach of contract.

If an employee with two years’ continuous service has been made redundant, they will be entitled to a statutory redundancy payment. The amount is calculated according to a statutory formula based on the employee’s age, length of service and weekly pay (capped at GBP 538 as at April 2020), up to a maximum of GBP 16,140 (as at April 2020). The employment contract may provide for an enhanced redundancy payment.

If the employee has been unfairly dismissed, and brings a successful claim in an employment tribunal they may be able to claim a ‘basic award’ calculated according to the same formula as the statutory redundancy payment (but employees cannot usually recover both a statutory redundancy payment and a basic award), and a ‘compensatory award’ which is capped at the lower of one year’s salary and GBP 88,519(as at April 2020). If an order for reinstatement or re-engagement is made there is scope for this cap to be lifted.

Employees who argue that they were dismissed for making a protected disclosure (whistleblowing) are not restricted by the statutory cap referred to above.

Similarly, the statutory cap does not apply where the dismissal was related to a prohibited ground under the Equality Act 2010. In these scenarios the potential awards can be significant.

In case of dismissal for cause, no severance pay is due to the employee.

In such cases the employer must only make payments related to rights the employee accrued during the employment period, which can include pro-rata payment for accrued holiday entitlements (1 / 12 of the employee’s holiday pay for each month of the incomplete holiday accrual period at the time of dismissal (such holiday pay being, in full, equivalent to one monthly salary plus an additional 1 / 3 of monthly salary), proportional 13th salary (1 / 12 of one monthly salary for each month worked in the then current calendar year), as well as double payment for any overdue holiday periods (i. e., holiday periods not enjoyed by the employee within 12 months of the employee acquiring the right to enjoy such holiday period).

If the employee is dismissed without cause, the employer must pay to the employee, in addition to the payment of accrued rights and as a penalty for unfair dismissal, an amount equal to 40 % of that which the employer has deposited into the employee’s severance compensation fund (“FGTS”) during his / her employment. In addition, the employer must pay a further 10 % of the amount deposited into the FGTS to the government. Every month, employers are required to deposit 8 % of the employee’s monthly salary into his / her FGTS account, which is managed by the Federal Savings Bank on behalf of the employee. Thus, this penalty will depend on the length of employment and on the amount of the employee’s monthly salary.

If the dismissal is amicably agreed to between the employee and the employer, the employer will have to pay half of (a) the financial compensation for prior notice, if the parties agree that the prior notice will be financially compensated for instead of the employee actually working during such period, and (b) the penalty equivalent to 40 % of the amount the employer has deposited into the employee’s FGTS (i. e., 20 % of the amount deposited into the FGTS).

All other termination payments, such as amounts due in respect of accrued rights, should be fully paid.

In cases of fixed term employment contracts where there is no provision allowing the parties to terminate the agreement early without cause and the employer opts for early termination without cause, the employer must pay the employee half of the amount the employee would otherwise have been entitled to receive during the remainder of the agreement term.

1.11 Non-competition clauses

A post-contractual non-competition clause is valid if it has been agreed between the parties and:

  1. it is in writing; and
  2. the restriction imposed on the employee refers to a specific object, within a specific area and for a limited period (maximum of three years); and
  3. an indemnity is paid to the employee while the clause is in force. The indemnity may be paid during, at the end of, or after termination of the employment contract.

Restrictive covenants will be void for unlawful restraint of trade and so are unenforceable unless they protect the legitimate business interests of the employer and go no further than is necessary to provide that protection, in terms of activity, duration and geographical area. However they are widely used in senior level contracts. It is always recommended to take advice on tailoring such a clause for each individual employee and to ensure that when employees are promoted or their role changes that the restrictions are suitably updated.

