An Italian judge ruled on Saturday that Fiat had failed to comply with labour regulations in laying off 1,023 employees at its Alfa Romeo plant in Arese, near Milan, Dow Jones reported.

The layoffs were approved last December, when Fiat presented a business plan saying it would stop production at Arese and keep only the design centre for its premium Alfa Romeo brand there, the report added.

Dow Jones said the local chapter of the left-wing CGIL union and an independent labour organisation that filed the suit rejoiced, as did local politicians and clerics, according to the local press.

According to a lawyer for the company, Fiat will probably appeal, while also filing the layoff requests again under correct procedures, Dow Jones said.

In the meantime, Dow Jones said, the company may be forced to provide back pay to the workers, who were sent on furlough last December under a government-approved plan that taps a fund to which all Italian industrial firms make annual contributions and pays workers laid off under the plan 60% of their wages.

The extra cost for Fiat is unlikely to exceed €2 million, a person familiar with the situation told Dow Jones.