The key practical issues in workforce restructuring include:
- Legal justification
- Works council and employee representatives’ process
- Labor administration process
- Costs and timing
- Litigation risk
Collective redundancies are governed by Sec. 62 to 64 of the Czech Act No. 262/2006 Collection of promulgated statutory acts, Labor Code, as amended (Labor Code).
Collective redundancy provisions are triggered when a certain number of employees are dismissed due to organizational grounds within a period of 30 days as follows:
- At least 10 employees in companies with 20-100 employees
- At least 10% of total employees in companies with 101-300 employees
- At least 30 employees in companies with more than 300 employees
Further, the legal threshold is deemed to be met if at least five employees are terminated by a notice of termination and the remaining employees within the threshold are terminated by an agreement due to organizational grounds.
Required legal justification
Generally, under Czech law, the employer must provide legally justified reasons for any dismissal (due to unilateral termination of employment by the employer).
In a collective redundancy, the employment relationships could be terminated for organizational grounds. These grounds are listed by Sec. 52 (a)-(c) of the Act No. 262/2006 Coll., Labor Code, as amended (Labor Code) and include the instances in which the company or a part thereof is:
- Shut down
- Otherwise reorganized or restructured (especially in the case of employee redundancy)
An employee becomes redundant if the employer decided to change the tasks, plant or equipment; reduce the headcount for the purpose of increasing work efficiency; or is unable to assign tasks to an impacted employee in accordance with his or her employment contract due to organizational changes introduced by the employer.
The employer is not obliged to give any other special reasons for a collective redundancy; only the general rules for termination due to organizational changes apply.
Works council/unions or other employee consultation requirements
Consultation requirements with works council/unions
Before initiating the collective redundancy process, the employer is obliged to notify (in writing) the trade union and the works council and consult with them on the proposed measures.
If there is no trade union or works council, the employer is obligated to inform and consult individually each employee impacted by the collective redundancy.
The information to be notified must include:
- The reasons for the collective redundancy
- The number and professional roles of all the company’s employees
- The number and professional roles of the employees to be made redundant
- The period in which the collective redundancy shall take place
- The criteria proposed for selecting employees to be made redundant
- Severance pay and eventually other rights of the employees being made redundant
The employer must provide the aforementioned information in writing to the employee representatives (trade union or works council members representing the employees) or, if there are not such representatives, directly to the impacted employees, at least 30 days before serving notices of termination to individual employees. Simultaneously, the consultation process must be initiated; however, reaching an agreement is not a condition for proceeding with the collective redundancy.
Consultations must be carried out regarding the measures to avoid the redundancies and mitigate their adverse effects for employees, especially the possibility of their placement in suitable jobs within the same legal entity. During the consultation period, the employee representatives are entitled to submit their standpoint concerning proposed measures. The employer must take employee representatives’ standpoint into consideration and should accept any proposed countermeasures. If this is not possible, the employer is obligated to provide the employee representatives a justified reason for dismissals. If employee representatives or impacted employees request additional information or an explanation, the employer is obligated to provide it. Further, the employee representatives or impacted employees are entitled to request a personal meeting with the employer.
Consultation requirements with other employee representatives
No other specific consultation requirements exist with other employee representatives with regard to collective redundancy.
However, in case of any intended changes in occupational safety and health measures, the employer must also consult the representatives for occupational safety and health measures apart from trade union, works council members representing the employees or impacted employees.
Consultation requirements with employees
The employer is required to inform and consult individually each employee impacted by the collective redundancy if there is no trade union or works council representation. For more information on information and consultation requirements see “Consultation requirements with works council/unions.”
If the employee is made redundant due to organizational change, the respective decision on organizational change must be communicated to the impacted employees at the latest at the time of delivery of the written notice of termination of employment relationship.
Approval/notification of the labor authorities or other government authorities
The approval of the labor authorities or other government authorities is not required to implement the collective redundancy; however, the employer is obligated to inform the regional branch of the labor office (according to the employer’s place of activities) of its intent to initiate collective redundancy process by submitting an “initial report” in writing. The employer must send the initial report to the labor office within 30 days before serving notices of termination to individual employees.
The initial report must include the following:
- Information provided to the employee representatives/employees
- Reasons for the proposed measures
- Selection criteria
- Numbers and structure of the employees to be impacted by the measures
- Information on commencement of the consultation process
- Total number of employees in the company
- Proposed time period of implementation
After the consultation process is over, the employer is obliged to submit the “final report” (in written form — within 30 days of delivering the “initial report”) to the regional branch of the labor office summarizing its decision on the proposed collective redundancy and the outcome of the consultation process. Delivery of the final report to the regional labor office is required before the termination of employment relationship. Should the employer fail to deliver the final report to the labor office, the employment relationship of redundant employees will continue to exist and the notice period will be automatically prolonged, unless the employees expressly announce to the employer that they do not insist on prolongation of notice period. The notice period will not expire earlier than 30 days after the delivery of the final report.
The final report must include the following information:
- Total number of employees in the company
- Numbers and structure of the employees impacted by the proposed measures
- Results of consultation process with trade union/works council
The employer must also provide a copy of the initial report and the final report submitted to the regional branch of the labor office to the employee representatives/employees since they have a right to deliver their standpoint on the final report to the labor office.
The employer is obligated to deregister the terminated employees from the sickness and pension insurance from the district social security administration within eight days after the termination of employment relationship. Further, the employer is also obligated to notify the termination of employment relationship to each employee’s health insurance company within eight days after the termination of employment relationship.
