Italian Labour Law Between Innovation and Sustainability

Introduction

Technological innovation, the evolution of organisational models and new social priorities are profoundly reshaping the Italian socio-economic landscape and, with it, labour law.

For businesses, this means operating in an increasingly dynamic and complex environment where legal expertise is no longer just a safeguard but a strategic tool to face national and global competition and to build sustainable and attractive workplaces. Companies must rethink traditional organisational structures and adapt to a model of governance that incorporates digital transformation, generational change and inclusive management practices.

Artificial intelligence and work: algorithms enter the office

The adoption of artificial intelligence (AI) in companies is now a concrete reality. From automated recruitment processes to performance evaluations, algorithms are transforming the way human resources are managed. With the European AI Regulation (AI Act), businesses will have to comply with new transparency obligations and strict limitations for tools that are considered “high risk”.

From an employment law perspective, this directly impacts the protection of personal data (GDPR) and the methods of monitoring employees' work activities, which Article 4 of the Workers' Statute (Law 300/1970) prohibits unless authorised by an agreement with trade union representatives or the Ministry of Labour.

In this context, it is essential that companies assess the implementation of internal policies on AI usage on the one hand, and the associated risks and impacts of potential monitoring tools on the other, possibly involving trade union representatives. Ethical considerations must also be integrated into the deployment of AI systems, particularly when these systems influence employment decisions that could result in discrimination or a lack of accountability.

Furthermore, the interplay between AI and labour law is sparking debate over the legal status of algorithmic decisions, the rights to explanation, and the liability of employers in case of automated errors. Businesses are thus encouraged to adopt an interdisciplinary approach, involving legal, IT, HR and compliance departments in the development of AI governance frameworks.

In addition, companies are beginning to experiment with AI-driven tools to support workforce planning, skills gap analysis and internal mobility. Predictive analytics can suggest future training paths based on company strategy and employee performance trends. However, while these tools offer promising efficiency gains, they raise important questions about fairness, bias and transparency.

One of the most sensitive areas is recruitment. Algorithmic tools can be used to pre-screen candidates, analyse CVs and even conduct initial interviews using natural language processing. If not properly regulated, these innovations risk amplifying existing social biases or excluding candidates based on opaque selection criteria. Employers must ensure that any AI system deployed in recruitment is fully auditable and compliant with anti-discrimination law.

In the area of performance evaluation, AI can assess employee productivity by analysing behavioural data, task completion times and communication patterns. While this may help identify training needs or exceptional talent, it also poses risks to employee autonomy and morale. The challenge lies in designing evaluation tools that empower rather than penalise workers, and that reinforce trust instead of surveillance.

Moreover, the increasing use of robotic process automation in administrative functions prompts a reconsideration of certain roles and career paths. Labour lawyers and HR departments must collaborate to anticipate the impact of automation on employment levels and job descriptions, including the need for upskilling and redeployment.

From a regulatory standpoint, Italian employers should anticipate stricter scrutiny from both data protection authorities and labour inspectors. A robust governance framework for AI in HR must include impact assessments, human oversight protocols and clear documentation of algorithmic decision-making processes. Social dialogue and employee participation in AI policy development can further strengthen legal compliance and legitimacy.

In conclusion, AI and automation present both opportunities and risks. To realise the full potential of these technologies while safeguarding workers' rights, Italian companies must embrace a transparent, ethical and legally grounded approach that aligns innovation with inclusion and fairness, introducing dedicated and legally compliant internal regulation.

Retention: holding on to skills is the new recruiting

The Italian labour market has seen increasing turnover rates in recent years, driven by individuals seeking career paths that ensure well-being through work-life balance and alignment with personal values.

In a labour market with high professional mobility, retaining key workers has become a top priority. The solutions go beyond monetary incentives: companies must now focus on creating meaningful experiences, building cultures of trust and engagement, and offering long-term career development paths.

Employee involvement in training programmes for both hard and soft skills is a key strategy, enabling both companies and individuals to acquire new skills and generate value. Training programmes can also be designed in collaboration with universities and professional institutions, creating a continuum between education and employment. The integration of lifelong learning principles, also supported at the European level, ensures that workers remain adaptable in a constantly evolving labour market.

Critical factors for employees, and differentiating elements for companies, include flexibility and hybrid work opportunities. After the pandemic, these arrangements must be formalised through individual agreements under Law No 81 of 22 May 2017, which defines the terms and conditions for remote work, including access criteria, management and attention to psychosocial well-being (eg, the right to disconnect).

Beyond the “place” of work, the “time” of work is particularly significant, especially for younger generations. The introduction of a four-day work week can be an additional tool for talent retention and attraction. However, its implementation must involve all social partners to properly define the new work organisation. Experimentation in this area, already tested in other European countries, suggests that shorter workweeks can improve productivity, reduce burnouts and enhance employee satisfaction.

Corporate well-being also involves offering personal and family services through welfare programmes. Such initiatives not only benefit employees economically but also offer tax advantages to companies if structured according to applicable fiscal and social security regulations.

Integrating these tools at the company level can create a work ecosystem where employees feel actively involved in change, turning engagement into a competitive advantage in productivity and talent attraction. A holistic approach to retention also incorporates inclusive leadership practices, support for mental health, and recognition programmes that reflect diverse employee motivations.

