Ministry of Labour and Social Affairs refrains from changing ‘Svarc system’ definition

The current Employment Act defines illegal employment as dependent work that is performed by an individual (natural person) outside an employment relationship or outside of agreement to perform work or to complete a job. According to the Labour Code, dependent work is work that is performed:

• within a relationship in which the employer is superior and the employee is subordinate
• in the employer's name
• according to the employer's instructions, and
• personally, by the employee for the employer.

Another defining feature of dependent work was deduced by the courts – to conclude that employment is illegal, it is also necessary to prove that the relationship has a long-term character. However, proving long-term character has been rather difficult for the State Labour Inspection Office in practice. The ministry therefore wanted to make its evidentiary position easier, by changing the law.

Nevertheless, the Legislative Council of the Government, an advisory body to the government in the matters of adopting new laws, disagreed with the proposal. In its opinion on the proposed amendment, it stated that the change would unreasonably extend the definition of the ‘Svarc system’ to activities that are not dependent work and there is no legitimate reason to prohibit or restrict them. The new definition of illegal work would also be erroneous, as the requirement of a long-term character of the relationship can be deduced from the defining feature of the employer's superiority and the employee's subordination.

The legislative council also criticised the aim of the change – that is, to make life easier for the labour inspectorate: the council aptly pointed out that the inspection authorities’ lack of evidence could not be resolved by changing the rules. Following this opinion, the Ministry of Labour and Social Affairs has decided to keep the definition of illegal work, i.e., the ‘Svarc system’, in its current wording.

Despite the above-described developments, the State Labour Inspection Office intends to continue to strictly punish illegal work. Collaboration with workers using a sole trader status (‘IČO’) is still a common standard in many fields. We recommend thoroughly assessing any problematic relationships and modifying the contractual documentation as well as the conditions of practical cooperation to minimise the risk that the relationship would be assessed as the ‘Svarc system’. Employers may face a fine of up to CZK 10 million for violating the ban on illegal employment.