Important Supreme Court decision can affect the validity of all corporate HR-related decisions
A recent Supreme Court decision has created new requirements for Czech companies with a collective statutory body to delegate certain HR responsibilities to a member of its statutory body.
Under section 164(3) of the new Labour Code, every company with a collective statutory body (for example, a joint-stock company with a board of directors) must authorise one member of its statutory body to undertake certain HR acts, such as signing employment contracts or notices of termination. Without this authorisation only the Chairman of the statutory body is authorised to undertake such actions in respect of employees.
The Supreme Court found that section 164(3) would prevail over the general method of company representation, which was based on a company’s articles of association (as entered on the Commercial Register). They also ruled that under this section 164(3), the authorisation of one member must be entered on the Commercial Register.
Who is affected by the changes?
The Supreme Court findings will affect Czech companies with a collective statutory body. This mainly concerns joint-stock companies similar to a German AG or an English plc. In special cases this can also affect companies where their articles of association state that their Managing Directors form a collective statutory body rather than individual Managing Directors acting separately.
What should my company do?
The affected companies should adopt specific delegated responsibility to HR and ensure, if no alternate member is given authority to undertake these actions, that only the Chairman of the statutory body can act on behalf of the company regarding employment matters. Any HR actions prescribed in the Labour Code (such as the issuing of notices of termination) signed by other members of the statutory body will most likely become null or invalid (even if they were signed in line with the general method of company representation, entered on the Commercial Register).
This decision has reiterated the fact that the Supreme Court repeatedly considers ‘form over substance’. This kind of approach is of no benefit to entrepreneurs, as practically it makes little sense. Rather than interpreting the meaning behind the law, the court has chosen to take account of the exact wording in place. We recommend reviewing employment procedures and assessing the potential risks in relation to HR actions carried out since 1 January 2014 (when the new Labour Code took effect).
Supreme Court Decision: File No. 29 Cdo 880/2015
For further information or to discuss how the changes will affect your company, please contact Tereza Erényi on +420 221 430 111, PRK Partners.
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