Italian Law on Employee Participation – new paradigm in corporate law and industrial relations?

On June 10, 2025 the new provisions on employees’ involvement in corporate governance came it force.

The new piece of legislation introduces new employees’ managerial, economic, financial, organizational, and consultative participation in the management, structure, profits, performance, and even ownership of companies. The declared purpose is to implement Article 46 of the Italian Constitution, which states that “the Republic recognises the right of employees to collaborate, in the ways and within the limits established by law, in the management of enterprises”.  This new piece of legislation represents a very significant shift in industrial relations approach in Italy, where unions and workers historically stayed outside management bodies.

We summarize here below the main new provisions.

Inclusion of Employee Representatives in Corporate Management Bodies

Companies’ by-laws may allow for the inclusion of employees’ representatives in corporate management and supervisory bodies, provided that such inclusion is governed by the applicable collective bargaining agreements. In particular,

• in companies adopting the dualistic model (i.e., where management and control are exercised by a Management Board and a Supervisory Board), one or more employees’ representatives may sit in the Supervisory Board, which, under Italian law, holds significant powers, including the appointment and removal of members of the Management Board, the potential commencement of liability actions against them, and the approval of financial statements.
• in companies adopting either the monistic model (i.e., where the Shareholders’ Meeting appoints a Board of Directors, which in turn appoints a Management Control Committee from among its members responsible for management oversight), or the traditional model (i.e., where the Shareholders’ Meeting appoints the Board of Directors – or alternatively, a Sole Director – and, where applicable, a Board of Statutory Auditors), provision may be made for the inclusion of one or more employees-appointed directors on the Board of Directors and, where established, on the Management Control Committee.

For employees who serve on such corporate bodies, the law requires specific training lasting no less than ten hours per year.

Employee Financial Participation Plans

Where the total profit-sharing distributions paid to employees during the 2025 fiscal year account for at least 10% of the company’s total profits, made pursuant to corporate or territorial collective bargaining agreements, such distributions will benefit from a favorable tax regime. Specifically, the law provides for an increase in the threshold of the total amount subject to the more favorable substitute tax regime up to €5,000.

Dividends paid to employees arising from shares granted in substitution of performance bonuses under employee financial participation plans are also exempt from income tax for 50% of their amount, up to an annual cap of €1,500.

Employees’ Participation in Work Organization

Companies may promote the creation of joint committees, equally composed of company and employees’ representatives, aimed at developing proposals to improve and innovate products, production processes, services, and workplace management.

They are also encouraged to establish employee-focused roles such as training coordinators, welfare plan managers, compensation policy officers, workplace quality supervisors, work-life balance and parenting coordinators, as well as diversity and inclusion officers for people with disabilities.

Enterprises with fewer than thirty-five employees may further support worker involvement in organizational matters, including through bilateral bodies.

Ultimately, with the exception of the tax-related provisions—which are self-executing where the relevant requirements are met—the new law sets forth a number of guiding principles, leaving it to collective bargaining to define the practical implementation of the suggested innovations, without prejudice to the autonomy of company by-laws.

Is it time to rethink corporate governance for increased workers’ involvement?