With a lease of business premises you may be taking over the previous tenant’s employees

The court issued its ruling referring to a legal concept for which the Labour Code provides, titled ‘transfer of rights and obligations under labour-law relationships’. The concept, in essence, means the obligation of an entity that continues in the business activity of its predecessor to also take over all its employees. The purpose of the regulation is that an employer’s decision to discontinue their activity or to effect a structural change (such as a merger) would not necessarily lead to the redundancy of employees. The employees are taken over automatically – there is no need to terminate their existing employment or to negotiate a new contract. The original employment contract remains in force, as do the obligations from any collective bargaining agreements and other rights and obligations under the original employment relationships. Note that this was not the Czech legislators’ idea: the regulation reflects the European Union’s legislation.

In the cases recently before the Supreme Court, the new tenants tried to convince the court that their cases did not initiate a mandatory transfer. They argued that they only ever dealt with the owner of the premises and did not enter into any relationship with the previous tenants. Their lease did not even immediately succeed the previous tenants’ lease and they did not take over any tangible equipment used by the previous tenants.

The Supreme Court, however, was not convinced. In line with the case law of the Court of Justice, it stated that a direct contractual relationship between the two employers is not necessary, and that a certain time delay between the termination of the existing tenant’s activity and the initiation of the overtaking tenant’s activity does not prevent the application of the transfer concept. The court, however, diverted from EU case law by denying the third argument presented by the new tenant: according to the CJEU, the transfer only takes effect if the new employer also takes over the tangible equipment necessary for carrying out the activity (unless the activity is based solely on human labour) from the original one. In this respect, the Czech Labour Code is stricter on employers than the relevant EU directive as it does not require the takeover of tangible equipment. This harshness of Czech law stands to be mitigated by an amendment to the Labour Code in 2017.

The duty to take over employees may arise not only when continuing a lease of premises, but also, for instance, when purchasing a production line or gaining a contract previously carried out by someone else for the same customer. Before entering into similar transactions, entrepreneurs should definitely consider a legal review that would bring the possible personnel implications to their attention.