Benefit corporation and B-Corp: the “fourth sector” between profit and sustainable development.
With the introduction of the Italian Law no. 208 of 2015 (stability act of 2016) Italy has been the first European country, and the second in the world after the United States of America, to provide for a new corporate model, the “benefit corporation“.
As is clear from their name, and also as specified in paragraphs 376-384 of article 1 of the aforementioned law, benefit corporations may be considered as an hybrid between the second and the third sector entities: on the one hand, they carry out an economic activity in order to distribute the profits, on the other hand they pursue aims of common benefit, through an organization intended to balance the interests of the shareholders and the other stakeholders on which the company’s business may impact.
In other words, benefit corporations are traditional and profit organizations, with increased burdens that commit the owners and the management to operate in a responsible, sustainable and transparent way towards third party beneficiaries. The Explanatory Report to the law 208/2015 clarifies that the proposal for the establishment of the benefit corporations aimed at improve the spread in our legal system of companies which, in performing their economic activity, intend to protect the environment impacted by their businesses, reducing or eliminating negative externalities or rather by encouraging and implementing practices, processes and products capable of producing positive externalities, since the shareholders are required to evaluate not only the economic-financial performance of their company, but also the qualitative performances and the achievement of the declared common benefit purposes.
Except for simplified limited liability companies, cooperatives and social enterprises, all types of companies provided for in book V, titles V and VI, of the Italian Civil Code may acquire the status of benefit corporations, both at the time of their constitution, and subsequently, amending their by-laws in compliance with the provisions of all the applicable laws.
First of all, the benefit corporations have to report in their articles of association or in their by-laws, as their corporate purpose, not only their mainly economic activity, but also the positive effects, or the reduction of the negative ones, that the company undertakes to pursue for the benefit of people, communities, territory and environment, cultural and social assets and activities, bodies and associations and groups of subjects otherwise affected, directly or indirectly, by the company’s business.
To protect and guarantee these commitments, without prejudice to the provisions of all the other applicable regulations, the benefit corporations have to appoint a person entrusted with the functions and tasks aimed at achieving the purposes of common benefit indicated in the articles of association and/or in the by-laws, as the administrative body shall be responsible also for such interests, to be pursued with the utmost diligence and competence. Therefore, in case of non-fulfilment of these new obligations, the rules concerning the directors’ liability of directors shall apply.
Furthermore, in view of the mentioned rigorous responsibility, benefit corporations are subject to the provisions of Italian Legislative Decree of August 2nd, 2007, no. 145, concerning misleading advertising, as well as the provisions of the current Consumer Code and, therefore, the control of the Competition and Market Authority. Such rules and provisions are intended to safeguard the market competition and the consumers against unfair commercial practices.
To verify the company’s actual social commitment, the benefit corporations are also required to enclose to their annual financial statements an “impact report“, detailing the specific objectives, actions and methods implemented by the directors to pursue the common benefit purposes, or any circumstances that preclude them, even partially, as well as their impact on the parties involved, and a forecast of the new objectives that the company wants to achieve in the subsequent year.
In particular, the law requires that this assessment is conducted using scientific criteria developed by a third entity, which shall ensure a thorough and detailed analysis of the impact that the benefit corporation has generated with reference to the governance of the company, in relation to the level of transparency and responsibility of the company in pursuing the purposes of common benefit, relations with workers, with other stakeholders (such as suppliers, associations, local communities in the area) and the environment.
As of today, there are about 500 benefit corporations in Italy and, among these, some have obtained the “B-Corp” qualification, the certificate issued by the US non-profit body B-Lab to all those companies that voluntarily submitted itself to the B Impact Assessment system, reaching the minimum score of 80/200 points. This evaluation system has also been indicated by the United Nations to measure the progress of companies with respect to the 2030 sustainability objectives.
In recent years, in addition to 37 states in the United States of America, the benefit corporations are also spreading to Colombia (2018), Puerto Rico (2018), Ecuador (2019), Canada – British Columbia (2019), Peru (2020), Rwanda (2021) and in many other countries the legislative process for the approval of specific law is underway. In Europe, however, only France in 2019 introduced the so-called Société à Mission, which, although they are not the same of the Italian benefit corporations, represent a similar new corporate model.
