Only few questions could over the last 25 years undermine legal certainty of employees and members of statutory bodies of the corporations and legal persons in the same way as so called concurrence of offices, i.e. concurrence of the office of a member of the statutory body and an employment relationship.
One of the first expressions of opinions on inadmissibility of performance of the office of a member of the statutory body under the employment relationship, which was consequently adopted by the Supreme Court of the Czech Republic, is represented by the decision of the Superior Court in Prague issued under case no. 6 Cdo 108/92 of 21.4.1993, published under no. 13/1995 in the Collection of Court Decisions and Standpoints which concluded that„… activity of a statutory body (possibly its member, if a collective body is concerned) shall not be performed by a natural person in an employment relationship, even if this person is not a shareholder. The office of the company´s statutory body does not represent a type of work within the meaning of Section 29 Art. 1 a) Labour Code [Act No. 65/1965 Coll., Labour Code, as amended] and the establishment and termination of this legal relationship shall not be governed by the labour law regulations and shall be subject to the Memorandum of Association. Nevertheless, neither legal regulations nor the nature of the limited liability company do not preclude other activities to be performed for this company by natural persons under employment relationships.”
The Supreme Court has decided accordingly until 2016 and concluded for invalidity of labour agreements (employment contracts, management contracts etc.) signed with members of the statutory bodies, if performance of the office should be subject of these contracts. By its nature, it was necessary over time to define which activities can still be the type of work and can be performed concurrently with the office of a statutory body under an (existing) employment relationship, and which cannot. The starting point for this was the inadmissibility of the concurrent performance of the office of the “Director General”, which in terms of the duties is most closely to the duties of a statutory body. Thus, the Supreme Court has gradually softened its standpoint by accepting e.g. the concurrent performance of the duties of a Deputy Director General for Production (judgement of the Supreme Court of the Czech Republic of 4.5.2016 in case no. 21 Cdo 2310/2015) and the Commercial Director (judgement of the Supreme Court of the Czech Republic of 24.2.2015 in case no. 21 Cdo 496/2014). However, on the other hand, some – at first sight common – working activities have remained subordinated to the business management and excluded from the labour legal framework, see the decision of the Supreme Court of the Czech Republic in case no. 21 Cdo 2831/2015 of 20.2.2016, according to which “… expansion of the business activities of the Prague office, implementation of the new market opportunities generating growth of the Prague office, building and maintenance of the effective good relationships with customers, auditors, lawyers, tax advisors and financial and governmental institutions and provision of consultancy services to the clients´ can be included in the external representation of the company and in its business management which means organisation and management of business activity of the company, including taking decisions on their business plans“.
Validity, or invalidity of agreements of the top managers were not and are not a purely academic question, as it had and has significant impact on entitlements of the participants (remuneration, wages, bonuses, severance allowance, eventually affiliation to the care insurance etc.), on which consequently, the judicial proceedings were carried out in the event of a dispute.
A view on concurrence different from the case-law of the Supreme Court has been delivered by the decision of the Constitutional Court of the Czech Republic under case no. I.ÚS 190/15 of 13.9.2016, which has rejected the previous arguments of the Supreme Court of the Czech Republic used to establish inadmissibility of concurrence and invalidity of agreements as completely insufficient. The Constitutional Court of the Czech Republic pointed out to a number of discrepancies in the arguments of the Supreme Court of the Czech Republic (including the above mentioned vague distinction between the admissible and inadmissible functions and activities) and negative effects on the legal and social relationships (lower protection for members of the statutory bodies compared to the employees, restrictions on women, impact on the constitutionally guaranteed rights and legal certainty etc.). However, the Constitutional Court of the Czech Republic criticised the approach taken by the Supreme Court of the Czech Republic rather than it would specify unambiguously how to approach “concurrent” agreements in general and in the future.
The Supreme Court of the Czech Republic responded to the decision of the Constitutional Court of the Czech Republic, which in the decision in case no. 31 Cdo 4831/2017 of 11.4.2018 revised its previous case-law and added some arguments to it. According to the opinion of the Supreme Court of the Czech Republic expressed here (which can be regarded also as a current opinion and has to be respected in practise), the parties may certainly agree that their relationship shall be subject to the regime of the labour code in respect of performance of the office, however they may not continue to derogate from mandatory provisions of company law (rules for establishment and termination of the office, responsibilities etc.) and at the same time their agreement may not be regarded as an employment agreement, but rather as a specific arrangement under corporate law, which can – in case of validity and conclusion at a later date – e.g. have character of an agreement on performance of the office. The point is that the agreement with a member of the statutory body will have to respect the rules and restrictions of corporate law (e.g. regime of approvals taken by the corporate bodies).
Accordingly, it does not result from the decision of the Supreme Court of the Czech Republic in case no. 31 Cdo 4831/2017 that an employment contract may be concluded with a member of the statutory body with respect to performance of its office, or that such a contract would be valid under any circumstances. On the contrary, the practise of the Supreme Court of the Czech Republic and the Constitutional Court of the Czech Republic rather confirms that on one hand the contractual freedom of the parties accepted by the courts shall be wider, on the other hand the principle that the actions should be regarded as valid rather than as invalid, shall not apply fully and in all cases (see e.g. the ruling of the Constitutional Court of the Czech Republic in case no. I.ÚS 1631/18 of 19.5.2019).
Thus, it remains for the companies and members of their statutory bodies to (continue to) pay attention to regulation of their mutual relations. However in doing so, they have to take into account the latest situation and circumstances, under which they enter the relationship. If a new member of the statutory body in a company has not performed activities as an employee under the contract of employment (in force) yet, they will not avoid conclusion of the contract on performance of the office which will have to be approved properly by competent corporate bodies. If a new member of the statutory body has a valid and ongoing employment relationship, an agreement covering this relationship, namely (under circumstances) e.g. in the form of its interruption for the period of performance of the office, shall be concluded with the agreement on performance of the office. The fact remains, that investments in appropriate legal regulations shall pay off very soon in comparison to the time-consuming court case.