The Employment Law Review

Second Edition

Editor Erika C Collins Second Edition

Law Business Law Business Research Research The Employment Law Review

SECOND EDITION

Reproduced with permission from Law Business Research Ltd.

This article was first published in The Employment Law Review, 2nd edition (published in March 2011 - editor Erika C Collins).

For further information please email [email protected] THE EMPLOYMENT LAW REVIEW

Second Edition

Editor Erika C Collins

Law Business Research Ltd Publisher Gideon Roberton

business development manager Adam Sargent

marketing ManagerS Nick Barette Hannah Thwaites

editorial assistant Nina Nowak

production manager Adam Myers

production editor Kathryn Smuland

subeditor Davet Hyland

editor-in-chief Callum Campbell

managing director Richard Davey

Published in the United Kingdom by Law Business Research Ltd, London 87 Lancaster Road, London, W11 1QQ, UK © 2011 Law Business Research Ltd www.TheLawReviews.co.uk © Copyright in individual chapters vests with the contributors No photocopying: copyright licences do not apply. The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of March 2011, be advised that this is a developing area. Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher – [email protected]

ISBN: 978-1-907606-00-7

Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel: +44 844 2480 112 acknowledgements

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book: Ali Budiardjo, Nugroho, Reksodiputro

Alrud Law Firm

Baker & McKenzie, TAIPEI

BASHAM, RINGE Y CORREA, SC

BAYKANIDEA LAW OFFICES

Bell Gully

Bristows

Castegnaro

Consortium Centro AmÉrica Abogados – El Salvador

Consortium Centro América Abogados – Laclé & Gutiérrez – Costa Rica

DELOITTE ADVOKATFIRMA AS

Dittmar & Indrenius

Edward Nathan Sonnenbergs

Ganado & Associates, Advocates

George Z Georgiou & Associates LLC

GIANNI, ORIGONI, GRIPPO & PARTNERS

Acknowledgements

Gide Loyrette Nouel

Giese & Partner, v.o.s.

Graf & Pitkowitz Rechtsanwälte GmbH

Heenan Blaikie LLP

kochhar & co

Kromann Reumert

KYRIAKIDES GEORGOPOULOS & DANIOLOS ISSAIAS LAW FIRM

Liepa, Skopiņa/BORENIUS Attorneys at Law

Mannheimer Swartling Advokatbyrå AB

Marval, O’Farrell & Mairal

Matheson Ormsby Prentice

Nestor Nestor Diculescu Kingston Petersen

Nicea Abogados

Palacios, Ortega y Asociados

Paul Hastings LLP

Paul Hastings LLP Shanghai Representative Office

PBBR – Pedro Pinto, Bessa Monteiro, Reis, Branco & Associados

Pinheiro Neto Advogados

Sayenko Kharenko

vi Acknowledgements

Shin & Kim

Skrine

SNR Denton & Co

SOŁTYSIŃSKI, KAWECKI & SZLĘZAK

Stamford Law Corporation

Taylor Wessing

Van Doorne NV

VAN OLMEN WYNANT

Walder Wyss Ltd

Zysman, Aharoni, Gayer & Co

vii contents

Editor’s Preface ��xv Erika C Collins

Chapter 1 Argentina �� 1 Enrique M Stile

Chapter 2 Austria �� 13 Jakob Widner

Chapter 3 Belgium �� 32 Chris Van Olmen

Chapter 4 Brazil �� 50 Luís Antônio Ferraz Mendes and Maurício Fróes Guidi

Chapter 5 Canada �� 60 Jeffrey E Goodman and Christopher D Pigott

Chapter 6 China �� 73 K Lesli Ligorner

Chapter 7 costa rica �� 89 Carolina Soto Monge

Chapter 8 Cyprus �� 99 George Z Georgiou, Anna Praxitelous and Natasa Aplikiotou

Chapter 9 Czech Republic �� 113 Michal Smejkal

ix Contents

Chapter 10 Denmark �� 125 Marianne Granhøj and Tommy Angermair

Chapter 11 El Salvador �� 138 Diego Martín-Menjívar

Chapter 12 Finland �� 152 Petteri Uoti

Chapter 13 France �� 162 Jérémie Gicquel

Chapter 14 Germany �� 179 Thomas Griebe and Jan-Ove Becker

Chapter 15 Greece �� 199 Effie Mitsopoulou, Nicholas Maheriotis, Ioanna Kyriazi and Ioanna Argyraki