The law does not deal with the validity of non-compete clauses. Currently, the validity of such clauses is still being debated at the labour courts. On the one hand, some courts understand that non-compete clauses breach the constitutional rights of all persons to carry out any work, profession or activity of their own choosing, provided the professional qualifications are met. On the other hand, other decisions have confirmed the validity of non-compete clauses, provided some restrictions are included, such as:

  1. the non-compete clause shall be reasonably limited in time and to a certain geographic area;
  2. the restriction shall be related to the activities the performed during his / her employment, and it shall be necessary and reasonable to protect a relevant interest of the employer;
  3. the employee shall be entitled to receive financial compensation if he / she is restricted from work due to the non-compete provision; and
  4. the non-compete clause shall be agreed on at the outset of the employment.

1.12 Miscellaneous

Due to the Covid–19 medical emergency, employers in Italy are currently prohibited from dismissing an employee for economic reasons, unless the appropriate social safety programmes have been completely exhausted by the employer.

It is prohibited to dismiss certain categories of employees considered particularly vulnerable. note that the ban on dismissal remains in place for up to one year after an employee's marriage, pregnancy, sickness, injury, military service, trade union appointment, public appointment, participation in a strike, etc.

Dismissal for an economic reason – conciliation procedure

To dismiss an employee for an economic reason, an employer with more than 15 employees must first make a statement to the local labour inspectorate (ITL) responsible for the area where the employee works. The statement must also be forwarded to the worker.

Within seven days of receiving the statement, the ITL will summon the employer and employee before the provincial commission of conciliation. The procedure must be completed within 20 days following the hearing, unless both parties declare their intention to extend it. If the mandatory conciliation attempt is unsuccessful or the labour inspectorate does not call the parties within the Seven-day deadline mentioned above, the employer may communicate the dismissal to the employee, but always observing the period of notice.

Employers may wish to avoid a potential dispute over a termination of employment by obtaining a waiver of rights from an employee in consideration for a termination payment. In the UK this agreement is referred to as a settlement agreement and there are a number of statutory formalities to include before such an agreement is enforceable in respect of statutory rights, including the requirement that the individual takes independent advice on the terms of the agreement. There are also risks attached to making an offer to an employee to enter into a settlement agreement and therefore legal advice should be taken before doing so. In addition, in 2019 the UK Government announced legislation on the use of non-disclosure agreements in discrimination cases which was expected to come into force in 2020, however given the pandemic, this has been delayed and no new time frame has been given. The UK statutory equality body, the Equality and Human Rights Commission issued guidance on this subject in October 2019 setting out good practice for employers to consider. 

The above rules and guidelines apply to private employment agreements. Public officials and public employees are generally subject to a specific employment regime which, among other things, provides for employee stability, meaning that they cannot be dismissed without cause after a probation period.

2. Dismissal of managing directors

In the United Kingdom (UK), the rights and obligations of a ‘director’ are the same whether they are for a ‘managing director’ or any other type of director. However, not all directors are employees. ‘Managing directors’, for example, are employees of the company, but ‘non-executive directors’ are not employees. Normal practice is for a managing director to have a service agreement supplementing their statutory and common law obligations as a director. Often a managing director's employment contract will require them to resign any directorships when their employment terminates, so that their directorship and employment terminate simultaneously. It Is therefore often simpler (and preferable) to remove a managing director by dismissing them from their employment, and then requiring them to resign their directorship. Please see the section "Employees: United Kingdom" for information on the relevant issues when taking that approach, as well as the "Miscellaneous" section below.

This table only covers removal of the director from office as a director and does not cover termination of any contract of employment or other employment issues.

In Brazil, the rights and obligations of a ‘director’ are the same whether they are for a ‘managing director’ or any other type of director. Although this is not the normal practice, a director may also be an employee of the company. If that is the case, the relationship between the company and the director will be subject to labour laws, as well as to the legal / statutory rules applicable to the appointment / dismissal and duties / responsibilities of directors. This table only covers the removal of managing directors from their positions as director, and does not cover termination of any contract of employment or other employment issues.

2.1 Reasons for dismissal

At a limited liability company by shares (i.e. ‘Società per azioni’), or a limited liability company by quotas (i.e. ‘Società a responsabilità limitata’) where a managing director is appointed for a fixed period, a shareholders’ meeting may revoke the appointment of a managing director where there is just cause.

