Dismissal to reduce costs: what does the employer need to prove?

With Order no. 31660 of 14 November 2023, the Italian Court of Cassation ruled that, when dismissal for justified objective reason (giustificato motivo oggettivo, ‘GMO’) is to reduce costs, the burden is on the employer to indicate the reasons why the particular worker has been chosen.

The facts of the case

The employee appealed the dismissal for abolition of his job position before the Court. The reason given by the employer was based on the need to reduce costs, as part of a policy to remedy the budget deficit.

The Italian Court of Appeal, rejecting the complaint filed by the worker against the judgment handed down by the first-instance judge, ruled that, “having established the budget deficit, the dismissal of the worker was necessarily linked to the need to achieve savings in a particular area of work”.

In relation to the worker’s submissions which related to the fact that another, more costly job had not been eliminated, the Territorial Court stated that these were “unchallengeable employer decisions”.

The appeal to the Italian Court of Cassation and its decision

The Court of Appeal’s decision was appealed by the worker on multiple grounds.

The Italian Court of Cassation – accepting the appeal filed by the worker – ruled that, in the context of a dismissal for justified objective reason, the actual existence and extent of the organisational and/or business reason linked to a cost reduction policy must be assessed.

This assessment cannot be separated from the assessment of the necessary causal link between the objective reason given and the abolition of the job position.

This is because, where a general need to proceed with a cost-reduction policy has been argued, it becomes necessary to analyse (and the burden is on the employer to provide the relevant proof) the reasons why a particular worker has been chosen.

This analysis – in the opinion of judges of the Italian Court of Cassation – should not be considered to be undue interference in the discretion of employers’ choices, because the non-existence of the economic reason raised affects the very lawfulness of the dismissal “not because it is a review of the reason underlying the justified objective reason, but because it gives rise to a factual assessment of the lack of truthfulness or the pretextual nature of the reason given by the employer”.

Since no such analysis was found in the contested judgment on the merits, the Italian Court of Cassation then upheld the employee’s appeal and set aside the judgment of the Court of Appeal by referring the case back to the Court of Appeal.

Other related insights:

• The layoff of a manager for cost cutting reasons uncontestable (Il Quotidiano del Lavoro of Il Sole 24 Ore, 14 February 2019 – Alberto De Luca, Gabriele Scafati)