Chapter 16 Hong Kong �� 220 Michael J Downey

Chapter 17 HUNGAry �� 236 Dániel Gera and Nelly Prokec

Chapter 18 India �� 251 Manishi Pathak and Sehba Kanwal

Chapter 19 Indonesia �� 266 Nafis Adwani

Chapter 20 Ireland �� 280 John Dunne

Chapter 21 Israel �� 296 Mor Limanovich and Tal Keret

Contents

Chapter 22 Italy �� 307 Raffaella Betti Berutto and Filippo Pucci

Chapter 23 Japan �� 319 Setsuko Ueno, Yuko Ohba and Hiroyuki Takahashi

Chapter 24 Korea �� 334 Young-Seok Ki and John Kim

Chapter 25 Latvia �� 345 Sigita Kravale

Chapter 26 Luxembourg �� 360 Guy Castegnaro, Ariane Claverie, Alexandra Castegnaro, Céline Defay, Nadège Arcanger and Christophe Domingos

Chapter 27 Malaysia �� 378 Siva Kumar Kanagasabai, Selvamalar Alagaratnam, Sharmila Ravindran and Foo Siew Li

Chapter 28 Malta �� 396 Matthew Brincat and Julienne Portelli Demajo

Chapter 29 Mexico �� 412 Oscar de la Vega and Mónica Schiaffino

Chapter 30 Netherlands �� 425 Els de Wind and Aedzer Oreel

Chapter 31 New Zealand �� 444 Rob Towner and Tim Clarke

Chapter 32 Norway �� 457 Gro Forsdal Helvik

xi Contents

Chapter 33 Poland �� 469 Sławomir Paruch, Roch Pałubicki and Agnieszka Gałka

Chapter 34 Portugal �� 483 Inês Reis and Sofia Costa Lobo

Chapter 35 Romania �� 495 Monica Elena Preoţescu, Roxana Ionescu, Alexandru Lupu and Patricia-Sabina Măcelaru

Chapter 36 Russia �� 507 Irina Anyukhina

Chapter 37 Singapore �� 524 Daniel Lim and Min-tze Lean

Chapter 38 South Africa �� 536 Susan Stelzner, Stuart Harrison, Brian Patterson and Zahida Ebrahim

Chapter 39 Spain �� 554 Jacobo Martínez Pérez-Espinosa

Chapter 40 Sweden �� 567 Henric Diefke

Chapter 41 Switzerland �� 578 Ueli Sommer

Chapter 42 Taiwan �� 591 Seraphim Mar

Chapter 43 Turkey �� 603 Serbulent Baykan and Handan Bektas

xii Contents

Chapter 44 Ukraine �� 614 Svitlana Kheda

Chapter 45 United Arab Emirates �� 626 Ibrahim Elsadig

Chapter 46 United Kingdom �� 636 Linda Farrell and Charlotte Halfweeg

Chapter 47 United States �� 652 Patrick Shea and Mitch Mosvick

Chapter 48 Venezuela �� 665 José Manuel Ortega P

Appendix 1 About the Authors �� 681

Appendix 2 Contributing Law Firms’ contact details ��715

xiii Editor’s Preface

Erika C Collins

Over the past year we have witnessed both the beginnings of a recovery from and the continuing effects of the financial crisis that has dogged the world economy and characterised employment relations over the past several years. All signs indicate that these trends are likely to continue for the foreseeable future. The ‘Year in Review’ and ‘Outlook’ sections of nearly every chapter in this edition detail efforts by countries to address the continuing effects of the economic downturn. For example, in an apparent effort to increase competitiveness and stimulate business, and, in particular, to battle unemployment, a number of governments have made or are considering efforts to decrease financial burdens on businesses, including the costs of labour.I n New Zealand, for example, recent amendments to the Employment Relations Act, including with regard to trial periods, union access and the test for unjustified dismissal, were designed to provide employers with more flexibility in making hiring and firing decisions. Similarly, proposals to implement two new working shift regimes in Costa Rica are designed to provide employers with flexibility to compete in the global market. There is also a trend, however, of cash-strapped governments strengthening certain regulatory requirements and increasing enforcement of new and existing regulations in an effort to collect much-needed funds in the form of taxes or penalties for non-compliance. The new UK Bribery Act, which was passed in 2010 and comes into force in April 2011, and China’s increased scrutiny of secondment arrangements for corporate tax purposes are both excellent examples of this phenomenon. Similarly, a number of countries, including the Czech Republic, France and Ukraine, have passed, or are considering, pension reform in an effort to alleviate government budget concerns. We expect that many of the recent changes to employment regulations throughout the world, and those that will be encountered in the coming years, are or will be driven by similar motives. The Employment Law Review is meant to serve as a helpful guide during these somewhat unpredictable and alternatively difficult and exciting times. For example, an increase in merger and acquisition activity is expected as companies continue to rebound and experience increased liquidity. In anticipation of this, we have added to this edition