Among the Italian benefit corporations, there are enterprises operating in several industries, such as Chiesi Farmaceutici, Alessi, Fratelli Carli, D-Orbit, Slow Food Promotion, NWG energia, Illy, Danone Italia, I.CO.P. S.p.A., and also the first benefit corporation of lawyers, Freebly.
From the foregoing, the positive effects generated by this type of company would seem to have not only a common and public nature, since the benefit corporations aim to achieve benefits for the community with a minor expense up to the State, but also private, as the benefit corporations, by effectively demonstrating that they also care about the interests of their customers, employees and communities, may acquire a competitive advantage in terms of reputation.
Given the trend of these last years, with the transformation into benefit corporations of an increasing number of large and well-known companies, the extent of these reputational advantages would seem to compensate the absence of other favourable regulations, such as specific tax rules.
However, in this regard, it should be noted that last year, with the adoption of urgent measures to counter the effects of the epidemiological crisis of COVID-19, benefit corporations have been granted with a specific contribution. Indeed, Article 38-ter, of the Italian Decree-Law of May 19th, 2020, no. 34, transposed with amendments by Italian Law of July 17th, 2020, no. 77, introduced a tax credit equal to 50% of the costs of setting up or transforming an existing company into a benefit corporation, borne starting from July 18th, 2020 and up to December 31st, 2020, to the threshold of seven million euros reserved for the purpose. The Italian Decree-Law “Milleproroghe”, transposed by Italian Law of February 26th , 2021 no. 21, postponed such term until June 30th 2021.
Therefore, it seems possible to believe that in the next period further incentive measures may be promoted, thus stimulating the new “fourth sector” companies, without prejudice to the profitability and competitiveness, to be increasingly socially responsible.
Rules applying to the termination of leasing agreements before Law no. 124/2017.
With ruling no. 2061 on January 28th, 2021, the United Chambers of the Court of Cassation stated that Law no. 124/2017 does not apply to leasing agreements terminated due to breach of contract by the lessee prior to the entry into force of the law itself (August 29th, 2017).
As is known, before this law entered into force, the courts used to distinguish between two different types of leasing agreements, namely purchase leasing (“leasing traslativo”) and use leasing (“leasing di godimento”), each having specific implications in case of termination due to the lessee’s breach of contract.
In the case of a purchase leasing, termination of the contract is governed by Art. 1526 of the Italian Civil Code, according to which the lessee is bound to return the asset and the lessor is bound to repay the rentals received, safe for the lessor’s right to a fair compensation for the use of the asset, as well as a compensation for damages.
In a use leasing, on the other hand, termination of the contract is governed by Article 1458 of the Italian Civil Code, which entails the obligation of the lessee to return the asset, and the right of the lessor to keep the payments received, in addition to compensation for damages.
Law 124/2017, instead, no longer contemplates the distinction between purchase leasing and use leasing, providing for a sole discipline in the event of termination for breach of contract. More specifically, under these rules, the lessor is entitled to the restitution of the asset, which he shall sell or otherwise deal with at market value. The lessor is then obliged to pay to the lessee the proceeds of such sale or disposal of the asset, although maintaining the right to receive the outstanding amount represented by the past and future rentals and the price agreed for the exercise of the purchase option.
The United Chambers of the Court of Cassation have thus made it clear that, according to the principle of non-retroactivity of laws, Law no. 124/2017 applies only where the breach of contract occurred before the law itself entered into force. The Court also rejected the possibility that the rules set out in Article 72quater of the Italian Bankruptcy Law, which have similar content to those set out in Law no. 124/2017, could apply by analogy, given that such provisions constitute an exception to the ordinary rules.
As a result of the principles established by the Court of Cassation, Article 1526 of the Italian Civil Code will continue to apply to the termination of purchase leasing occurred before the entry into force of Law no. 124/2017.
The critics raised by doctrine and case law to the application of this rule thus remain, since they consider it to be unsuitable to discipline the purchase leasing.
