Plus ça change? It’s all change in Italy – again. Despite the frequent regime changes it has endured in the last 30 years, Italy has enjoyed relative stability in the last nine years with just two changes of government. But with Prodi’s administration in disarray and Silvio Berlusconi showing every sign he would relish a return to power, international investors have every right – again – to feel a sense of apprehension. So what has been achieved by Prodi, and what could change again in the future?
In terms of employment issues, Franco Toffoletto, from Milan-based Toffoletto e Soci says employee stock option changes have definitely taken the shine off this usually effective reward tool, particularly for overseas investors. “Before they were widely used in Italy. But now it’s very difficult to use stock options – so difficult, in fact, that very few Italian companies will use them.”
The left wing faction of the Prodi administration emphatically pushed this change. Part of the problem thinks Franco Toffoletto was that the stock option change in the law was partly a problem of perception: stock options, thought many on the political left, were only for fat-cat managers and directors – not something ordinary employees could also benefit. Yet a wide range of employees did, and not just management top table.
“Previously stock options were very attractive to many because they were only taxed at 12.5 percent,” says Franco Toffoletto. “Companies and many people – not just managers – took advantage of them. Part of the problem too was that the rules changed so many times that it became very confusing to know how best to use them. Which, of course, made them less popular.”
Toffoletto E Soci areas of expertise:
Procedures for the management of confidentiality
Use of IT equipment and email
Trade union law
Transfers of undertaking, collective redundancies and lay offs
Stock options and immigration
International restructuring and occupational pensions
Collective bargaining agreements
EU disputes and discrimination issues
The devil is in the detail – always
Of course, despite the clamping down of stock options in Italy, Franco Toffoletto says stock options will continue to thrive in many other countries. And a change of government could see the rules relaxed again? At the moment the two big parties did not provide any details on that.
Meanwhile, international investors should know that the law around stock options must be watched very carefully, as the Romano Prodi legislation will regard the value of options as income – except if all the following conditions are met:
The stock owned by the employee does not account for more than 10 percent of the authorised stock and does not entitle the employee to more than 10 percent of the voting rights in shareholders’ ordinary meetings
The option is not exercised for three years from the grant
The stock of the company is listed on a stock exchange market at the time the option is exercised
The employee keeps an investment in the stocks equal to the difference between the value of the stock at the time of the grant and the amount paid by the employee for at least five years’ following the exercise of the option.
Reduced employment flexibility
Between 2001 and 2003 considerable steps were made in Italy’s rigid labour market, with new laws introducing a lot more employment flexibility, supplying permanent contracts for agency workers and more flexibility regarding part time and fixed term contracts.
“One of the most important steps was the change regarding staff leasing (i.e. supplying workers on permanent contracts through authorised agencies)” says Toffoletto. “For employers who typically might hire agency workers to work within their own company, this option was important. It was limited only to certain jobs, but this has been abolished by the Prodi government. It’s a great pity because it was a very useful opportunity for many companies.” Now companies can only hire agency workers for a fixed period of time and only if there are economic, technical or production reasons for doing so.
However, this Milan legal expert adds that fixed term contracts remain highly used in Italy.
Other issues hang around which could unnerve the inexperienced investor warns Toffoletto. Currently there is no cap to compensation in the event of wrongful employment dismissal: reinstatement is the only remedy that can be awarded by the court.
The public sector still remains a highly unreformed sector of Italy’s economy. A more bolder, possibly younger politician might have had the energy and vision to reform Italy’s bloated public sector, stimulating investment. But that man was not Romano Prodi.
A Berlusconi return bringing increased flexibility?
It’s not easy to predict the future. No one knows if Silvio Berlusconi will end up back in power, replacing Prodi. Certainly what Italy needs more than ever is a genuinely new and innovative reformer – but is that man Mr Berlusconi? The evidences suggests not. Mr Prodi, although some of his changes were retrograde steps, did have some success with tax-collecting reforms, for example.
However, Franco Toffoletto says despite the Prodi changes, investor confidence has not been affected too deeply. Realistically, he says, many investors are ambivalent about investing in Italy – as many have always been. “It’s been that way for many years. Italy, in terms of employment legislation, is a nightmare. But it’s not quite as bad as many people make out. For example, I think Italy is certainly better in terms of employment law than France, even though it is more protective of issues like dismissals.”
Certainly Prodi’s replacement will have their work cut out. Like many EU countries feeling the effects of the global credit crisis, potential economic recession is on a knife edge. The high euro means there’s pressure on Italian exports and high oil and food prices are also taking their toll on the economy and people’s pockets.
Technology brings benefits – but also threats
Italy has the same IT problems that face companies everywhere: blogging, Internet gossip and chatrooms with disaffected employees writing, often very freely, about their employer. The issue of information sharing – sometimes with the wrong people – is of course a huge worry for many companies now. How do you keep control of your own reputation you’re your company’s confidential information when it becomes so easy to share with others?
“People use the Internet a lot in Italy,” says Toffoletto. “A lot of social life and business life can be interconnected. If you work for an IT company and you got on a business networking conference, you could well be inadvertently passing on very sensitive information. Look at the emergence of Facebook. You can see people’s friends, find out about their hobbies, even their religion. Who is making use of this information? Does the person concerned realise the consequences such disclosure could lead? So far, Italy has not had to deal with this in the courts. But it will at some point and companies have to face up to the reality of what this could bring.”
IT innovation milestones – Toffoletto e Soci
1986: the year of the first personal computer network in the firm and the first e-mail inbox. Over the years there has been a continuous improvement of the IT facilities.
1995: Easylex is invented by Franco Toffoletto and others and this remains the management software currently used in the firm. It became one of the best selling management software for law firms in Italy and winner of the SMAU award Macworld, 1999, as the best Italian management software suite.
2004: Extensive KM (Knowledge Management) knowledge sharing.
2006: The WebLex service online by which clients can look up information on EasyLex related to their files and download documents.
2007: The launch of Toffoletto e Soci’s new Knowledge Management web-based platform for clients.
The Toffoletto e Soci difference
We offer services at a national and international level. Among the Italian firms specialising in employment law we are the only one that is part of a structured international alliance
Quality of services: efficient, fast and punctual. We were among the first Italian firms to obtain the Quality Assurance Certificate UNI EN ISO 9001
Internal training quality: our training programme has been accredited for 2008 by the Italian Law Society. We have been running in-house English language courses for years, taught by teachers from the British Council, both for lawyers and support staff
Leaders in IT. For a number of years we have been using a Knowledge Management software developed internally (www.quinary.it). We also set up an Intranet network 10 years ago. We are in the process of developing digital products to offer to clients and considering blog, podcast, video and audio options
Regularly in the media. We write a column (The expert replies) for newspaper Sole 24 Ore (the Italian equivalent of the Financial Times) as well as various law journals
Highly ranked. We are classified by all of international directories as a leading legal firm employing the best legal minds in Italian employment law. All partners regularly participate as speakers at Employment Law conferences both at a national and international level
More about Toffoletto e E Soci
The firm’s business is judicial, extrajudicial and consultancy (around 50/50 percent) and they act predominantly on behalf of companies. About 50 percent of clients are companies worldwide from all sectors including banking, IT, insurance, head hunting to publicity and marketing.
For further information:
Tel: +39 02 721441
Email: sft@toffoletto.it
Website: www.toffoletto.it