xv Editor’s Preface a section on the business transfer laws in each country as they relate to transfers of employees. This edition also boasts the addition of 12 new countries, bringing the number of covered jurisdictions to 48. As with the first edition, this book is not meant to provide a comprehensive treatise on the law of any of these countries but rather is intended to assist practitioners and human resources professionals in identifying the issues and determining what might land their client or company in hot water. This will be particularly important as companies continue to grow their global footprint, including through merger and acquisition activity, and find themselves in new jurisdictions with unfamiliar laws. The second edition of The Employment Law Review has once again been the product of excellent collaboration, and I wish to thank our publisher and all of our contributors, as well as Michelle Gyves, an associate in the international employment law practice group at Paul Hastings, for their tireless efforts to bring this book to fruition.

Erika C Collins Paul Hastings LLP New York March 2011

xvi Chapter 9

Czech Republic

Michal Smejkal *

I INTRODUCTION

Employment law in the Czech Republic is formed by a number of separate acts and its general aim is to ensure the fair regulation of employment relationships. i Constitutional framework The principles and fundamental rights connected to employment and employment law are incorporated into the Declaration of Basic Rights and Freedoms, which forms part of the Czech constitutional order. ii Substantive employment regulation Substantive employment regulation is contained in the Labour Code, which forms the basis of the employment law framework in the Czech Republic. It covers all legal issues in labour relationships between employers and employees. Except for the basic Labour Code, there are several other acts covering employment law issues, such as Act No. 2/1991 on collective negotiations and Act No. 309/2006 on safe working conditions and protection of health at work. Furthermore, employment law is considered to be part of private law and is, therefore, connected to the Civil Code.

* Michal Smejkal is an attorney-at-law at Giese & Partner, v.o.s. 1 labour Code No. 262/2006, entered into force on 1 January 2007. Act No. 40/1964.

113 Czech Republic iii Court procedure in labour disputes Individual labour disputes are resolved by the Czech general courts according to the Civil Procedure Code. The Czech jurisdiction is organised into a two-instance system with the possibility of appellate review at the Supreme Court. Courts of first instance are, in principle, the district courts; the courts of appeal are then the regional courts. An employment law case is reviewed by a three-member senate composed of one professional judge and two lay judges in the first instance and three professional judges on appeal.I n other civil law cases, the first instance is heard by only one judge. iv Government agencies Government supervision over employment law is divided between the Ministry of Labour and Social Affairs as a central agency, the State Labour Inspectorate Office and Labour Inspectorates, the Labour Offices and the Office for Personal Data Protection.

II YEAR IN REVIEW

Czech employment law is generally covered by the Labour Code. The formerL abour Code No. 65/1965 was extensively changed in 2006 in order to introduce more flexibility into labour relations. Since then, there have been several smaller amendments to the current Labour Code. The general tendency of today’s Czech employment law framework is towards having a broad code covering as many legal issues as possible. Developments in employment law during 2010 were still influenced by the world economic downturn. Some of the crucial amendments to employment law as well as to social security law, which is closely linked to employment law in the Czech legal system, were accordingly intended to support the state budget and to overcome the crisis. One of the major changes corresponding to the pension scheme transformation is a progressive lengthening of the required period of retirement income insurance and an increase in the retirement age to 65 years for men and from 62 to 65 years for women (the age depends on the number of children the woman has raised). Another significant amendment was the deletion of the provision that limited the employment of retired employees to a one-year determined period. At present, the regulations regarding pensioners’ employment are equal to normal employment (ie, the pensioner can have a fixed-term contract for two years at most or an employment contract for an indefinite period).

III SIGNIFICANT CASES

The Czech legal system is based on civil law. Case law is much less significant in the creation of Czech law. The judgments of general or administrative courts are binding only for the resolved case. However, the Constitutional Court is considered to be a ‘negative legislator’ (ie, it can partly or entirely nullify acts). One of the most important

Act No. 99/1963.

