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Employees back on supervisory boards

The historically first amendment to the Corporations Act found its way through the legislative process and a day before year-end was promulgated in the Collection of Laws under No. 458/2016 Coll. With it, for some companies, the familiar duty of having employees represented on supervisory boards has come back.

Until the end of 2013, the obligatory representation of employees on supervisory boards (also referred to as co-determination) had been stipulated by the Commercial Code: joint-stock companies with more than 50 employees had to have at least one third of the seats on their supervisory boards held by staff representatives. With the recodification of private law, this duty ceased to exist. Due to the absence of transitional provisions, disputes arose as to how the new regulation affected existing joint-stock companies: it was not entirely clear whether, at the stroke of midnight on 1 January 2014 the offices of the existing employees’ representatives terminated, or whether their offices continued according to the previous regulation. Nor was it clear whether co-determination, despite not being explicitly provided for by law, could still be stipulated in the company’s statutes (by-laws) on a voluntary basis.

The present amendment, initiated by the deputies, does not address the mentioned issues. It re-establishes co-determination without any link to the previous legal regulation. The new regulation will not affect as high a number of companies as the previous one: the duty will only apply to joint-stock companies with more than 500 employees (not including labour relations other than employment or agency employees). The companies will have to have a number of supervisory board members divisible by three, and one third will be elected to the board by employees. The statutes of the company may increase this number, although not above the number of members elected by the general meeting. Employees may also remove their appointed representatives from the supervisory board. The law will also explicitly permit co-determination to be stipulated by the company’s statutes even where the number of employees is lower than the statutory limit. This means that even a joint-stock company of 20 employees may, theoretically, invite employees’ representatives onto its supervisory board; we do not, however, expect this option to be used broadly.

The amendment enters into effect on 14 January 2017. For companies already in existence, the legislator provides a two-year time allowance to make their statutes and supervisory board composition compliant with the new regulation. Should they fail to do so, they will face a penalty imposed by the registry court: it will call upon them to rectify the situation, providing a time limit beyond which it will initiate the process of company dissolution with liquidation.

Apart from this significant but from a legislative perspective minor change, users of the Corporations Act are also in for an overall amendment of the act; its draft, however, has not yet left the realms of the Ministry of Justice.