The Stability Pact in Subordinate Employment Contracts

The stability covenant in subordinate employment contracts is an additional agreement that can be included in the individual employment contract to ensure a longer duration of the employment relationship, binding the employee (or, in some cases, the employer as well) to maintain employment for a set minimum period.

This instrument meets the need for mutual protection and is part of a context in which labor flexibility is balanced by the need for contractual stability. The stability pact can be signed either at the start of the employment relationship or during the course of it.

Such an agreement between employer and employee may provide for a commitment (i) not to withdraw from the relationship by the employee alone, or (ii) by the employer alone, or, again, (iii) the covenant may concern both parties.

Where the covenant is in favor of the employer alone, the employee’s commitment not to resign must be remunerated. The remuneration may also be other than a direct monetary compensation to the resource, it may also concern, for example, in economic investment of the employer in specific training of the resource.

Similarly, the covenant not to terminate the employment relationship may be validly demanded from the employee in case the employer company agrees to pay relocation expenses, extraordinary allowances and other benefits to the employee seconded abroad or to another city for the period corresponding to the secondment.

1. Legal Discipline

The stability pact is not expressly regulated by the Italian Civil Code, but its validity is based on Article 1322 of the Civil Code, which allows contracting parties to enter into atypical agreements as long as they are not contrary to law, public order or morality. However, there are some basic rules to be observed:

(a) Written form:

– The stability pact must be formalized in writing and clearly incorporated into the employment contract or a separate agreement.

(b) Time limits:

– The stability period cannot be unreasonably long and must be proportionate to the interests of the parties.

(c) Compatibility with the employee’s non-negotiable rights:

– The covenant may not prevent the worker from resigning altogether, but may provide for a reasonable penalty for early termination. Said penalty may therefore not be excessively vexatious in nature, under penalty of nullity.

If the covenant does not contain the provision of a penalty clause, the court will determine the amount of any damages in favor of the employer.

The penalty will not be payable by the employee who resigns early, in the event of an inability to continue employment, such as a serious illness or injury that prevents the continuation of the relationship altogether. Penalty may not be due either, in case the employee is able to prove that he/she resigned for just cause.

Similarly, in the case of a stability pact in favor of the employee alone, the employer may dismiss the resource only for just cause.

In all other cases, the resource will be entitled to compensation for damages, consisting of the salary he or she would have received from the date of termination until the expiration of the stability pact, as well as any additional protections established by the court or legislation, or even by the pact itself.

2. Conclusions

The stability pact in employment contracts is a useful tool for balancing flexibility and stability, especially in contexts where the employer invests significantly in the growth of the employee. However, its validity and enforceability depend on compliance with criteria of proportionality, fairness and transparency.

For both parties, it is advisable to seek the advice of experienced labor lawyers to draft clear and legally compliant clauses, avoiding the risk of future litigation.