114 Czech Republic cases is a recent judgment of the Constitutional Court of 12 March 2008. The judgment derogated controversial provisions of the Labour Code. Above all, the Constitutional Court ruled on the mandatory character of the Labour Code, its relation to the Civil Code and the rights of trade unions. First, the general provision of Section 2/1 of the Labour Code which provides that ‘everyone is allowed to act freely, as long as this activity is not illegal’ had applicational problems. It was a new concept of liberty of contract that was introduced into the Labour Code. The Constitutional Court described this provision as too liberal and stated that the Czech Labour Code has always been based on a great number of mandatory rules. However, the mandatory rules actually denied the newly introduced liberty of contract. Based on these facts, the Constitutional Court limited the principle of liberty of contract by respecting the mandatory rules of the Labour Code and by respecting special EU law. The Constitutional Court also influenced the relation of the Labour Code to the Civil Code. Only special provisions of the Labour Code allowed application of the Civil Code. The ruling of the Constitutional Court derogated this principle and brought back a relationship between employment law and civil law as lex specialis–lex generalis. The Constitutional Court also ruled on old-age pensions. It derogated a special principle for the calculation of pensions that disadvantaged persons with higher incomes. This principle will be substituted with a new principle by the end of September 2011. As a result, those people who have contributed more money to the state pension system during their active life will be favoured.

IV BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP i Employment relationship The Labour Code permits two ways of entering an employment relationship. An employment relationship can be based on an employment contract between the employer and the employee, unless the Labour Code provides otherwise. Where another act or statutes require that a certain vacancy is to be filled on the basis of an election by the competent body, the election is regarded as a precondition that precedes the conclusion of the relevant employment contract. Therefore, the employment contract is required. The employment contract is, however, not required in written form by law so an employee need not sign it. In the vast majority of cases the parties to an employment relationship sign a written employment contract. An employment relationship can also be based on appointment. As this is a unilateral legal act, no employment contract must be agreed on or signed. There are three terms that every employment contract must include: the type of work that the employee will perform; the place or places of work where the employee will perform the work; and the date on which the employee will start working. All other terms in the employment contract are facultative (i.e., they are not required by Czech law for the validity of the employment contract and may be agreed based on the mutual will of both contractual parties). An employment contract may be concluded for a defined period of up to two years, or for an indefinite period.

115 Czech Republic

Parties may execute an employment contract at any time before the formation of the employment relationship itself. However, the employment relationship commences on the day that has been agreed on in the employment contract as the day of taking up employment or on the day stated as the day of appointment in the case of the position of a government agency head. The terms of an employment contract may only be altered if an employer and the employee agree on their alteration. Changes could in theory be made orally; however, in practice this is not done in the Czech Republic as employer has an obligation to provide its employee with the employment contract in writing. If it does not fulfil this duty, the labour inspection may impose a fine on it. Aside from employment, the employer can also conclude ‘agreements on work performed outside an employment relationship’ with employees. There are two types of such agreements. The first is an agreement on work performance that is limited to 150 working hours in total per calendar year by the same employer. The advantage for an employer is that it is not necessary to pay social and health insurance. In an ‘agreement on working activity’, the second type, the scope of the working activity may not exceed one half of the stipulated working hours, namely, a maximum of 20 hours per week pursuant to the Labour Code. A certain portion of employees’ salaries will be paid by the employer into the social and health insurance scheme. Furthermore, the employer must also pay a contribution to the social and health insurance scheme for its employees. ii Probationary periods Probationary periods are allowed in Czech employment law, but are not obligatory. Where a probationary period has been agreed, such period may not be longer than three consecutive months after the day of the formation of the employment relationship. A probationary period may also be agreed in connection with the appointment of a government agency head. It must be in a written form and may not be subsequently extended. Either party can terminate an employment contract in writing during the probationary period without reason. Nevertheless, the employer cannot dismiss the employee within the first 14 days of the employee’s incapacity to work. The Labour Code recommends serving the notice of termination on the other party at least three days in advance. iii Establishing a presence There are many ways for foreigners to work or exercise a business activity in the Czech Republic. Under the Act on Employment, foreign legal entities and foreigners can be considered as an employer only if they are entitled to carry on business in the Czech Republic, that is, they have at least established a local branch of the legal entity. The entity can avoid registration by employing Czechs or foreigners in its own country and then sending them to the Czech Republic for a business trip; however, this may only be for a limited period. Another option for foreign entities is to assign their employees

