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Liability for employee wage claims in subcontracting chains in construction

Although a major amendment to the Labour Code has only entered into effect recently, the Ministry of Labour and Social Affairs is already preparing further changes and has submitted to the government a draft amendment introducing the liability of contractors in the construction sector for the wage claims of their subcontractors’ employees. Its purpose is to adopt measures that would apply to both cross-border and domestic employers. The proposed amendment aims to establish liability within the subcontracting chain, so that workers in the construction sector will be able to assert their claims also against the main contractor rather than just against their employer without affecting the investor of the construction work.

The draft amendment to the Labour Code transposes the Posting of Workers Directive (2014/67/EU), specifically its Article 12. Although it has already been transposed in the current wording of the Labour Code, the liability for wage claims of subcontractors’ employees currently applies only to those posted within the transnational provision of services in the Czech Republic.

The proposed legislation specifically stipulates that a construction entrepreneur (contractor) who within their construction activities provides supplies to a customer through a subcontractor shall be liable for the wage claims of the subcontractor's employees, up to the minimum wage. An employment agency that has assigned its employees to the contractor for construction activities would also be considered a subcontractor.

By adopting the amended wording of the Labour Code, the current validly transposed general regulation would be supplemented so that the same liability would apply not only to posted workers but also to domestic ones. However, the statutory liability is limited to subcontracting in the construction industry, as only a construction entrepreneur as defined in the Building Act shall be liable for the wage claims. However, the proposed amendment does not limit the scope of activities to be performed by subcontractors within a subcontracting relationship, meaning that the construction entrepreneur should be liable for the wage claims of subcontractors performing both construction work and other activities directly related to the execution of the construction (e.g., construction supervision, design work).

Liability within the subcontracting chain should apply at more than one level. Thus, in a contractual chain encompassing several subcontractors, the supplier at the highest level of the contractual chain (the main contractor) would be liable, jointly and severally, with the contractor.

The liability would only apply in the event of a failure of the employer (subcontractor) to meet their primary obligation to settle employee’s wage claims after their due date has expired. Notably, wage claims are payable no later than in the calendar month following the month in which the worker was entitled to a wage or salary or a part thereof.

If the subcontractor fails to pay the employee the wage claims for the work performed as part of the supply for the contractor, the employee (or a trade union organisation) could assert their claim against the contractor under statutory liability, thereby demanding the contractor settle the unpaid wage claims within three months of the expiry of their due date.

The liable entity (the contractor) would then be obliged to settle the employee's wage claims no later than 10 days after receiving the request, while they should also inform their employer of the amounts paid to individual employees. In a chain of several subcontractors, they shall also inform the other persons liable.

The amendment should be limited to the construction sector as, according to the European Commission's statistics, the vast majority of unpaid wage claims have been happening there. The proposed amendment only applies to claims arising from employment relationships, i.e., it does not cover cases of failure to pay wage claims in the context of illegal employment.

The amendment is proposed to enter into effect on 1 January 2024