With Judgment No. 174 of 2026, filed on 22 October 2026, the Constitutional Court once again addressed the financial consequences of unlawful dismissal, this time in relation to the rules laid down by Section 8 of Law No. 604/1966. The case arose from proceedings concerning the disciplinary dismissal of an employee working for a small employer.
Section 8 of Law No. 604/1966 governs the consequences of unlawful dismissal for employers to whom the reinstatement protection provided for under Section 18 of the Workers’ Statute does not apply.
As an alternative to re-employment, the provision requires the employer to pay compensation ranging from 2.5 to 6 months’ salary, calculated on the basis of the employee’s final overall remuneration and determined by reference to a number of factors, including the number of employees, the size of the business, the employee’s length of service, and the conduct and circumstances of the parties.
The same provision also allows the maximum amount of compensation to be increased where certain requirements relating to the employer’s size and the employee’s length of service are met, namely:
provided, in both cases, that the employer has more than 15 employees.
It was precisely the existence of a statutory cap on compensation that was brought before the Constitutional Court. The referring court challenged the provision insofar as it imposed a rigid maximum level of compensation, considering it incompatible with constitutional principles.
The judgment follows the approach already taken in Judgment No. 118/2025, concerning the so-called “increasing protections” regime (tutele crescenti), in which the Constitutional Court had declared unconstitutional the six-month cap laid down by Section 9(1) of Legislative Decree No. 23/2015 for employees of small businesses.
With regard to Section 8 of Law No. 604/1966, the Constitutional Court similarly emphasised the need for the compensation regime to enable courts to tailor the amount awarded to the circumstances of the individual case, thereby preventing an excessively low statutory cap from precluding proper consideration of the actual seriousness of the dismissal and the loss suffered by the employee.
Three considerations are particularly significant in the Court’s reasoning: ensuring that compensation is adequate and capable of fulfilling its compensatory function; ensuring appropriate redress for the actual loss suffered by the employee; and preserving an adequate deterrent effect vis-à-vis the employer, while striking a proper balance between an employer’s freedom to organise its business and the protection afforded to employees who have been unlawfully dismissed.
The Constitutional Court focused its scrutiny on the employee headcount requirement laid down by Section 8 of Law No. 604/1966, under which the ordinary six-month cap could only be exceeded where the employer had more than 15 employees.
In other words, even where an employee had more than 10 or 20 years’ service, the court could increase the compensation to, respectively, 10 or 14 months’ salary only if the employer also exceeded the 15-employee threshold.
It is precisely this automatic mechanism that the Constitutional Court found to be no longer justified. In the case of smaller employers, the headcount requirement prevented courts from giving full weight to the employee’s length of service and the other circumstances of the individual case, while in any event capping compensation at six months’ salary.
The Constitutional Court therefore intervened by removing from Section 8 the requirement that the 15-employee threshold be exceeded in order for the higher compensation caps to apply.
As a result of the judgment, even where an employer has 15 employees or fewer, the court may award compensation of up to 10 months’ salary where the employee has more than 10 years’ service, and up to 14 months’ salary where the employee has more than 20 years’ service, without access to those wider compensation ranges being dependent on the size of the employer’s workforce.
The judgment has significant practical implications, particularly for small employers.
The key development is the Constitutional Court’s progressive departure from compensation regimes characterised by rigid and particularly low statutory caps, where those caps prevent courts from tailoring the protection afforded to employees to the specific circumstances of an unlawful dismissal.
From a practical perspective, the judgment therefore results in potentially greater financial exposure for smaller employers where a dismissal is found to be unlawful, including businesses traditionally falling within the scope of the so-called mandatory protection regime (tutela obbligatoria).
The judgment consequently reinforces the importance, before proceeding with a dismissal, of carefully assessing not only whether there are sufficient grounds for termination, but also whether the correct procedure has been followed and the potential financial exposure arising from any subsequent litigation.
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