116 Czech Republic to a Czech entity for no longer than 12 months. This period can be exceeded in certain circumstances. A company can hire employees temporarily through an employment agency that has obtained a licence issued by the Ministry of Labour and Social Affairs. Their relationship is not then based on employment but on a ‘lease agreement’ between the ‘user’ (employer) and the agency. The agency worker can be assigned to one employer for no longer than 12 months if not agreed otherwise. From the first day of the assignment the employer and the agency must ensure that agency workers have the same conditions as regular employees. It is possible for a foreign enterprise or a Czech enterprise to engage an independent contractor. This relationship, however, is not governed by employment law butby commercial law. The company is thus not obliged to fulfil the protective requirements of the Labour Code. It is also advantageous in terms of taxes and social security payments, which are then carried out only by the independent contractor. For these reasons the employment relationship is preferred by government agencies and an engagement with an independent contractor may not be used for the sake of ‘dependent work’, otherwise it could be considered ‘black work’ and the labour inspectorate could impose a penalty on the employer. A permanent establishment of a company can be created either through another legal entity or through an independent contractor. Their relationship is regulated by the Commercial Code. A permanent establishment is constituted for business negotiations and the conclusion of contracts by the agent for the principal in a particular area (this can apply to the whole territory of the Czech Republic). Usually the agent acts independently but he or she can also be bound by the principal’s instructions on the grounds of an agency agreement. There are two types of permanent establishment according tothe Commercial Code: non-exclusive and exclusive agency. Both must be in writing, otherwise they shall be void. The employer is responsible for deducting income tax, social security payments and health insurance from employee’s remuneration, so the employee receives only a net salary. At the present time, the income tax rate is 15 per cent of the ‘super-gross salary’ and is equal for all employees. The social security system distinguishes between the contribution paid by an employer and the portion deducted from an employee’s earnings. The existence of a business establishment of the service provider is an important factor for tax payment. It has to be considered case-by-case, though, in accordance with the provisions of the concrete agreement. The agreements contain general principles

Dependent work is exclusively personal performance of work by an employee for his employer within the relationship of the employer’s instructions, or according to the instructions given in the employer’s name for a wage, salary or other remuneration paid for work done within the working hours (or otherwise determined time) at the employer’s workplace, costs and liability (the Labour Code, Section 2 (4)). See www.prkpartners.cz/dokument.php?jazyk=CZ&dokument=1646 (JUDr. Erényi, T, LLM: Švarcsystém – pomoc i právní rizika, Personalistika a pracovní právo, March 2010).

117 Czech Republic according to which a service provider (natural person) pays taxes in his or her home state as long as he or she does not provide the service in the hosting state for longer than 183 days within the period of one year. If he or she provides services in a hosting state for longer than 183 days in one year, the tax will be paid in the hosting state. The Czech law on income tax declares that income tax should be paid in the Czech Republic as long as the service provider has its domicile or his or her usual residence in this territory (family relations and place of residence will be considered in the case of domicile, the 183-day principle in the case of usual residence).

V RESTRICTIVE COVENANTS

An employer may conclude an agreement with an employee under which an employee promises for a certain period of time, but not for longer than one year, to refrain from any activity that would be identical to his or her employer’s business activity or that would be of a competitive nature to the employer’s business activity. Part of the agreement is an obligation for the employer to provide adequate monetary compensation paid to the employee. This compensation must be at least the employee’s average monthly earnings for each month of the agreed obligation. There are, however, legal requirements for establishing a non-competition agreement. The agreement may only be concluded if: a it can be reasonably required from the employee with regard to the nature of the information, knowledge, operational and technological know-how acquired; b the employee has acquired the information, knowledge and know-how during his employment at the employer’s undertaking; c the utilisation of the above-mentioned information, etc., could damage the employer’s activity; and d where a probationary period was concluded, the agreement may only be concluded after the termination of the probationary period, otherwise the agreement shall be null and void.

The agreement may also include a contractual penalty that the employee must pay if he or she breaches his or her obligation.