In this respect, however, the Court has observed that the application of Art. 1526 of the Italian Civil Code aims at avoiding any unjustified enrichment of the lessor, particularly if the terms of the contract entitles him to the restitution of the asset and the retention of the rentals, in addition to damages, that is to say, more than it would have been entitled to had the lessor performed its obligations under the contract.
Besides, the Court has noted that over the years it has recognised the validity of clauses intended to prevent such enrichment, namely those providing the proceeds of the sale of the asset to be deducted from the sums due by the lessee. Such clauses, the Court points out, have been accepted by the legislator as a standard for the provisions of Article 72quater of the Italian Bankruptcy Law and, later, of Law no. 124/2017. Accordingly, the application of the rules prior to Law no. 124/2017 will mainly concern those contracts whose clauses grant the lessor a greater benefit compared to that that could be realised upon the performance of the contract.
The decision is also remarkable in that it underlines how retroactivity of rules represents an exception, so as to ensure legal certainty and the legitimate expectations of private parties.
ANTI-COVID 19 VACCINES: the precarious balance between the rights of the employee and the employer.
Issues relating to the obligation of the vaccine for certain categories of workers and the employer’s liability to impose such treatment to its employees (and, therefore, to be able to act in case of refusal to inoculation) are still open and intensely debated. Unfortunately, the only one that is still silent on the point is the legislator.
With the start of the vaccination campaign, a number of leading commentators have undertaken a public discussion regarding the obligation of the vaccine for certain employees, as well as regarding the possibility or otherwise to suspend, transfer or even dismiss employees who refuse such medical treatment without having a valid justification.
From a legal point of view, as well as from a social point of view, the issue is extremely interesting because it contemplates and contrasts a series of legitimate interests, rights and duties for each category involved.
In fact, if on the one hand, there is a person’s interest not to be vaccinated on the basis of their right to self-determination therapy, on the other hand there is that of the employer who has a legal duty to ensure the safest possible working environment for the employees.
Furthermore, if on the one hand each individual citizen can legitimately claim a right to individual health, on the other hand the community (or, from a strictly business point of view, all the employer’s colleagues or customers) may, equally, rightly expect greater protection for public health.
Those supporting the anti-vaccine sentiment state, in particular, that their choice is protected by the Constitution of the Italian Republic which under art. 32 provides that no one can be obliged to certain medical treatment if not through a provision of law.
On the basis of this principle, it would therefore appear that, in the absence of a specific rule on this point (rule of law), any refusal to medical treatment would be legitimate and, therefore, unquestionable even by the employer.
Conversely, the argument in support of the mandatory nature of the vaccine is based on articles 2087 of the Italian Civil Code and 20 of Legislative Decree 81/2008 (Consolidated Act on safety in the workplace) which require, respectively, that the employer takes all necessary measures to protect the physical integrity of workers, and that the employee takes care of his/her health and safety and that of other people at the workplace. If interpreted extensively, these articles would seem to authorize the request to use the vaccine as the most recent and valid tool to counter the current epidemiological emergency.
In support of this view, even article 279 of the aforementioned Consolidated Act ascertains the obligation for the entrepreneur to require vaccination for his employees in case of risk of infection resulting from a “biological agent present at work” which – if interpreted extensively – could also be identified in a particularly contagious virus originating from the external environment and valid to contaminate the workplace, such as SARS-CoV-2.
Therefore, there is a conflict arising between the legitimate interests of individuals and those of the community, which are also flanked by precise legal duties to be undertaken by both employees and employers, and whose application in the case in question appears, however, rather extensive.
There is complete and absolute confusion on this point, so much so that even the Data Protection Authority, in February 2021, decided to intervene on the matter, probably in order to avoid possible violations of the right to privacy, and denying the possibility for the employer to ask his employees to confirm having received the vaccination (or to require the Covid-19 vaccination as a condition to access the workplace).
However the Data Protection Authority has not taken any position regarding whether or not the vaccine is mandatory (an issue that is understandably outside its role), but in partially adhering to the view that the vaccine is an element of safety at the workplace, it stated that in the absence of specific legislation, personal data relating to employees’ vaccination will be processed by the ( company doctor who, if necessary, may take this into account when assessing the suitability for the specific task.