According to case law, this is generally the case where there has been a breach of legal or statutory obligations, or where the managing director has breached duties of loyalty, fairness, diligence and honesty. At a limited liability company by quotas where a managing director is appointed for an open-ended period, a quota holders’ meeting may revoke the appointment of the managing director without just cause at any time, even though the managing director will then be entitled to damages unless proper notice is given.

The company may remove the director for any reason, unless the articles of association of the company or any other agreement between the director and the company provide otherwise. There is however a statutory procedure that the shareholders of any UK company can use to remove a director (see below). This procedure will apply regardless of any agreement between the company and the director, or any provision of the company's articles.

A managing director may be dismissed at any time for any reason, unless the articles of association or bylaws of the company provide otherwise.

2.2 Form

In the case of a liability company by shares, where the managing director does not have an employment contract, the managing director's appointment may be revoked by resolution at an ordinary shareholders’ meeting. The resolution must be signed by the chairman and secretary, and any required notice must be given.

The Companies Act 2006 gives shareholders a mandatory right to remove a director by ‘ordinary resolution’ (i.e. a simple majority of the shareholders attending and voting) at a meeting notwithstanding any other agreement between the director and the company. The resolution will be of no effect if passed in writing instead of at a meeting. At least one of the shareholders must give at least 28 clear days’ notice in writing before the meeting of an intention to move the resolution at the meeting. On receiving that notice, the company must forward the notice of the resolution to the director concerned and call a general meeting of the company to vote on the resolution. The director has the right to be heard at the meeting and to make written representations. 

The company's articles of association or shareholders' agreement may contain provisions that make it difficult in practice to remove a director or provide that they can be reinstated. The company's articles of association and shareholders' agreements should therefore be checked before considering taking this route. 

A company's articles of association may set out additional (and usually less complex or time-consuming) bases on which a director can be removed. For example, the 'Model Articles' under the Companies Act 2006 set out circumstances that trigger the automatic removal of a director, including that they are prohibited from being a director by law or a bankruptcy order is made against them. Some companies' articles of association also allow the directors to remove another director by majority vote, for example. The articles of a company should be reviewed for any such procedures if removal of a director is contemplated.

The dismissal of the managing director will require the resolution of the shareholders or board of directors of the company, as applicable, which shall be recorded in a written document, such as the minutes of a shareholders’ / board of directors’ meeting, or an amendment to the articles of incorporation. In order for the dismissal to be effective before third parties, such minutes or amendment must be registered at the Companies’ Registry and, in the case of a corporation, published in local newspaper.

If the company is incorporated as a limited liability company (“limitada”), the removal of the directors is subject to the following voting thresholds, depending on (i) whether the elected director is also a shareholder or not, and (ii) whether the director was appointed in the articles of association or in a separate document, such as the minutes of a shareholders’ meeting:

  1. if the director was appointed in a separate document, whether also a shareholder or not, the removal will require the decision of a majority of the capital holders;
  2. if the director is also a shareholder appointed in the articles of association, the removal will require the approval of 2 / 3 of the capital holders, unless the articles of association provides differently; and
  3. if the director is not a shareholder, but was appointed in the articles of association, the removal will require the approval of 3 / 4 of the capital holders.

If the company is incorporated as a corporation, the managing director can be appointed either by the shareholders or by the board of directors (if any), as determined in the bylaws of the company. If managing directors and other executive officers are appointed by the board, their removal normally requires the approval of a majority of the board, unless the bylaws provide for a different threshold. If appointment is made by the shareholders, removal usually requires the approval of the holders of a majority of the company’s share capital, unless the bylaws stipulate a higher threshold.

2.3 Notice period

According to the Italian Civil Code, the company must give the managing director adequate notice of the revocation. If the annulment is with just cause, no notice is required. At a limited liability company by quotas where a managing director has been appointed for an open-ended period, the company may revoke his appointment at any time without just cause, but the company must give proper notice.

