European Commission approves gradual alignment agreements in Italy

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In March 1999, the European Commission approved the use in Italy of "gradual alignment agreements" aimed at combating irregular employment, judging them to be in line with EU competition rules. By the end of 1998, in the textiles sector alone, 640 company-level alignment agreements covering a total of around 23,500 workers had been signed.

On 3 March 1999 the European Commission authorised the use in Italy of state aid for so-called "gradual alignment agreements" (contratti di riallineamento retributivo), designed to combat irregular work. These agreements enable businesses which formerly operated in the irregular, clandestine economy to adjust gradually to the wage rates set out by sectoral collective agreements and to the social security contributions stipulated by the law.

Authorisation was granted by the Commission in accordance with the guidelines on employment aid. The Commission justified its decision on the grounds that the areas of southern Italy in which these agreements can be used (Sicily, Sardinia, Calabria, Basilicata, Puglia and Campania) meet the criteria to qualify for a derogation from the general EU ban on state aid which distorts competition, as set out in Article 92(3)(a) of the EC Treaty: these areas are characterised by particularly high levels of unemployment and of undeclared labour, which amounts to 33.57% of the labour force, compared with 17.99% in the centre and north of the country.The Commission ruled that the incentives granted to firms do not conflict with the competition rules - indeed, exit from the underground and irregular economy by the firms benefiting from the gradual alignment agreements may help significantly to eliminate areas of unfair competition. Finally, the aid offered has been deemed admissible also because it is of limited duration, in that the agreements must be concluded by the end of 1999, and the economic incentives will gradually diminish over a period of 36 months.

Gradual alignment agreements

The device of gradual alignment agreements was developed during the 1980s as part of company- and territorial-level collective bargaining in the clothing and footwear sector in the regions of the South, especially in Puglia. The aim of these agreements, which allowed derogations from the sector's collective agreement, was to enable small subcontracting firms operating in the irregular economy to adapt gradually to the economic conditions set out by the sectoral agreement, given that the immediate and complete application of the agreement's pay levels would have jeopardised their very existence (IT9706207F). Decisive support was provided by the state, which by means of a series of legislative measures, the first of them introduced in 1989, offered substantial reductions in social security contributions and economic incentives to firms undertaking to join the legitimate economy, as well as waiving sanctions for breaches of the law connected with their undeclared activities.

The first "cycle" of the use of gradual alignment agreements in the clothing and footwear sector lasted from the end of the 1980s until 1991, during which period a total of around 350 company-level agreements involving approximately 10,000 employees were signed. The second phase began with the renewal of the clothing and footwear agreement in 1995, and in particular with the protocol on initiatives in support of the Mezzogiorno, which was signed in July 1995 by Federtessile (the sectoral employers' organisation affiliated to Confindustria) and the sectoral trade union federations, Filtea-Cgil, Filta-Cisl and Uilta-Uil. The model of gradual pay alignment was later adopted through collective bargaining in the commerce and agriculture sectors as well.

The policy of encouraging firms to abandon the irregular economy received important impetus from the September 1996 tripartite Pact for Employment (IT9702201F), which specifically addressed "the fight against the underground economy", turning gradual alignment agreements into an important instrument of employment support and envisaging their broader application in geographical terms, as well as further incentives for firms.

The set of rules and benefits examined by the European Commission derives from various legislative measures which have progressively defined the current reference framework for the agreements. Three laws have recently covered gradual pay alignment agreements: law 608 of November 1996; law 196 of June 1997 (the so-called "Treu package"); and most recently the budget law for 1999.

