Ministerial circular clarifies new rules on semi-subordinate work

Download article in original language : IT0404303FIT.DOC

A law reforming the Italian labour market enacted in 2003 introduced important changes relating to 'semi-subordinate' work (midway between dependent employment and self-employment). The law provided for the conversion of 'employer-coordinated freelance contracts', a common form of semi-subordinate work, into 'project contracts'. The aim was to restrict the indiscriminate use of semi-subordinate labour, but the new law has caused great uncertainty, and in January 2004 the Ministry of Labour issued a circular which defined how the new rules are to be applied.

'Atypical' work represents an increasingly large proportion of employment in Italy. In the last three years, the number of people on atypical contracts has continued to increase at a rate which - although lower than it was at the end of the 1990s - is still higher than for standard employment. A particularly important type of atypical employment consists of so-called 'semi-subordinate work' (midway between dependent employment and self-employment), and especially 'employer-coordinated freelance workers' (IT0308304F and IT0011273F) - otherwise known as economically dependent workers (TN0205101S). This form of work grew between 1999 and 2003 at an average rate of 14% per year (equivalent to 250,000 more workers every year).

In December 2003, the number of semi-subordinate workers exceeded 2,800,000, or 12.5% of total employment. These figures are calculated on the basis of National Institute of Social Insurance (Istituto Nazionale per la Previdenza Sociale, Inps) data concerning enrolments with the social security scheme set up specifically for semi-subordinate workers (IT0207303F) - see the table below. Of these, more than 2,500,000 were employer-coordinated freelance workers (52% men, 48% women). A further 200,000 were self-employed professionals (with VAT codes) not enrolled with other social security schemes, while just over 60,000 people were enrolled with the schemes for both freelancers and professionals.

Source: Inps.

The Inps data overestimate the extent of employer-coordinated freelance work, because only 70% of enrolments are active, while the remaining 30% are no longer active but have not yet been removed from the social security scheme. Thus the contributing semi-subordinate workers amount to the still considerable figure of 1,986,100. However, this figure does not correspond to the actual number of employer-coordinated freelancers proper - ie workers of uncertain status from the contractual point of view and as regards social protection. On the basis of information from Inps and the research data available, it appears that coordinated freelancers are a heterogeneous category in both professional and social terms. Besides the 200,000 professionals with VAT numbers identified in the table above, there are just over 500,000 double job-holders and pensioners with second incomes (almost always higher than their pension) who already have social security coverage - of these just over 400,000 are company directors, with incomes substantially higher than those of employees. When these groups are removed, there remain around 800,000 workers, mainly young people, who genuinely represent the 'new' form of this type of atypical work. Many of them are thought to be vulnerable workers 'improperly' hired, mainly in the services sector, in order to evade the constraints of employing dependent labour and to reduce labour costs.

On the basis of these data, it can be assumed that workers who are actually in precarious employment amount to just over one-quarter of the total number of semi-subordinate workers. However, this does not diminish the importance of this group and of their ambiguous employment status. These workers have a highly diverse range of jobs, including call centre operators (IT0403203F), tourism workers, computer consultants, interviewers, trainers and financial promoters.

Ministerial circular

Legislative decree 276/2003 (IT0307204F) implementing proxy law 30/2003 (IT0303103N) on reform of the labour market effectively abolished employer-coordinated freelance work (but only in the private sector - see below) and introduced 'project work' (collaborazioni a progetto) in place of the previous types of freelance contract. The aim of the reform was to prevent the improper, or even fraudulent, use of semi-subordinate employment relationships. The new regulations, however, have given rise to widespread uncertainty among both freelancers and their contractors (employers) due to their lack of clarity (a vagueness which has resulted in different interpretations being given to their application) and due to the difficulty of giving precise legal definition to what constitutes a 'work project'.

In order to clarify the regulations on the use of project workers, in mid-January 2004 the Ministry of Labour issued a circular which defined how the rules are to be applied (Circolare N. 1/2004). The circular specifies that not all employer-coordinated freelance contracts are to be converted into 'project contracts'. Excluded are those that concern the following:

• casual jobs, the duration of which with the same contractor must not exceed 30 days and whose remuneration must not exceed EUR 5,000 in a year;
• commercial agents and representatives;
• 'intellectual professionals' (for example, journalists, lawyers, accountants, work consultants) who must be enrolled on specific professional registers;
• the members of company boards;
• freelancers receiving old-age and seniority pensions (though in the latter case they must have reached 65 years of age); and
• freelancers with public sector work contracts, for whom a specific implementing decree will be issued (until which time the public administration may continue to conclude employer-coordinated freelance contracts).

The main points of the circular are as follows.

Projects and programmes

The circular stipulates that former employer-coordinated freelance work contracts must make explicit reference to 'one or more specific projects or work programmes or phases thereof determined by the contractor'.

A project must foresee a specific final result, in the achievement of which the freelancer participates directly with his or her labour. A project therefore presupposes an objective to be achieved and a final date by which that objective must be accomplished. The project, which is to be drawn up by the employer, may be connected with the undertaking’s principal activity or with one of its ancillary activities.

