Labour Inspectorate against disguised employment mediation
Inspection activities targeting disguised employment mediation have long been a priority for the Labour Inspectorate. Typical examples of this illegal outsourcing are situations where a company is short of employees and decides to subcontract certain activities. Although the contract looks like a contract for work or services, it is in fact the hiring of labour, as the workers perform work for the customer as if they were the customer’s employees. Both the provider and the receiving employer can then be fined up to CZK 10 million, as only an employment agency licensed to mediate employment under the Employment Act can legally provide workers for remuneration.
The Labour Inspectorate does not hold back when imposing fines. A recent case has confirmed this trend: according to the Labour Inspectorate, the audited company allowed disguised employment mediation by hiring labour from other legal entities without complying with the conditions of the Employment Act. Specifically, a total of 50 persons from Ukraine, Romania, Bulgaria, Lithuania, and the Czech Republic worked for the company based on contracts for work. However, the company controlled their work activities, provided them with equipment and checked their shifts – therefore, it was not in fact work under a contract for work but the provision of labour without an employment agency licence. As a result, the company was initially fined CZK 5 million, which the inspectorate reduced to CZK 3,200,000 on appeal.
The company defended themselves by filing a cassation complaint with the Supreme Administrative Court, which nonetheless upheld the decision of the Labour Inspectorate and considered the fine imposed to be proportionate to the seriousness of the offence.
According to the company, the amount of the fine was destructive. However, the Supreme Administrative Court confirmed in its decision that the fine was reasonable and reflected the company's financial situation (the company reported a cumulative profit of CZK 30 million for 2021 to 2023, although they argued that their profits were declining while their costs and investment expenditures were increasing). The court also found that imposing a symbolic fine would not be a proportionate sanction for a breach of legal regulations. In doing so, the court emphasised that the amount of the fine would have been destructive only if it could in itself cause the company’s insolvency or make it discontinue its business operations.
Considering the above case, we can say that for disguised employment mediation, the Labour Inspectorate imposes relatively high fines, approximating the upper limit of the statutory rate, and that the Supreme Administrative Court confirmed this. The boundary between legitimate outsourcing and disguised employment mediation is unclear.
However, employers can avoid fines if they have their contracts with suppliers checked to verify that the cooperation is set up correctly and in accordance with the law.