Employee selection criteria
It is repeatedly confirmed by the Czech Supreme Court in various cases that “no legally driven selection process applies”. In case of a redundancy, the employer is free to choose which employees should be made redundant at its own discretion; however, there are two statutory restrictions for the employer when selecting the redundant employees:
- The choice must not be made on discriminatory reasons.
- A member of a body of a trade union established at the employer can only be dismissed with the consent of the trade union. This applies to employees who are members of a body of a trade union established at the employer during the member’s term of office or for a period of one year after the termination of the office.
It is prohibited to give notice of termination to an employee due to redundancy during any of the following “protective periods,” namely:
- Temporary unfitness for work
- Pregnancy, maternity leave or parental leave
- Participation in military exercises or extraordinary military services
- Full release to exercise a public office
- Unfitness for night work for a night worker
If the employer serves notice of termination on an employee prior to the start of a protective period and the notice period should expire within the protective period (i.e., if the last day of the notice period falls within the protective period), the employment terminates only after the lapse of the unused part of the notice period after the end of the protective period.
There is no protection against termination of employment due to redundancy by an agreement with the employee.
Actions required to limit the negative impact and social plan
The Czech Act No. 262/2006 Coll., Labor Code, as amended (Labor Code) only stipulates a consultation obligation regarding the measures to avoid the redundancies and the possibilities of placement of employees in suitable jobs within the same legal entity.
Internal alternative employment/redeployment
There is no specific obligation to search for an alternative employment. The Labor Code only stipulates a consultation obligation regarding the possibilities of placement of employees in suitable jobs at other workplaces of the employer.
Currently, there is no specific obligation to adopt a social plan or adopt other such measure. An amendment to the Labor Code is currently being debated that would introduce social plans into Czech law.
Preparation of any specific documentation required for the information and consultation process and for the contemplated negotiation with unions takes approximately two weeks.
The time required to fully implement collective redundancy is approximately four months. The legal time frame for the consultation process must start at the latest 30 days before service of notices of termination. Thereafter, the two-month notice period (unless longer) commences as of the first day of the calendar month after the notices have been delivered. The employment relationships terminate upon the lapse of the notice period, i.e., normally at the end of a calendar month. However, the notice period in case of redundancy is prolonged when the employee is sick or under other protective period.
The key components of mandatory HR legal costs are as follows:
- Notice period or compensation in lieu of salary if the employee is released from work during the notice period
- Severance pay — legal minimum is one to three average monthly earnings of the dismissed employee, depending on seniority
Customary additional costs
Usually, several months (one to three months) of additional severance pay are offered to employees in exchange for concluding agreements on termination instead of being given notices of termination. If the employer intends to terminate employment relationship of numerous employees and it is likely that the employer meets the legal threshold of the collective redundancy, the employer may avoid the collective redundancy by concluding the termination agreements instead of serving numerous termination notices. For example, if the employer serves four termination notices and concludes termination agreements for the rest, then the threshold of collective redundancy will not be met and the employer will not be obligated to meet the statutory requirements of collective redundancy.
Hiring restrictions post-redundancy
The employer must not hire any new employees for the position that has been rendered redundant by the decision of the employer on organizational changes for a certain period of time (a short period before or after the effectiveness of the organizational change); otherwise there is a risk that the employee made redundant might challenge the validity of termination notice due to absence of causal link between the adopted organizational change and the redundancy of the employee.
No specific freeze period is stipulated by Czech law or by any case law of the Czech Supreme Court.
If the employee is successful with his or her claim on determination of invalidity of notice of termination and the court rules on invalidity of notice of termination given to the original employee due to his or her redundancy while the employer subsequently hired a new employee for the same position that was rendered redundant, the employment relationship of the original employee shall continue to exist. Moreover, as a result of such a court ruling, the new employee will not become redundant and his or her employment relationship will continue as well.
The following interested parties can bring lawsuits related to the redundancy process:
- Trade unions or works council: can claim for noncompliance of mandatory information and consultation process. Czech law does not expressly provide any statute of limitation.
- Impacted employees: can claim invalidity of termination of their employment before a competent court. The most common ground for such claim is the absence of any legally justified “organizational change.” The action must be filed within two months from the day when the employment relationship ought to have terminated.
Litigation cannot stop or slow down the collective redundancy process.
Damages and other remedies
Breach of the employer’s obligation to inform and consult with employee representatives (not with individual employees) can be considered as an administrative offense — a fine of up to CZK200,000 may be imposed.
Breach of the employer’s obligation when terminating an employment relationship shall be considered as an administrative offense — a fine of up to CZK2 million may be imposed.
Reinstatement and compensation
If the employer’s final report is not delivered to the labor office or in case of invalidity of termination, the employment relationships shall be considered as continuing even after service of termination notice. Hence, employees may file a claim for continuation of employment before a competent court if no work is assigned.
If the court decides on continuation of employment, the employee is reinstated and the employer is obliged to pay compensation of salary to the employee for the period of the dispute. Where a total period for which the employee should be entitled to compensatory salary exceeds six months, based on a motion filed by his or her employer, the court may adequately reduce the employer’s obligation to pay compensatory salary to the employee for a period in excess of six months. In considering the matter, the court shall take particularly into account whether the employee was employed elsewhere during that time period, the type of work he or she performed, the amount of his or her earnings, or the reason for which he or she did not work.
Criminal liability may arise if the employer circumvents the resolution of the labor authority imposing fine and its obligation to comply with the consultation process.
There are no other issues specific to Czech Republic.
Primary Contact for Czech Republic Labor and Employment Law
Weinhold Legal, v.o.s. advokátní kancelář