29
Fri, Mar
38 New Articles

The Three Things You Should Know About Czech Employment Even If You Are Not a Fan of HR

The Three Things You Should Know About Czech Employment Even If You Are Not a Fan of HR

Czech Republic
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Even if your main focus is on developing your business and you think that the keys to HR are solid wages and an interesting benefits package, there are still some important issues in Czech employment law you should be aware of.

Criminal Liability of Your Business

According to the Act on Criminal Liability of Legal Entities, a legal person – a limited liability company – can itself be directly subject to criminal prosecution and convicted of a crime. Naturally, as a legal fiction, the company cannot act itself, but acts of the persons who represent the company, including its employees, are attributed to it.

One of the conditions is that the crime is committed in the interest of the company or within its business activities. The second is that the crime is committed by a person that controls it or has significant influence over it (this may even be its employees).

Employees could trigger the criminal liability of their employer if they acted either based on the instruction of a person controlling the company (e.g., the owner, director, etc.) or independently of any of their superiors because those superiors did not take reasonable preventive measures or failed to sufficiently monitor employees. In other words, if you as a company owner or director fail to monitor your subordinates, your company will bear the consequences and may end up facing a criminal conviction together with your employees.

Therefore, you should protect your company by implementing and enforcing reasonable measures, such as employee monitoring, strict rules on budgeting and gifts, a whistleblowing system, internal regulations such as a code of ethics, etc.

Transfer of IP Rights Only with Employees’ Consent

The Czech Copyright Act regulates products created by employees within employment as so-called “employee work.” As a rule, all proprietary rights pertaining to the work remain with the employer. However, the employer may not assign these rights without the employee’s consent – the only exception being the sale of the enterprise.

Therefore, if your employees created a computer program for your company you may not be able to sell it if those employees refuse to grant consent. In such a case, the employer may only grant a license to the work, but this might not be sufficient for the buyer. This opens a unique opportunity for the employees to negotiate employment terms or additional compensation.

We advise entering into a reasonably extensive IP arrangement with employees. Although discussions are ongoing about whether an employee’s advance consent is valid, it is still highly advisable to secure it.

Pseudo Self-Employment: Tax Optimization or Tax Fraud?

Pseudo self-employment has a long history in the Czech Republic. This is where an individual acts based on the contract of a self-employed contractor while actually working as a regular employee. Generally, this practice is not permissible under Czech law and is regarded as illegal work.

The main reasons why businesses tend to engage freelancers are the rigid employment regulations and high mandatory costs of labor.

When assessing whether someone is acting as a freelancer or as an employee it is not the documentation but the factual cooperation that counts. The key element is the level of independence of the freelancer from the company. Paying fixed monthly remuneration, giving clear instructions, or having the freelancer work full-time at the workplace would usually be assessed as indicating that the freelancer should be requalified as an employee.

Requalification may have various consequences, from Labor Inspectorate fines (up to EUR 400,000) to due payments towards tax authorities. The tax authorities interpreted the amounts invoiced by freelancers as net wages, and all mandatory surcharges were added to those amounts.

We have also been seeing increased pressure in tax matters to swap to criminal proceedings. Saving costs on mandatory payments may be understood as a criminal offense. As a result, a company engaging many freelancers on a long-term basis may also be risking criminal prosecution.

A proper assessment of whether an individual may act as a freelancer or should instead be engaged as an employee has gained increased practical significance.

By Helena Hangler, Head of Employment, Schoenherr Czech Republic

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Czech Republic Knowledge Partner

PRK Partners, one of the leading Central European law firms, has been helping clients achieve their business objectives almost 30 years. Our team of lawyers, based in our Prague, Ostrava, and Bratislava offices, has a unique knowledge of Czech and Slovak law and of the business environment. Our lawyers studied at top law schools in the United States, United Kingdom, Switzerland and elsewhere. They also have experience working for leading international and domestic law firms in a number of jurisdictions. We speak your language, too. Our legal team is fluent in more than 15 languages, including all the key languages of the region.

PRK Partners has one of the most experienced legal teams on the market. We are consistently rated as one of the leading law firms in the region. We have received many significant honours and awards for our work. We represent the interests of international clients operating in the Czech Republic in an efficient way, combining local knowledge with an understanding of their global requirements in a business-friendly approach. We are one of the largest law firms in the Czech Republic and Slovakia. Our specialised teams of lawyers and tax advisors advise major global corporations as well as local companies. We provide comprehensive legal advice drawing on our profound knowledge of local law and markets.

Our legal advice delivers tangible results – as proven by our strong track record. We are the only Czech member firm of Lex Mundi, the world's leading network of independent law firms. As one of the leading law firms in the region, we have received many national and international awards, in some cases several years in a row. Honours include the Chambers Europe Award for Excellence, The Lawyer and Czech and Slovak Law Firm of the Year. Thanks to our close cooperation with leading international law firms and strong local players, we can serve clients in multiple jurisdictions around the globe. Our strong network means that we can meet your needs, wherever you do business.

PRK Partners has been repeatedly voted among the most socially responsible firms in the category of small and mid-sized firms and was awarded the bronze certificate at the annual TOP Responsible Firm of the Year Awards.

Our work is not only “business”: we have participated on a longstanding basis in a wide variety of pro bono projects and supported our partners from the non-profit sector (Kaplicky Centre Endowment Fund, Tereza Maxová Foundation, Czech Donors Forum, etc.).

Firm's website: www.prkpartners.com

Our Latest Issue