The current rules governing gradual alignment agreements are the following:

• pay alignment agreements may only concern areas "where the standard of living is abnormally low or where there is serious underemployment" (in line with Article 92(3)(a) of the EC Treaty);

• they can be used in all sectors;

• the local structures of the trade union organisations and the employers' associations which signed the relevant sectoral agreement must reach a province-level agreement which defines the form and timing of the gradual alignment of wages with the levels set by the sectoral agreement;

• alignment with the wage rates set by the sectoral agreement must be completed within 36 months, while application of the agreement's normative part must be immediate;

• firms may adhere to the provincial agreement by signing, together with the organisations that signed the provincial agreement, a company-level acceptance agreement; and

• as well as lower wage levels, further benefits to firms entering alignment agreements are the gradual adjustment of their social security payments, help in adapting to workplace health and safety rules, the waiving of sanctions for previous evasion of tax and social payments, and other economic incentives.

It should be stressed that in September 1998 industry-wide framework agreements were signed to regulate the use of gradual alignment agreements in the textile and shoe sectors, which is indicative of the social partners' commitment to reducing underground activity.

One criticism raised by the social partners, especially the unions, of the legal framework established by the 1999 budget law has been that it annuls the provisions of law 196/97, which extended the application of incentives for job creation to cover gradual alignment agreements. These incentives were to have lasted for a further three years after completion of wage alignment and should have applied to all the jobs "revealed" by gradual alignment agreements. According to the social partners, the absence of these further incentives will significantly reduce the attractiveness to firms of such agreements. The provision was removed because it was believed to conflict with the EU rules on competition. However, the Minister of Labour, Antonio Bassolino, has announced that he intends to begin discussions on the matter with the Commission, although the latter has already declared its negative stance on the issue.

By December 1998, according to figures from Filta-Cisl, in the textiles sector alone, 640 company-level acceptance agreements covering around 23,500 workers had been concluded. The region with largest number of agreements was Puglia, where around 70% of agreements and 80% of the workers involved were concentrated in the provinces of Lecce (355 agreements and 13,672 workers) and Brindisi (85 agreements and 5,000 workers), while little interest was shown in other provinces.

Commentary

Gradual alignment agreements are an important device with which to combat the irregular working conditions that create areas in which workers are bereft of protection, often including health and safety protection. The law assigns a decisive role in all phases of the definition and implementation of alignment agreements to the unions and employers' organisations which signed the relevant sectoral agreement. This should ensure close supervision of firms' compliance with the conditions set out in the agreement. From this point of view, the fact that individual firms can only subscribe to the provincial agreement, with very limited leeway for the redefinition of forms and deadlines, which in any case must be agreed with the unions and employers' associations, provides guarantees for the workers concerned. The trade-off is between regular work covered by collective bargaining and temporary economic incentives.

The scant success of gradual alignment agreements outside the areas where they were originally developed - ie Puglia - raises a number of questions. Firstly, the support legislation has in certain respects been piecemeal, and in any event repeated and amended on at least three occasions, with corresponding postponements of the deadline for concluding gradual alignment agreements. As a consequence, the incentives and benefits offered have been surrounded by uncertainty and variability, a situation which has fostered a wait-and-see attitude by firms, which need definite information on the costs and benefits of the alignment process before taking action. From this point of view, the still unresolved question of whether to apply incentives for employment creation to the jobs "brought out into the open" by the agreements only prolongs this situation of uncertainty.

Secondly, if the scheme to persuade firms to regularise their positions is to be successful, then efficient control and vetting of irregular work situations is required. A significant advance in this regard is contained in the budget law for 1999, which defines a set of measures to foster "regularisation", among which is the establishment of a government commission on irregular work - the "Commission for bringing undeclared workers back into the official labour force" (Comitato per l'emersione del lavoro non regolare). It is envisaged that tripartite committees will be created at the regional and provincial level to analyse irregular work at the local level and to promote regularisation through the stipulation of alignment agreements. Firms will be helped through access to facilitated credit and training schemes, and by the creation of equipped business parks. From this point of view, gradual alignment agreements may make an important contribution to setting up a more efficient system for combating the underground economy, with a leading role played by the social partners in sustaining the regularisation of firms through collective bargaining (Roberto Perdersini, Fondazione Regionale Pietro Seveso).