Illegitimacy of Fixed-Term Contracts: New Penalty Regime

Decree-Law 131/2024: Updates Regarding the Illegitimacy of Fixed-Term Contracts

On 16 September 2024, Decree-Law 131/2024 was published in the Gazzetta Ufficiale n. 131, which introduces changes to the “lump-sum” penalty regime. This is applicable when a court declares a fixed-term employment contract illegitimate (and orders its conversion into an open-ended contract) in the private sector.

Previous Regime: Legislative Decree 81/2015 on Fixed-Term Employment Contracts

Article 28, paragraph 2, of Legislative Decree 81/2015 required Judges to convert unlawful fixed-term contracts into permanent ones. In addition, they was obliged to order the employer

to pay compensation to the employee in a comprehensive (“all-inclusive”) amount ranging between a minimum of 2.5 and a maximum of 12 monthly instalments of the last reference salary used to calculate severance pay (TFR), taking into account the criteria indicated in Article 8 of Law No. 604 of 1966.

Article 28 – Legislative Decree 81/2015

Reduction of Sanctions in Case of Collective Agreements

Moreover, Article 28, paragraph 3 of the same decree provided that

in the presence of collective agreements which provide for the hiring, even on a permanent basis, of workers already employed under fixed-term contracts within specific rankings, the maximum limit of the indemnity established by paragraph 2 is halved.

Article 28 – Legislative Decree 81/2015

New Provisions Introduced by Decree-Law 131/2024

While the previous penalty regime under Article 32 of Law 183/2010 still applies, the new Decree-Law allows Judges to award higher indemnities if greater damage is proven.

Greater Damage and New Discretionary Power of the Judge

In this regard, note that the aforementioned indemnity (ranging from 2.5 to 12 months of the last salary used for TFR) compensates the employee for lost wages and social security contributions between the contract’s expiry and the ruling converting it to permanent.

Thus, under the prior regime compensation could not exceed 12 months, even in cases of procedural delays. 

Implications of Decree-Law 131/2024 for the Quantification of Compensation

With the innovation introduced by Decree-Law 131/2024, the Judge is fully empowered to assess the extent of the “greater damage,” if proven by the worker, legitimizing an open-ended quantification not bounded by predefined parameters, unlike the previous regime.

Furthermore, in the process of conversion into law (which may occur by 15 November), Decree-Law 131/2024 may undergo amendments, including in relation to the issues discussed above.