VI WAGES i Working time Working hours are regulated by Section 79 and following of the Labour Code. Normal weekly working hours may not exceed 40 hours per week; employees who work underground or on the construction of mines or who are engaged in geological research may not exceed 37.5 hours per week; employees who are on a three-shift or continuous schedule of work may not exceed 37.5 hours per week; employees who are on a two-shift schedule of work may not exceed 38.5 hours per week. The minimum wage is stated in Section 111/2 of the Labour Code and is 8,000 kroner per month. Weekly working hours of less than 40 hours (or less than 37.5 or 38.5 hours) can be agreed.

118 Czech Republic

With regards to night work, Section 94 of the Labour Code states that the length of a shift of a night worker may not exceed eight hours within 24 consecutive hours. Where this is not feasible for operational reasons, the employer shall schedule normal weekly working hours in such a way that the average length of the shift does not exceed eight hours within a maximum period of 26 consecutive weeks. The calculation of a night worker’s average shift length shall be based on a five-day working week. There are also obligations of the employer as to the examination of the employee by a medical doctor. ii Overtime Only under exceptional circumstances may an employer require its employees to work overtime; alternatively, it can agree overtime with them. In both cases, it must grant employees a premium or time off corresponding to the duration of the overtime as compensation and the overtime must not exceed an average of eight hours per week within a maximum period of 26 consecutive weeks (this settlement period can be extended to 52 weeks by collective agreement). If the employee is ordered to work overtime by the employer, the maximum overtime shall not exceed 150 hours per calendar year. Time off granted is not included in the overtime in the yearly threshold. Overtime exceeding 150 hours per calendar year can be carried out by an employee only if there is a mutual agreement of the employer and employee on the overtime. Overtime remuneration shall correspond to at least 25 per cent of the employee’s average earnings, unless the employer and the employee have agreed on compensatory release from work instead.

VII FOREIGN WORKERS

An EU, EEA or Swiss citizen may be employed without a work or residence permit on the basis of free movement of persons. The Czech employer must notify theL abour Office of the presence of the foreign workers or posted workers on the first day of their actual work, at the latest. A foreigner (non-EU, EEA or Swiss citizen) may be employed in the Czech Republic, provided that he or she has a valid residence permit and valid permission to work. The labour relations will be governed by theL abour Code or by the rules of private international law. The employer is obliged to notify the Labour Office about a position and its characteristics. A Czech employer may then employ a foreign worker if he or she has a valid work permit from the Labour Office for a given period, visa, long- or short-term residence permit and an employment contract concluded in writing or an agreement on work performance or an agreement on work activity. The employee must be offered the same working and wage conditions as a Czech citizen. The employer must fulfil various notification obligations. He or she must notify the Labour Office about employing the foreign worker within 10 days. A foreign worker may also be posted to the Czech Republic. The posting of workers (EU, EEA or Swiss citizens) is mostly governed by Directive 96/71/EC on the posting of workers in the EU. According to Czech law, the posted worker has to have

119 Czech Republic an employment contract with his foreign employer and a work contract (or any other suitable contract) concluded with the Czech employer. Before concluding a work contract (or any other contract), the Czech employer must notify the relevant Labour Office about the number, profession and length of stay of the posted workers. A special form is provided for this notification. The employer is then obliged to respect Czech mandatory rules, such as minimum wage, standard working hours, holiday and safety at work. The posted worker must register at the relevant tax office if his or her stay and work in the Czech Republic exceeds 183 days.

VIII GLOBAL POLICIES

Czech employment law does not require any internal disciplinary codes, although many organisations have some rules governing what behaviour is unacceptable in the workplace and the consequences of breaking the rules. Therefore, the only requirement is that such rules comply with Czech legal order. TheL abour Code, however, provides for the regulation of internal rules and work rules. Internal rules can be unilaterally adopted by any employer and the employer can set out, for example, remuneration rules and details of other rights granted to employees by the Labour Code. There is no obligation for the employer to consult trade unions; however, if a collective agreement has been adopted, the internal rules must comply with the relevant collective agreement. Work rules are considered a special type of internal rules and their aim is to detail statutory provisions regarding specific conditions at a certain employer’s business. Where trade unions are active, the employer can issue or modify the work rules only with the prior written consent of the trade union organisation, otherwise the issuance or modification shall be void. None of the above-mentioned rules have to be approved by government authorities (except for the work rules for public schools, where the relevant ministries issue regulations) and a notification to the employees at least 15 days prior to their issuance or amendment is sufficient. The rules can be notified in any way, for example via a company intranet site. It is recommended to issue them in Czech (providing them to government agencies if necessary). The rules can also be incorporated into the employment contract but it is advisable not to do so, because modification of the contract can be done only mutually.