A work programme or a phase thereof consists of an activity which, unlike a project, does not necessarily foresee a final result but may achieve a partial one that, combined with other partial outcomes, constitutes a final result.

Autonomous management of the work and coordination

The duration of the contract depends on the time necessary for the freelancer to accomplish the project or work programme. The duration of the latter depends on the characteristics (range, type, difficulty etc) of the work required by the project or programme. Consequently, once the duration of the employment relationship has been established, it is not the time taken to complete the project or work programme that matters but achievement of the final result.

Working hours and modes of work must be defined 'entirely autonomously' by the freelancer, although the agreement between the latter and the contractor must stipulate working time schedules (for example, if the company’s computer is available from 10:00 to 18:00, it is within this time-band that the freelancer must work on the project).

Form

The contract need not necessarily be in written form, A written contract serves only to prove in the event of a dispute that the work was performed for a project or a programme. However, the circular emphasises the 'convenience' to the contractor of stipulating the contract in writing. If the contract is to include a sufficiently detailed description of the project or work programme, it should consist of two parts: the first stipulating the conditions (duration, pay, termination, extensions etc); and the second stating the title of the project, the activity to be undertaken, the objectives to be achieved and the means to be used.

Termination and possible renewal

The parties may withdraw from the contract before its expiry for 'just cause', or by giving prior notice as specified by the contract. Moreover, should the project or programme be completed before expiry of the contract, the latter is deemed to have lapsed (the fee stated in the contract, however, is paid in its entirety).

As regards renewal of the contract, the circular states that contracts for 'analogous' projects or programmes (and, even more so, different projects or programmes) can be renewed with the same freelancer. In both cases, the new contracts must respect the 'requirements of law' and to a certain extent be independent of previous ones.

Pay

The sum paid to the freelancer 'must be proportional to the quantity and quality of the work performed'. The pay benchmark indicated by the circular 'is the rate normally paid for similar forms of self-employed work in the place where the relationship obtains'. Consequently, it is not possible to apply the pay scales fixed by collective bargaining for dependent employees.

Protection

In the event of pregnancy, a female worker may take leave of absence for a maximum period of 180 days, and she is also entitled to suspension of the contract, with its automatic extension for a period of time equivalent to the pregnancy until term.

In the event of illness or accident, the contract is suspended with no extension, and it terminates on the expiry date. However, the company may withdraw from the contract if the period of suspension exceeds one-sixth of the duration established by the contract, or more than 30 days in the case of 'determinable' duration.

Finally, the protection already afforded to employer-coordinated freelance workers remains valid - ie pension coverage (enrolment with the Inps scheme for semi-subordinate workers - see above), maternity allowances, family allowances, sickness benefit in the event of hospitalisation, and National Workplace Accident Insurance Institute (Istituto Nazionale per l'Assicurazione contro gli Infortuni sul Lavoro, Inail) accident benefit.

Penalties

The absence of a written description of the project or programme in the contract creates the presumption that the employment relationship is a subordinate one. This presumption may be removed if the contractor furnishes proof in court of the autonomous nature of the labour supplied.

Reactions

The reaction by the employers’ associations to the ministerial circular has been generally positive, because it allows application of the new provisions of the law reforming the labour market, and because it improves the regulation of freelance relationships. As regards the sanctions in particular, employers have welcomed the relaxation of certain rigid provisions in the original decree (276/2003), with reversal of the contractor’s burden of proof.

On the trade union side, the organisation most critical of the circular is the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil), which argues that it is deliberately intended to keep some criteria in the law generic - in particular, the provisions defining the types of projects or programmes subject to the new contracts are seen as excessively vague and abstract. Also criticised is the fact that the contract need not necessarily be in written form. This, the union maintains, will make fraudulent and unlawful behaviour more difficult to prove. Finally, the decision by the legislators not to establish pay at the levels decided by collective bargaining for dependent employees is judged to be damaging to freelancers’ rights and contrary to the collective agreements signed for them to date.

Commentary

The introduction of project contracts is undoubtedly a positive step forward, because its main effect is to restrict the range of application of employer-coordinated freelance contracts, which in the past were often used improperly to disguise dependent employment, especially in the services sector, in order to avoid the costs of dependent labour.

However, the rationalisation introduced by the reform law is only partial and does not solve the problem in its entirety. Above all, the reform does not concern the public administration, for which special regulations are urgently needed.

Moreover, the circular explicitly states, albeit ambiguously, that contracts for similar projects or programmes can be renewed with the same freelancer. This possibility to extend contracts, if it is done repeatedly and outside the legal requirements, may give rise to improper use of this contractual form, with the fraudulent behaviour that the law was intended to prevent.

Finally, the circular provides for a one-year transitional phase before the new system comes into force. This transitional period is too long, however. It will induce employers who were about to apply the new rules to delay the conversion of employer-coordinated freelance contracts into project contracts, so that transition to the new system will be less comprehensive than envisaged. (Livio Muratore, Ires Lombardia)