The Italian Constitutional Court rules on the regulation of public car rental-with-drivers services (NCC)

Division of legislative jurisdiction between State and Regions and the inadequacy of the obligation to start and end the service at a designated garage

With judgment No. 56 of March 26, 2020, the Italian Constitutional Court partially upheld matters that had been raised by the Region of Calabria with a referral filed on April 12–19, 2019, of compatibility of a national law on taxi and car-rental-with-drivers (“NCC”) services with the overriding law of the Constitution. The questions were based on a conflict of legislative jurisdiction between the State and the Regions, though the substantive reasoning bears on the fundamental right to freedom of economic initiative (enshrined in Article 41 of the Constitution), which in turn requires proportionality to the attained public objective of any State measure that may restrict competition in a given market.

In particular, the legislative provisions challenged by the Calabria Region are paragraphs 1, letters a), b), e), and f), 6, 7, 8, and 9 of Article 10-bis of Law Decree No. 135 of December 14, 2018 (“Urgent provisions regarding support and simplification for companies and the public administration”), as converted with amendments into Law No. 12 of February 11, 2019. These provisions are the latest in a series of attempts by the legislature to organically reform the rules contained in the framework national law on non-scheduled, local public car services (Law No. 21 of January 15, 1992), which governs the activities of taxi and NCCs. More precisely, according to these rules, an NCC service must: (i) have an operational office and at least one parking facility in the area of the municipality that issued the license; (ii) only receive reservations for the service at the office or facility, including by means of technological instruments; (iii) keep and regularly compile a service registry in electronic or paper format to record each ride and other service activity; (iv) begin and end each ride at the facility.

While confirming[1] exclusive State jurisdiction to legislate on issues of competition on any matter, including local public transport, the Constitutional Court declares Article 10-bis, paragraph 1, letter e) incompatible with the Italian Constitution to the extent that it requires NCC firms and licensed drivers to start and end each service at a designated parking facility (and, therefore, always to return to the facility before starting a new ride). This conclusion is grounded in the fact that such a requirement is inadequate and disproportionate to attaining the intended public goal.

On the conflict of jurisdiction between the State and the Regions in the local public transport sector.

The main constitutional issue raised by the applicant Region is that State legislative intervention aimed at regulating non-scheduled local public transport services overstepped the bounds of residual regional legislative jurisdiction in the field of local public transport, since that matter is not expressly attributed to the State by Article 117 of the Constitution (which governs the division of responsibility between the State and the Regions).

In addition, the applicant argued that even if the contested rules were to be attributed to the State’s horizontal and exclusive jurisdiction on competition matters (as provided under Article 117 paragraph 2.e of the Constitution), the provisions of the law in question on NCCs did not comply with the principles of adequacy and proportionality to the intended public objective, which must always inform and limit the activity of the legislature. In particular, according to the applicant Region, the contested legislative provisions could not be deemed to be aimed at protecting competition since they restrict, rather than foster, entrepreneurial freedom and, consequently, overall competition in the market for non-scheduled local public transportation services.

Balancing the interests at stake as an expression of the State’s horizontal and exclusive jurisdiction in competition policy matters.

It is worth highlighting that the applicant did not contest the fact that regional legislative power in the field of local public transport could be limited by a State law aimed at protecting competition, but instead argued that the State’s interference in the case at hand was inadequate to protect competition, since the challenged provisions hinder, rather than disentangle, the NCCs’ activities and their opportunity to compete with taxi drivers on the basis of common rules. However, the Constitutional Court held that this reasoning was partially unfounded and flawed.

Pointing to previous judgments concerning similar cases,[2] the Court clarifies that the exclusive jurisdiction of the State to legislate on matters of competition is founded on the need to strike a balance between freedom of economic initiative (Article 41 of the Italian Constitution) and other constitutional interests interfering with this freedom. The Court argues that this balancing exercise constitutes a characteristic manifestation of the State’s exclusive remit in competition matters, even when it leads to the introduction of limitations on a certain economic activity. Indeed, the Constitution meant to attribute to the State, and thus to the national Parliament, the fundamental task of creating order and balance between conflicting general interests that the regional legislature cannot lawfully amend, even where the outcome of such an exercise produces, overall, a reduction in competition.[3]

However, in line with the abovementioned judgments, the Court added that it had to assess, in practice, whether the obligations introduced by the contested provisions could be considered adequate and proportionate in relation to the objective pursued and the expected results, since proportionality and adequacy are general and fundamental requirements underlying the legitimacy of the State’s legislative power vis-à-vis competing regional powers as well as vis-à-vis the protection of competition. Otherwise, the State intervention would go beyond the objective of protecting competition and, consequently, would unlawfully restrict the residual regional jurisdiction over the field of local public transport.