Although this interpretation does not derive from a legislative body, it is however extremely useful because it enables us to better define the employer’s scope who, at present, cannot investigate in any way the vaccination status of the employees, but can only act in the event of established unsuitability for the specific task.
The above could therefore make it theoretically possible to dismiss an employee who refuses the vaccine on the grounds of being unfit for the job. This type of dismissal is not, however, an immediate or easily manageable option: it is in fact a solution that should only be used as a last resort, after having verified the impossibility of assigning the employee to a different placement in another company or providing him with a different way of working (e.g., smart working) and, however, a solution that is feasible only once the ban on dismissals is lifted.
Therefore, as opposed to what is currently appearing in the press, the dismissal of the employee who refuses the vaccine is not a tool that can be immediately and easily used by the employer. On the contrary, its use will remain exposed to the risk of litigation and to ambiguous interpretations by the jurisprudence, at least until the national legislator decides to intervene in a clear way, with such an intervention being increasingly difficult to postpone for much longer given the progression of the vaccination campaign.
The European Commission’s digital strategy: Digital Services Act and Digital Market Act. Towards a safer and fairer online single market.
The EU Commission sets the rules for a safer and fairer online single market, taking into account the fundamental changes in the sector since Directive 2000/31/EC on electronic commerce, with the aim of ensuring easier access for innovative companies, a more balanced relationship between commercial and non-commercial users and large digital platforms, greater transparency and control over illegal content.
On December 15 2020, the EU Commission presented two proposals for regulations:
(a) the Proposal for a Regulation of the European Parliament and of the Council on a Single Market for Digital Services (Digital Services Act) and amending Directive 2000/31/EC, the so-called Digital Services Act; and
(b) the Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Market Act).
The proposals have been submitted to the European Parliament and will follow the ordinary legislative process.
With reference to the Digital Services Act, the Commission points out that, starting from Directive 2000/31/EC (“E-Commerce Directive”), the digital world has undergone many changes and new services have emerged, modifying the daily life of citizens, and transforming the ways in which they communicate, connect, consume and do business. The development of these new services has highlighted new risks and challenges, both for individuals and for society as a whole.
In this context, the Commission’s proposal introduces a set of horizontal rules that should cover all contents, products, services and activities related to intermediary services (i.e. digital platforms). The Digital Services Act builds on the fundamental principles set out in the E-Commerce Directive (which are still valid today), while attempting to ensure the best conditions for the provision of innovative digital services in the internal market, to contribute to online safety and the protection of fundamental rights, and to establish a solid and lasting governance structure for the effective and constant supervision of intermediary service providers. The proposal for a Regulation first of all clarifies what is meant by an intermediary service by distinguishing between:
– a ‘mere conduit’ service that consists of the transmission in a communication network of information provided by a recipient of the service, or the provision of access to a communication network;
– a ‘caching’ service that consists of the transmission in a communication network of information provided by a recipient of the service, involving the automatic, intermediate and temporary storage of that information, for the sole purpose of making more efficient the information’s onward transmission to other recipients upon their request;
– a ‘hosting’ service that consists of the storage of information provided by, and at the request of, a recipient of the service.
Therefore, all cloud and webhosting services, online platforms connecting sellers and consumers (e.g. online marketplaces, app stores, collaborative economy platforms, social media platforms) fall into the above categories. Ad hoc rules are also envisaged for large online platforms.
Taking into account the recipient, the proposal is divided into several sections, with differentiated obligations depending on the category to which they belong. There will be obligations for all intermediaries, including the establishment of a single point of contact to facilitate direct communication with Member State authorities and the Commission, the indication in their general terms and conditions of any restrictions that may be imposed on the use of their services and the reasonableness in applying such restrictions, the establishment of an internal system for handling complaints about decisions on alleged illegal content.
Specific obligations will apply to hosting platforms, which will have to put in place mechanisms to allow third parties to notify the presence of alleged illegal content and will have to provide a justification if they remove specific information provided by a recipient of the service.
