Monti Scales Back Firing Rules to Secure Allies' Backing

Italy's Prime Minister Mario Monti
Italy's Prime Minister Mario Monti. Photographer: Alessia Pierdomenico/Bloomberg

Italian Prime Minister Mario Monti modified his proposal to ease firing rules as he seeks consensus on his planned overhaul of the country’s labor market.

The draft law, which Monti said he would send to Parliament as early as today, will allow a court to order the reinstatement of workers fired when a company faces economic difficulties if a judge rules the dismissal “patently unfounded,” Labor Minister Elsa Fornero said at a press conference with Monti in Rome. Italy’s current labor laws “were a great conquest for workers, but the world has changed,” Fornero said.

Should the fired worker lose the case, he won’t be entitled to financial compensation, the Labor Minister said. The original plan passed by the Cabinet at a March 23 meeting offered only compensation, and prompted Italy’s biggest union to call a general strike and caused a key political ally to oppose the bill.

“Our initial take on the reform is that it is a net positive, as it would help to reduce the labor market segmentation,” said Fabio Fois, a European economist at Barclays Capital in London. “There are some elements of legal uncertainty with the enhanced role of the courts to decide on the reasons for dismissal.”

Economic Program

The labor-market overhaul, approved by the government after two months of consultations with unions and employers, is the fourth major reform passed by this government and the most divisive as Monti seeks to revamp an economy that has grown less than the European Union’s average for more than a decade. Monti is implementing 20 billion-euro ($26.30 billion) austerity plan to eliminate the deficit, a package to boost competition and a set of measures to cut red tape.

All that and the European Central Bank’s unlimited loans to the region’s lenders helped restore confidence in Italy’s ability to cut a debt of almost 2 trillion euros and brought down borrowing costs from euro-area highs in November.

Employers have pushed to ease firing rules, saying companies are reluctant to hire in good economic times, because they fear they won’t be able to shed workers when times grow hard. Fornero failed to reach an agreement with unions on changing the law after two months of talks, as a jobless rate at a 10-year high of 9.3 percent made it difficult to convince labor groups of the need to make it easier to fire workers.

Resolving Differences

Monti announced the changes to the law after meeting last night with the leaders of the three main political parties that have backed his unelected government -- the Democratic Party, the People of Liberty party and the Third Way alliance -- to resolve differences over the plan. Democratic Party leader Pier Luigi Bersani had called on Monti to change the original plan to give judges the power to order reinstatement in all types of firings.

Monti said today that the judges wouldn’t be able to interfere with the firing decisions of companies and that employers would still have an easier time in shedding workers.

Flexibility “as far as ending employment agreements has increased in a relevant way,” Monti said. There will “also be guarantees to make sure that the labor judges don’t enter too much in the decisions of employers.”

The labor law bill will also extend the country’s limited system of unemployment benefits to cover more people. The current law offers the most support to workers that already enjoy the most job protection. The government’s plan also limits the use of part-time contracts to encourage more permanent employment.

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