IX EMPLOYEE REPRESENTATION

The main purpose of regulations governing employee representation is to ensure the right of employees to information and consultation. Employees are permitted (but not obligated) to form trade unions, works councils or to elect a representative (or representatives) concerned with occupational health and safety protection. Employees of European Union-scale undertakings have the right to create European works councils for access to transnational information. If there is no employees’ representation, the employer must inform individual employees directly.

120 Czech Republic i Trade unions The right of employees to associate and to protect their economic and social interests is contained in the Declaration of Basic Rights and Freedoms. It is prohibited to limit the number of trade union organisations. Trade union organisations are the entities with the greatest number of rights. They are the only ones with legal capacity. Trade unions are entitled to conclude collective agreements and to control, co-determine and participate in decisions of the employer. Furthermore, trade unions approve the vacations schedules. Trade unions must be consulted in the case of working hours scheduling, overtime measures, the remuneration system, dismissal or immediate termination of an employment relationship by employer, etc. Trade unions also represent those employees who are not members of the organisation. Trade union members enjoy enhanced protection in the case of dismissal. During the member’s term of office or for the period of one year afterwards, the employer shall ask the trade unions for its prior consent for the notice of termination or immediate termination. If the trade union organisation refuses to give its consent, the employer can appeal to a court. ii Works councils and representatives concerned with occupational health and safety protection Employees can also elect works councils or representatives concerned with occupational health and safety protection within the undertaking. Works councils may have from three to 15 members; one representative may be appointed per no more than 10 employees. The term of office in both cases shall be three years. The election of members of works councils and representatives concerned with occupational health and safety protection shall be announced by the employer on the basis of a written proposal signed by at least one-third of the employees, organised by an election committee.

X DATA PROTECTION

The area of data protection is governed by the Data Protection Act which has already incorporated the relevant EU regulation. i Requirements for registration The majority of employers are exempt from the duty to register with the Officefor Personal Data Protection because the Act does not require registration in the case of data processing required by law, inter alia, employment or accounting data processing. When registration of an employer is required, notification to the Office must contain general information such as identification of the data administrator, the purpose of the

No. 101/2000.

121 Czech Republic processing, categories of persons and categories of personal data to be processed, and the description of the process. The Data Protection Act requires the consent of the person who is subject to the personal data with exceptions stated in Section 5(2), such as personal data processing necessary for the fulfilment of the administrator’s duties or for the fulfilment of a contract where the person is a contracting party. The employee is always entitled to be notified of any personal data processing, the method, extent and purpose of the processing and data transfers. All administrators are obliged to ensure data protection. Therefore, the administrator must take measures to avoid any unauthorised or accidental access to personal data, change, damage, or loss of data, and unauthorised transfers. ii Cross-border data transfers Within the European Union the free transfer of personal data in accordance with EU regulation cannot be limited. The same is applied within third countries where an international treaty is binding for the Czech Republic, namely, states where the transfer is done in accordance with an EU authority decision. In other cases of cross-border data transfers, the company must obtain a permit from the Office for Personal Data Protection. The conditions for obtaining the permit are the consent of the person being subject to the personal data, sufficient guarantees of data protection, necessity for contract fulfilment, or others. Pursuant to the Safe Harbor system contained in the European Commission Decision of July 2000 and Directive No. 95/46/EC, no permit is needed for transfers to entities registered in this system as they are considered as an exception to a general duty to obtain the respective permit. Disclosure of information to a third party is allowed under the same conditions as other data processing. Special statements on onward transfers are provided in the Commission Decision mentioned supra. iii Sensitive data According to the Data Protection Act, sensitive data includes information on nationality, race or ethnic origin, political opinions, trade union membership, religion, sexual life, criminal records and medical information. A social security number is considered to be personal but not sensitive data. The explicit consent of the person whose sensitive data will be used is required except for the situations provided for in Section 9 of the Data Protection Act. The administrator is obliged to inform the person whether such data providing is obligatory or not and about other measures related to sensitive data processing. iv Background checks Czech law does not prohibit background checks, credit checks or criminal records to be requested from employees, although credit checks are not very common. However, the

The Data Protection Act, No. 101/2000, Section 27, sub-section (3).