In the present case, the Court states that the contested provisions must be deemed to fall within the realm of the State’s horizontal jurisdiction over competition matters as they reflect the State legislature’s effort to strike a balance “between the free exercise of the NCC activity — which, in turn, is part of its own market — and the transport activity carried out by taxi license holders.” Indeed, the Court observes that, like NCC services, taxi business constitutes a non-scheduled public service, which, however, is intended to satisfy a different demand and customer base than that of NCCs: while NCCs serve the needs of users who wish to book specific trips in advance, taxi service is intended to satisfy instant demand, which may also be manifested on the streets by hailing taxis.

Accordingly, by intervening directly in the organization and performance of the NCC service, the State legislature intended to adopt measures aimed at ensuring that the effective designation of the two services was differentiated and objectively distinguishable by customers, in order to avoid interference between the two and, therefore, to more effectively allocate public service resources. Having thus reconstructed the rationale for the disputed State intervention, the Court concluded that the latter may, in principle, fall under the State’s horizontal jurisdiction to legislate on matters of competition.

Assessment of the adequacy and proportionality of the legislative measures introduced by the State.

The Court states that “the proportionality test requires an assessment of whether the rule in question, considering the measure and the implementing rules set forth, is necessary and appropriate to achieve the intended legitimate objectives, when, between several appropriate measures, it prescribes the least restrictive measure of the rights compared and establishes burdens that are not disproportionate vis-à-vis the pursuit of those objectives.

Following assessment based on these criteria, the Court concludes that the only provision among those contested that does not satisfy the proportionality test is the second sentence of Article 11, paragraph 4, of Law No. 21 of 1992, as replaced by Article 10-bis, paragraph 1, letter e) of Law Decree No. 135 of 2018. This provision provides that an NCC service must begin and end at a designated parking facility before the next service commences. According to the Constitutional Court, “Such prescription is not only unreasonable in itself — as it is immediately clear, at least, for the case in which the operator is required to perform a service from the place where the previous service ended – but it is also disproportionate in relation to the objective of ensuring that the transport service is aimed at a specific and not undifferentiated customer base, since it goes beyond the limit of strict necessity, taking into account that this objective is in any case assisted by the obligation to make a reservation at the operational office or facility and by the obligation provided for in Article 3, paragraph 2, of Law No. 21 of 1992, to park the vehicles inside the facility.

Based on the above, the Constitutional Court declared the incompatibility with the Constitution of Article 10-bis, paragraph 1, letter e) of Law Decree No. 135 of 2018 to the extent that it replaced the second sentence of paragraph 4 of Article 11 of Law No. 21 of 1992 by introducing said obligation.

As regards the remaining contested provisions, the Court first indicated that, overall, they amend the previous regulatory framework by reducing, and not extending, the constraints on NCC services. A previous obligation pursuant to which NCCs can designate parking facilities only in the authorized municipality has been mitigated by the introduction of the possibility to designate one or more facilities in the province surrounding the authorized municipality. Secondly, the Court considered that the requirements for an NCC to keep a register of all services and to take reservations at a designated facility or at the head office (expressly including by means of technological intermediary platforms) are not disproportionate or inadequate because they do not affect the balancing purpose indicated above and seem consistent and compatible with its achievement. Hence, though one provision was censored, the remaining provisions of the contested law fall within the scope of horizontal State jurisdiction over competition matters.

[1]See inter alia Constitutional Court, judgments No. 49/2014, No. 30/2016, No. 265/2016.

[2] Ex plurimis, see Constitutional Court, judgments No. 137/2018, No. 452, and No. 401/2007. In one of these cases the contested law was aimed at striking a balance between the free exercise of non-scheduled bus transport activity and other public interests interfering with it.

[3] More specifically, the Courts says the following in this respect: “This balance, in the context of which the assessment of conflicting interests must always be conceived in a systemic, overall-comprehensive and not fragmented perspective, can therefore lead to an outcome according to which the protection of competition ‘is also implemented through the provision and related discipline of cases in which it is exceptionally permitted to apply limitations to the pursuit of maximum liberalization of economic activities’ (judgment No. 30 of 2016, which recalls judgment No. 49 of 2014).”

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