Finally, additional obligations will be placed on very large online platforms to manage systemic risks. This category of intermediaries will have to carry out periodic risk assessments of the operation and use of their services, will have to submit to the scrutiny of external and independent auditors, and will be subject to specific transparent reporting requirements.
Finally, the Digital Services Act contains provisions on implementation and enforcement, and introduces – in addition to the national competent authorities – the figure of digital services coordinators with specific powers.
With reference to the Digital Market Act – the Commission has instead proposed regulation of so-called gatekeepers, i.e. platforms that act as intermediaries between commercial users and end users, benefiting from an established and lasting position. Gatekeepers have an enormous impact on the market. The proposed regulation – after providing the criteria for qualifying as a gatekeeper – introduces a number of obligations and prohibitions for such platforms, aimed at avoiding unfair commercial practices and market access difficulties.
Among others, gatekeepers will have to:
– refrain from combining personal data from their own platform with data from other services of the same gatekeeper or from third parties;
– allow commercial users to offer the same products and services to commercial users through third-party online brokerage services under conditions that differ from those offered through the gatekeeper’s services; and
– allow users to access the data they produce using the platform;
Furthermore, gatekeepers may not give their products or services a more favourable classification than similar products or services offered by third parties on their platform.
These Commission proposals aim to create a level playing field that will allow innovative digital businesses to grow within the Single Market and compete globally. The new rules, once adopted, will allow business users and end-users to reduce costs related to the diversity of applicable rules, to have a more certain framework and to be able to move in a more balanced environment compared to large online platforms. Considering the importance of the online market in the recent past, also as a result of the pandemic, companies will have to monitor the evolution of the regulatory environment and adapt their activities in time to future obligations and responsibilities, but also to the new possibilities that future regulation may provide.
Local energy communities: the transitional regime implemented in Italy.
Italy has recently completed an array of provisions and measures to kick off the transitional – at least for now – regime to support local electricity production from renewable sources within energy communities.
The EU Directive 2018/2001 (so-called RED II Directive) regarding the promotion of the use of energy from renewable sources (hereinafter “RES“), emphasizes, among the various principles and objectives to be reached, the fundamental role of consumers which act collectively sharing the electricity.
The RED Directive identifies two models of shared energy:
(1) self-consumers of renewable energy who act collectively: a group of at least 2 self-consumers (producing RES energy for their own consumption and who may also store and sell it) who act collectively and are located in the same building or condominium
(2) the renewable energy community (hereinafter “REC“): a legal entity, whose participation is open, voluntary, autonomous, and controlled by shareholders/members who are located in the vicinity of RES energy production facilities, and whose main objective is to provide community-wide environmental, economic, or social benefits to its shareholders or members or to the local areas in which it operates, rather than financial benefits.
In addition to these models, there is the citizen energy community (hereinafter “CEC“), introduced by EU Directive 2019/944, which unlike RECs, provides that:
(1) plants powered by non-renewable sources may also participate in the production;
(2) other energy services may also be provided by the CEC to its partners/members, such as, for example, those related to energy efficiency and to recharging electric vehicles.
The prerequisite to support the development of RECs is linked to the economic and social benefits (in addition to the environmental ones) that can result from distributed generation: for example, greater energy security at local level, less energy dispersion, greater cohesion, and acceptability of infrastructure by local communities that actively participate in the design, implementation and sharing of the results obtained by the REC.
Members of the RECs can be individuals, SMEs (participation does not have to constitute their main commercial/industrial activity) or local authorities. Members have the right to produce, consume, store and sell renewable energy, to trade within the same community the renewable energy produced, and at the same time to remain final customers.
Production facilities may be owned or available to the REC (e.g., a plant owned by the Public Service (Pubblica Amministrazione) or built through a public-private partnership procedure).
RECs will need to have a deed of incorporation for their creation, for example as a cooperative, a foundation or association. They will also have to have their own statute to regulate internal and external relations (so that management is carried out in a democratic manner and in order to ensure that the REC’s independence is guaranteed). The sale of electricity produced by the REC may be regulated by Power Purchase Agreements.
In Italy, the RED II directive must be implemented by June 2021.