122 Czech Republic

Labour Code provides for a general protection of the employee’s privacy which allows an employer to ask only for information related to the work to be performed. Employers are not permitted to demand information on pregnancy, family and property situation or criminal records unless there is a reason for such request relating to the nature of the work, etc. Furthermore, it is not permitted to require information on sexual orientation, origin, trade union organisation or political party membership, religion or beliefs. Without a serious cause the employer shall also refrain from monitoring employees, intercepting their phone calls and checking their mail, including e-mail. However, a phone and e-mail usage policy often exists.

XI DISCONTINUING EMPLOYMENT i Dismissal An employee must not be dismissed without cause. The Labour Code explicitly sets forth proper grounds for dismissal of the employee. The notice must be in writing and served to the other party, or it is void. Pay in lieu of notice as such is not permissible; however, there are other similar possibilities. For example, an employer can agree with the employee to terminate the employment relationship based on a mutual agreement, and agree on any termination date and any redundancy payment, or the employer can order an employee to stay at home until the termination of the employment relationship based on a termination notice given to that employee. The employer is prohibited to give notice to its employees during a protection period (for example, while the employee is temporarily recognised as unfit for work or while a female employee is pregnant or on maternity leave). If the employment relationship is terminated upon the closing of the employer’s undertaking, its relocation, redundancy of the employee or a serious threat to the employee’s health, the employee is entitled to receive severance pay of at least three times his average monthly earnings. The employer shall consult with the trade union organisation in advance regarding termination, provided that there is a trade union organisation within the employer. The parties can enter into an agreement on employment termination at any time and the employment relationship will end on the agreed day. ii Redundancies Redundancy is one of the statutory reasons for notice of termination by the employer; therefore no special rules are applied if an employee is redundant compared to other statutory reasons. In contrast, a collective dismissal is covered by a special regulation. Before giving notice, the employer shall report the collective dismissal to the trade union organisations or works council 30 days in advance, at the latest. At the same time, the employer shall inform the competent Labour Office of the planned measures. The other duty imposed on the employer is the serving of a report concerning the final decision about a collective dismissal and the results of negotiation with the employees’ representatives from the competent Labour Office.

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XII TRANSFER OF BUSINESS

The Labour Code provides for the protection of employees in the event of a business transfer, in accordance with European Union legislation. If there is a business transfer, the rights and obligation arising from the labour relationship concerning the employees of such business shall be transferred to the transferee. The business transfer agreement must be in writing. All rights and obligations are transferred with the business. No consent of the creditors is required. However, the transferor is liable to them for the fulfilment of their claims by transferee.

XIII OUTLOOK

A proposal for the amendment of the Labour Code is being introduced and discussed. It introduces more flexibility and simplification with respect to the starting and terminating of employment contracts. The proposal should enter the legislative process and be approved by Parliament during the first quarter of 2012. Some of the most important amendments are: a limiting severance pay when terminating the employment contract. Currently an employee is entitled to receive three months’ severance pay if his or her employment contract was terminated by law; according to the proposal, an employee can only claim severance payment after he or she has worked for the employer for more than two years; b an employment contract for a limited period of time is currently extended automatically after two years. That will change. A ‘chain prolongation’ is being introduced into Czech employment law; and c the agreement on work performance (see Section IV, sub-section (i), supra) is currently limited to 150 working hours per year. This will be extended to 300 hours per year.

124 About the Authors

Michal Smejkal Giese & Partner, v.o.s. Mgr. Michal Smejkal, LLM, studied at the School of Law at Masaryk University in Brno. During his studies he took part in a one-year programme at Aarhus University in Denmark, where he took classes in international and European law. After graduation from Masaryk University in 2004 he enrolled in a one-year masters programme in European Law at Groningen University in the Netherlands. Mgr. Smejkal joined Giese & Partner in August 2005. In 2008 he had an internship at a major German bank in Munich. His work focuses especially on labour law (including advice to several large Czech companies related to HR restructuring as well as providing ongoing advice in the field of labour law), mergers and acquisitions (for example, the €200 million acquisition of a Czech enterprise by a large US company), corporate restructuring (for example, a large international transaction concerning the €250 million restructuring of several Czech enterprises on behalf of a major German bank), as well as creating strategic partnerships between European and US firms with European subsidiaries and regional manufacturers.

Giese & Partner, v.o.s. Ovocný trh 1096/8 Prague 1 Postal Code 11719 Czech Republic Tel: +420 221 411 511 Fax: +420 222 244 469 [email protected] www.giese.cz