News - Czech Republic

Czech Republic - November 2013

Major Impact of the New Civil Code on Czech Labour Law

After several years of preparations, the new Civil Code and the new Business Corporations Act will come into effect on 1 January 2014.

This is a major change to the whole system of Czech civil law including the labour law and it will take some time for International HR to familiarise themselves with a number of the changes.

Weaker Parties and Form Contracts

One of the most interesting changes concerns the position of the parties in legal interactions, in terms of their equality.

The Civil Code introduces special protection for the "weaker party". In employment law matters, the weaker party will in most cases be the employee, although not always - for example, in the event of a shortage of qualified managers in a certain industry, the employee might be in an advantageous position and effectively be at least equal to the employer or could even be the stronger party.

Identifying the weaker party is important to determine whether a contract of employment or any other agreement is a “form contract”. This is where an employment contract is not tailored to the employee or negotiated by the employee. The employee’s personal data is added by the employer to the “form contract”. As such the employee/the weaker party is usually unable to influence the content of the contract as it tends to be presented to employees without any opportunity for them to negotiate an alteration to the conditions.

According to the new Civil Code the clauses of form contracts that are unreadable (e.g. small font or illegible formatting), incomprehensible (e.g. using a foreign language) or “clearly disadvantageous” for the weaker party without good reason, may now be null and void.

Commentary

There are currently lively discussions between lawyers and those that drafted the new legislation regarding this new ‘protection of the weaker party’. A definitive answer will largely depend on future court judgements.

It is not clear which provisions may be considered "clearly disadvantageous". In our view it could, for example, include a 6 months’ probationary period for a blue collar employee who manages a group of cleaners. Only real managerial employees can be subject to 6 months’ probationary periods and this blue collar employee (although formally considered as manager) should probably only be subjected to a 3 month probationary period.

Pre-contractual Liability

The new Civil Code also introduces express regulations on pre-contractual liability.

This would apply especially when an employer and an employee have essentially reached an agreement on the conditions of employment, but one of the parties refuses to conclude a written contract at the last moment without good reason – e.g. the employee gets a better offer or the employer finds a more suitable candidate. The party that refuses to conclude the contract, will be required to compensate the other for the damages caused (e.g. costs of the selection process or loss of salary).

Commentary

An employer would be required to prove the damages caused by the above-mentioned breach of pre-contractual liability, which can be quite complicated. We believe that pre-contractual liability will apply regardless of the industry, but it will be probably more relevant for managerial and executive positions rather than for regular employees.

Statutory Bodies

The New Business Corporations Act also introduces a number of changes in the relations between companies and their executives and board members.

For example, if the remuneration is not agreed in a written contract and approved at the General Meeting, the performance of statutory duties for a senior executive or board member will not be paid.

This is a u-turn from the existing legislation, where, if specific remuneration for these statutory duties had not been expressly agreed then there was an entitlement to “usual remuneration” determined with respect to the size of the company, field of industry etc. The amount of such usual remuneration is usually determined by the court. From 1 January 2014, there will be no such entitlement to usual remuneration. If remuneration for the statutory duties is therefore not properly agreed, future work for these statutory duties will be unpaid.

For further information or to discuss any of the issues raised, please contact Mr Daniel Vejsada and/or Ms Tereza Erényi  on +420 221 430 111 at PRK Partners.

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