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Parallel execution of the positions (statutory body and managing employee) in the Czech republic

Parallel execution of the positions (statutory body and managing employee) in the Czech republic

Due to the ambiguous legal regulations, the Czech courts had to often evaluate the question whether a member of a statutory body (an executive or a member of the board of directors) of one company, can be also employed by the same company for e.g. in a position of a managing, executive or financial director.

The former jurisprudence opted for the non-possibility of the parallel execution of the two positions based on the reasoning that the scope of the working activities under the employment contract included the business management of the company, respectively that it was the same as the activities carried out by the statutory body of the company. The member of the board of directors therefore could not be at the same time employed as the general manager of the same company.

Despite of the above described court decisions, the parallel execution of the two positions (statutory body and managing employee) remained a common phenomenon, also for a reason that the employment relations provided far more legal certainty for the respective individuals. The companies had no desire to change their relations with the members of their statutory bodies / employees, particularly as the risk of any civil legal dispute was marginal.

Supreme Administrative Court´s decision
The decision of the Supreme Administrative Court from 2010 became decisive for this matter. The Supreme Administrative Court was exploring a question whether an executive, who was at the same time employed by the company and received salary for his employment, was also participating in the sick-leave insurance system. The Court unified its findings with the standing of the Czech authorities for social insurance system (ČSSZ) and ruled that due to the ban on the parallel execution of the two positions (statutory body and managing employee), the employment contract was invalid, therefore there was no employment relation and no participation of the individual in the sick-leave insurance system.

The above decision brought a massive reaction and criticism. Thousands of companies were afraid that their employees/members of the statutory bodies, will not been considered as participating in the sick-leave and/or social insurance system and also that any salary deductions made in this respect will not be considered as tax deductible items and an additional income tax will be imposed.
The decision of the Supreme Administrative Court showed the urgent need for novelization of the existing legislation, which would determine the terms and conditions under which the parallel execution of the two positions would be allowed.

Novelization of the Commercial Code
As of 1 January 2012 a new Section 66d had been implemented into the Commercial Code, stating that the members of the statutory body of a company may also exercise activities that fall within the scope of a business management of the company, under an employment contract. It is so called delegation of business management, where a statutory body – e.g. the board of directors – fully or partially delegates its authorisations to the business management of the company to a member of the board of directors, who will do so in an employment relation with the company.

During the delegation of the business management of the company the liability of the statutory body / its members to procure the office with a due care of a diligent business person remains unchanged. Salary or other remuneration is approved and determined by the general meeting of the company (or other body that is authorised to decide on such matters). The new Section 66d of the Commercial Code also explicitly defines which authorisations of the statutory body cannot be delegated.
Although the new legal regulation is far from perfect and includes number of discrepancies and ambiguous formulations, it, at least, managed to eliminate the uncertainty concerning the possible parallel execution of the position of a statutory body and an employee in the same company.

Finally it should be noted that the competent authorities declared “indemnity” for the period prior to 1 January 2012, i.e. that they will not assign any negative consequences to the parallel execution of the two positions prior to that day, neither for companies nor for any individuals.

Michaela Fuchsova

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