In its judgment of 13 September 2016 in case no. I. ÚS 190/15, the Constitutional Court dealt with the question of whether it was possible to perform the duties of a member of a statutory body in an employment relationship. This question is not addressed by new legislation, namely Act No. 89/2012 Coll., the Civil Code (hereinafter “NCC“) and Act No. 90/2012 Coll., on business corporations (hereinafter “ABC“).
This legal question, however, was also problematic under previous legislation.
1. Judicial practice to date
According to the case law of the Supreme Court of the Czech Republic effective until 2012, the performance of the duties of an executive director on the basis of an employment contract was not permissible and employment contracts for the performance of the duties of an executive director were deemed invalid (e.g. Supreme Court decision of 17 November 1998 in case no. 21 Cdo 11/98).
The situation was resolved from 1 January 2012 by inserting Section 66d in the now repealed Commercial Code, which allowed the performance of the duties of executive directors under an employment contract.
Yet, neither the NCC nor ABC contains any provision corresponding to Section 66d of the repealed Commercial Code. For this reason, the courts concluded that the performance of the duties of executive directors under an employment contract was not possible again with effect from 1 January 2014, with reference to previous case law (see e.g. Supreme Court decision of 14 November 2013 in case no. 21 Cdo 3250/2012). The Czech Ministry of Justice reached the same conclusion in its opinion published on the server, portal.justice.cz
2. Concurrent performance of the duties of a member of a statutory body and employment
The essence of the issue is the legal question of whether the subject of an employment obligation could “copy” the fulfilment of obligations belonging to the statutory body by law.
In business corporations such an obligation principally refers to business management. As implied by Section 195 (2) and Section 435 (3) of Act No. 90/2012 Coll., on business corporations and cooperatives (hereinafter “ABC“), no one may to issue instructions to a statutory body.
The defining element of the employment relationship is primarily the performance of dependent (salaried) work, which is, among other things, characterised as the fulfilment of work tasks in relation to the employee’s subordination to the employer, based on the employer’s instructions, as implied by Section 2 of Act No. 262/2006 Coll., the Labour Code. Mandatory provisions governing the obligation of elected bodies to act with due and reasonable care and accountability are always used and as such do not correspond to the position of an employee in an employment relationship.
For these reasons, earlier case law and the current position of the Ministry of Justice reject the performance of the duties of a statutory body on the basis of an employment contract or work agreement.
3. Judgement of the Constitutional Court
However, in its recent judgment of 13 September 2016 in case no. I. ÚS 190/15, the Constitutional Court concluded that the ban on the performance of the duties of a statutory body on the basis of an employment contract was not based on law, but formed by case law, and therefore it was essential that this ban be adequately and convincingly justified.
According to the Constitutional Court, previous justifications for the decisions of the general courts were not sufficiently convincing and, as such, are unconstitutional.
The Constitutional Court concluded that the fact that all legal relationships involving the performance of dependent work must conform to the Labour Code, does not mean that other relationships not involving the performance of dependent work cannot conform to the Code.
According to the Constitutional Court, the principle of autonomous will, according to which anyone can do what is not forbidden by law, is one of the most important principles of the rule of law and its limitation is only possible for serious reasons. Existing case law, however, cites no such reasons, therefore, the ban on the performance of the duties of executive directors on the basis of an employment contract inferred in case law is unconstitutional.
4. Conclusion
The judgement of the Constitutional Court represents a major breakthrough in judicial practice to date, according to which the performance of the duties of a statutory body on the basis of an employment contract was considered invalid.
If the general courts do not provide a new, constitutional justification for such a ban, employment contracts for the performance of the duties of a statutory body will need to be considered valid.
In view of the Constitutional Court’s judgement, it will be possible to apply the protection afforded to employees to the members of the statutory bodies of business corporations and thus improve their standing.
For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.