However, a provision has been made for an experimental and transitional discipline until the transposition of the RED II Directive, introduced by Law Decree 162/2019 then converted into Law no. 8/2020, which was followed first by ARERA Resolution 318/2020/R/eel (which governs the methods and economic regulation relating to the electricity subject of sharing) and then the Ministerial Decree 16/09/2020 (which identified the incentive tariff for the remuneration of RES plants included in the configurations of RECs).
Law Decree 162/2019 defined:
1) who can join
2) the objective that must be pursued by the RECs
3) the conditions for functioning: RES plants with power < 200kW that entered into operation between March 2020 and 60 days from the transposition of RED II
4) the concept of shared energy
5) the method of connection for plants included in an REC: plants’ feed-in and withdrawal points are connected to low voltage networks and to the same medium/low voltage transformer substation
6) the rights of members
7) the presence of a delegated person who is responsible for the allocation of shared energy and possibly also for the economic flows with the Gestore dei Servizi Energetici S.p.A (hereinafter “GSE“).
Finally, the GSE has adopted the Technical Rules with which it has described the requirements, the application procedures in order to access the service, the contract outline, the calculation criteria, and the timing for payment of the contribution (premium rate equal to 110 €/MWh for 20 years) for the enhancement and incentive of the electricity shared within the RECs.
In the meantime, while highlighting the benefits that could result from the use of RECs, we must also note some outstanding issues that could prevent a concrete dissemination unless they are resolved. For example:
1) the power of plants currently less than 200 kW
2) the methods of connection: low/medium voltage, to the same cabin
3) the participation of public authorities that are not only local entities, but rather “local authorities” such as schools, provinces
4) the participation of the Public Service (Pubblica Amministrazione – P.A.), in consideration of its role, access to profits and compliance with the principles of public accounting and public procurement
5) the preparation of the deeds of incorporation of the RECs, forms for access and withdrawal, and contracts and forms to manage the relationship between the RECs and external parties.
6) the role of electricity distributors and data sharing
Although some issues are still pending, is possible to see the new opportunities that exist in terms of economic, environmental, social benefits, such as the possibility of new business initiatives for those who have specialist know-how, for example, regarding the financing of new projects, the construction of plants and their management, monitoring and control of plants and energy flows, managing relations with the GSE and for energy trading activities.
We await now the transposition of the RED II Directive which should take place by June 2021, for having a legal and regulatory framework in the longer term.
The processing of biometric data and facial recognition, video surveillance, food delivery and data brokers within the inspection program of the Italian Data Protection Authority for the first semester of 2021.
The Italian Data Protection Authority (“Garante Privacy“), as is now customary, by means of provision no. 257 of 2020, outlined its plans for future inspection activities, from January to June 2021, which will be carried out with the help of the specialized personnel of the Guardia di Finanza (Italian Tax Police). At least 50 inspections already scheduled, in addition to other activities that will be carried out following reports and complaints received.
The inspection activities will focus on the following areas:
(i) processing of biometric data and facial recognition, including video surveillance systems;
(ii) home video surveillance;
(iii) video surveillance through connected toys;
(iv) data processing by “data brokers”;
(v) data processing in the food delivery sector;
(vi) data breach;
In light of what has been communicated by the Garante Privacy, it seems appropriate and urgent that all data controllers of the categories identified and those who could be subject of reports and complaints, conduct activities of verification and upgrade of their privacy systems.
Failure to comply with the data protection regulations may result in administrative fines up to 20 million euros or 4% of the data controller’s total turnover, in addition to damages to the reputation of the data controller and to compensation to be awarded to those affected by the non-compliant processing.
The compliance with the data protection regulations is not simply a business cost rather it is a strong investment and creates reputational growth for companies, considering the importance that users and consumers now place on these fields, in addition to sanctions and damage to the reputation.
DISCLAIMER: This newsletter merely provides general information and does not constitute legal advice of any kind from Macchi di Cellere Gangemi. The newsletter does not replace individual legal consultation. Macchi di Cellere Gangemi assumes no liability whatsoever for the content and correctness of the newsletter.
TO READ OUR PREVIOUS NEWSLETTER OF 12 FEBRUARY 2021: