News - Czech Republic

Czech Republic - September 2016

Crucial Constitutional Court Ruling on Concurrent Employment Contracts

The background

A situation may arise where a member of a company’s statutory body (typically an executive director or a member of the board of directors) is also in a concurrent employment relationship with the company in a leading management position, particularly as a CEO (or another director).  This is referred to as the concurrent exercise of functions and it is an area in which there has been recent Constitutional court judgement in the Czech Republic.

In its previous judgments, the Supreme Court has repeatedly held the opinion that a concurrent employment contract is invalid if, the obligations and activities under the employment contract overlap or coincide with those of a statutory body.  However, the current ruling of the Constitutional Court puts the Supreme Court’s arguments into question.

The ruling of the Constitutional Court

The Constitutional Court especially highlights the fact that the concurrent exercise of functions has never been explicitly forbidden, and general courts must therefore have very compelling arguments for its inadmissibility (and for the invalidity of concurrent employment contracts).  The Constitutional Court further points to the fundamental principle of private law which states that what is not forbidden by law is permitted, and that no one can be forced to do something that is not required by law.

The Constitutional Court first analysed the Supreme Court’s opinion, which argues that the work of a statutory body may not be subject to the Labour Code (and an employment-law relationship) since it governs only dependent work.  The Constitutional Court therefore took the view that from, an employment-law point of view, there is no reason why a member of a statutory body could not perform its activities, or any of them, on the basis of a contract governed by the Labour Code.

The Constitutional Court also addressed the Supreme Court’s commercial law arguments, which - when justifying the inadmissibility of the concurrent exercise of functions - merely referred to the incompatible nature of business corporations and the positions of members of statutory bodies without providing any further explanation.  In this context, the Constitutional Court noted that it “considers the general reference to a business corporation’s nature as entirely insufficient. The reasoning which supports a certain legal opinion should be set out in the relevant judgment.”  Consequently, not even the present commercial law arguments were able to succeed in front of the Constitutional Court.

Comments

The above ruling cannot be interpreted in such a manner that the Constitutional Court views the concurrent exercise of functions as automatically and entirely admissible;  it merely considers the Supreme Court’s line of argument applied until now to be incorrect.

If the opinion on the inadmissibility of the concurrent exercise of functions is to be preserved, general courts have to “first give proper reasons why a member of a statutory body and a corporation cannot regulate and agree on their mutual rights and obligations in a contract on the exercise of a function for which they select the regime of the Labour Code.

It will therefore be interesting to observe how the Supreme Court will deal with the Constitutional Court’s findings in subsequent judgments.  Will it maintain its opinion on the concurrent exercise of functions on the basis of new or significantly extended arguments, or will it confirm its admissibility and abandon its previous case law.

Further information

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Resources

Constitutional Court of the Czech Republic Ruling no. I. ÚS 190/15

Article 2 (3) of the Charter of Fundamental Rights and Freedoms

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