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Czech Republic: The Contractor's Liability for the Wage Claims of its Subcontractors in the Construction Industry

Czech Republic: The Contractor's Liability for the Wage Claims of its Subcontractors in the Construction Industry

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On 1 January 2024, an amendment to the Labour Code came into force that introduces final liability of the construction contractor for wage claims filed by third parties against its subcontractors. This includes wage claims from any employment agencies, up to the amount of the statutory minimum wage for each employee engaged in activities for the subcontractor.

The amendment is intended to remedy the incomplete implementation of EU regulations. However, this liability applies not only to the contractor but also to subcontractors, who are jointly and severally liable for the wage claims of employees. If a subcontractor's employee is not paid their wages, salary or remuneration under the agreement, the employee may, within three months of the due date of the wages, salary or remuneration, call upon the guarantor (the supplier and/or other subcontractors) to satisfy their wage claims up to the amount of the minimum wage.

If an employee who has been adversely impacted in this way makes a claim against the guarantor, the latter will be obliged to pay the claim within 10 days and to inform the employer for whom the employee carried out work. However, the guarantor will be obliged to make deductions and contributions to health and social insurance and the state employment policy, and to pay income tax advances or income tax on the wage claims being satisfied, in addition to the employee's wage claim. In view of the amount of information required for the correct calculation and disbursement of these payments, the employee is obliged to provide the guarantor with the necessary information with the request for payment.

Moreover, in addition to the expected particulars and the information on the debt, the employee's request must also contain the information necessary for the calculation of the advance payment of income tax or income tax on the wage claims to be satisfied. It must also contain the identification of the health insurer in whose favour the corresponding payment is made.

The construction contractor may avoid liability for wage claims if, before commencing performance, it secures confirmation from its subcontractors not older than three months of their non-payment of social security contributions and penalties and contributions to state employment policy and public health insurance. It must also secure confirmation that the subcontractor has not been fined more than CZK 100,000 for violating labour law regulations in the two months preceding the commencement of contractual performance.

Prior to commencing the performance of construction contracts, contractors should ideally inspect their subcontractors or request the aforementioned confirmations from them. Where appropriate, they should also require contractual security by means of appropriate subcontractor declarations and warranties, contractual penalties and their possible security. Conversely, the employer's liability for the wage claims of employees posted in the Czech Republic pursuant to Section 319(3) of the Labour Code as in force until 31 December 2023 has been abolished.

By Katerina Leheckova and Pavel Bederka, Attorneys at Law, Schoenherr Attorneys at Law

 

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