Removal as a director is immediate unless otherwise specified in the articles of association of the company.

Removal as a director is immediate unless otherwise specified in the articles of association, bylaws of the company, or the shareholders’ / board of directors’ resolution

2.4 Involvement of works council

No involvement.

No involvement.

No involvement.

2.5 Involvement of a union

No involvement.

No involvement.

No involvement.

2.6 Approval of state authorities necessary

Not required.

Not necessary.

Not necessary.

2.7 Collective redundancies

Not applicable.

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

No special rules apply.

No special rules apply.

2.9 Consequences if requirements are not met

If the appointment of the managing director is revoked without just cause, the revocation is valid, but the managing director is entitled to damages.

A decision to revoke the appointment of the managing director is invalid if it is made for a fraudulent purpose.

The removal of the director is void.

The removal of the director is void.

2.10 Severance pay

The managing director is only entitled to receive payment for the activities he has carried out, and reimbursement for any expenses incurred in relation to his office prior to revocation of his appointment as managing director.

The director may be entitled to a payment under the terms of any service contract (for example a payment in lieu of notice), or as an employee under statute (for example a statutory redundancy payment). Sections 215 to 222 of the Companies Act 2006 contains special rules relating to compensation given to a director for their loss of office. Such compensation requires shareholder approval, except for certain payments that are made in good faith such as payments made in discharge of a legal obligation, or to settle a claim arising from loss of office or termination of employment.

Not applicable.

2.11 Non-competition clauses

A post-contractual non-competition clause is valid on the conditions that:

  1. it is set out in writing with the consent of both parties; and
  2. the restriction imposed refers to a specific object, within a specific area, and for a limited period (maximum five years); and an indemnity is paid by the company while the clause is enforced.

Restrictive covenants may be included in any service agreement. However, they will be void for unlawful restraint of trade and therefore unenforceable unless they protect the legitimate business interests of the employer and go no further than necessary to provide that protection in terms of the activities covered, duration and geographical area.

The director may also be subject to post-termination restrictions contained in other agreements such as a shareholder agreement, or (depending on the reward structure) share plans such as LTIPs (Long Term Incentive Plans).

If the managing director is also an employee, a non-competition clause could be agreed upon in the employment agreement. The law does not deal with the validity of non-compete clauses, and the validity of such clauses is currently being debated at the labour courts. On the one hand, some courts understand that non-compete clauses breach the constitutional right of all persons to carry out any work, profession or activity of their own choosing, provided the professional qualifications are met. On the other hand, other decisions have confirmed the validity of non-compete clauses, provided some restrictions are included, such as:

  1. the non-compete shall be reasonably limited in time and to a certain geographic area;
  2. the restriction shall be related to the activities the employee performed during his employment, and it shall be necessary and reasonable to protect a relevant interest of the employer;
  3. the employee shall be entitled to receive financial compensation if he is restricted from work due to the non-compete provision; and
  4. the non-compete clause shall be agreed on at the outset of the employment.

If the managing director is not an employee, and the non-compete  clause has been established in a corporate document (bylaws, minutes   of shareholders’ or board of directors’ meeting), courts are normally more inclined to uphold its application. However, the court would here evaluate specific aspects of the relation and assess whether, despite the director not being an employee, the non-competition clause could diminish the managing director’s employment capacity.

2.12 Miscellaneous

According to the Italian Civil Code, if there is well-founded suspicion that the managing director has committed serious irregularities in the course of his management causing damage to the company, the court may annul the appointment of the managing director:

  1. in case of a limited liability company by shares, upon request of shareholders representing one-fifth of the company capital;
  2. in case of a limited liability company by quotas, upon request of every quota holder.

Regulated and listed companies should also be mindful of any obligations they may have under their regulatory rules and/or the rules applicable to their market listing. These rules are likely to limit the terms on which such companies can reimburse a director in connection with their removal from office or employment and can also subject a company to reporting obligations.

Not applicable.