Pay equity and transparency: change on the horizon

The Italian government must transpose EU Directive 2023/970 on pay transparency by 7 June 2026, aimed at effectively implementing the principle of equal pay for equal work between men and women, as stated in Article 157 of the Treaty on the Functioning of the European Union, thereby combatting all forms of gender-based discrimination.

The Directive applies to:

• all public and private employers, regardless of size, except for specific reporting obligations that apply to companies with more than 100 employees; and
• all workers with employment contracts, as well as job applicants.

To comply with pay equity, employers must implement remuneration systems that:

• ensure equal pay for the same work or work of equal value;
• allow for comparisons of job value within the organisation; and
• are based on non-discriminatory, objective and gender-neutral criteria.

Companies will also need to fulfil specific transparency obligations both before hiring and during employment, and to report duties to a newly established national authority. These obligations may include providing candidates with salary ranges before job interviews and allowing employees to access information on average pay levels within the organisation by category.

In Italy, Law No 15/2024 delegates the government to implement the Directive, and the obligations thereunder will come into effect upon transposition.

Given this, companies should begin mapping their internal pay policies and developing transparent communication tools now to prevent imbalances that could lead to disputes or reputational damage, without waiting for the Directive to be formally enacted. Introducing regular internal audits, developing standardised job evaluation methods and investing in inclusive HR practices can support long-term compliance and foster a culture of equity.

Italian case law: trends to watch

Italian case law continues to be a critical area for understanding the evolution of labour law.

Following Constitutional Court judgment No 128/2024, which declared that part of the Jobs Act conflicts with the constitutional chart (reform legislation that tried to overtake reinstatement as a key protection for employees in case of unfair dismissal, introducing indemnities exclusively linked to seniority in service for employees hired on or after 7 March 2015), out-of-court settlements on individual dismissals for this part of the population are less easy to reach. As a consequence, court litigation in such cases is increasing.

This evolution reflects a broader rebalancing of employer-employee rights in a context where procedural and substantive fairness in dismissals is regaining centrality.

The political and socio-economic context: between regulatory continuity and reform demands

In June 2025, Italian citizens voted in a referendum on labour law issues and the granting of citizenship to non-EU nationals. The referendum aimed to repeal or amend certain rules perceived by its promoters to restrict worker protections regarding dismissals, fixed-term contracts and workplace injuries.

The four labour-related referendum questions were as follows.

• Abolishing the Jobs Act provisions (Legislative Decree No 23/2015) that limited redress for unjust dismissals (by large employers) to financial compensation for workers hired after 7 March 2015, excluding reinstatement. The aim was to reintroduce reinstatement in such cases.
• Partially repealing Law No 604/1966 to remove the compensation cap (six months’ salary) for unjust dismissals by small businesses, giving judges discretion to determine fair compensation.
• Amending Legislative Decree No 81/2015 to make a justifying cause mandatory from the start of a fixed-term contract, thereby curbing widespread use of casual contracts.
• Repealing Article 26(4) of Legislative Decree No 81/2008, which limits principal contractor liability for injuries to subcontractor employees, aiming to broaden accountability.

The referendum held on 8-9 June 2025 did not reach the required turnout threshold, leaving the laws unchanged. It is worth noting that not reaching the quorum can be construed as a clear sign from those against the proposed law changes, who did not go to vote to express their opposition and increase the chances of the referendum not passing.

Another noteworthy development is Law No 76 of 15 May 2025, which introduced provisions for worker participation in corporate governance, capital and profits. In summary, the law addresses four forms of participation, as follows.

• Managerial participation: companies may (but are not held to) include employee representatives in strategic decision-making bodies, depending on their governance model.
• Economic and financial participation: for 2025, tax incentives are granted on any profits or dividends distributed to employees within certain limits.
• Organisational participation: companies can (but are not held to) form joint committees to develop innovation and improvement plans for products, services, processes and work organisation. They may also appoint internal representatives for training, welfare, pay policies, workplace quality, work-life balance and disability inclusion.
• Consultative participation: these committees can involve trade union representatives (RSA or RSU) or worker representatives and territorial bodies in advance consultation on strategic decisions.

This law represents a potentially transformative step towards inclusive industrial relations, drawing inspiration from models in Northern Europe where co-determination and the employee voice have long played a key role in corporate governance.

Conclusion

The overall picture is one of a labour law system fighting for innovation.

Companies are increasingly tasked with managing complex organisational settings, and must navigate a scenario where technology, sustainability and human capital development are no longer optional but strategic levers.

Artificial intelligence, for example, offers new possibilities while demanding strict adherence to monitoring and transparency regulations. Talent retention in a fluid market requires legally sound, well-balanced tools capable of fostering long-term engagement.

Meanwhile, the implementation of the EU directive on pay equity will force internal restructuring of compensation systems and evaluation models.

The courts are increasingly pushing for greater transparency and fairness.

On the political front, while the failed 2025 referendum reflects a country balancing reform pressures with the preservation of established frameworks, the recent law on worker participation marks a potential turning point towards more inclusive and collaborative industrial relations.

In this context, companies – and their advisers – must shift from a reactive to a proactive role, anticipating change, designing sustainable solutions and managing risk, all while keeping work at the centre as a driver of innovation and social cohesion. Employers who take the lead in embedding values such as equity, inclusion and accountability will not only meet compliance goals but also cultivate trust and loyalty among their workforce, gaining a competitive edge in the evolving global economy.