Finally, a more reasonable approach to taking over employees?
Not long ago, the Supreme Court (SC) gave employers quite a scare: it held that when continuing an activity previously carried out by another entrepreneur, they might have to take over that entrepreneur’s employees, even without the circumstances of the transaction indicating anything to that effect. Its last decision, however, suggests that the SC has decided to correct this extensive and in practice rather problematic interpretation.
The employers’ duty to take over employees of their predecessors in some cases is provided for by the Labour Code. It stipulates that employees are transferred by operation of law when the employer’s activities or tasks, or parts thereof, are transferred to another employer. This fairly abstract formulation causes problems to entrepreneurs in practice, as they often do not even know that they have the duty to take over the employees or that they already have taken them over – since the transfer automatically happens by operation of law without any specific arrangement. Employees may thus approach their employer’s unsuspecting successor at any time and request to be assigned work or given wage compensation for the time when they were not allowed to work - perhaps because the employer did not even know that they had been transferred.
The Czech regulation implements a relevant EU directive that is backed by an extensive amount of case law of the Court of Justice of the EU (CJEU). However, the SC appears to interpret the Czech regulation much more extensively than required by the EU directive. CJEU case law limits the transactions where employees are transferred from one employer to another by operation of law to transactions involving transfers of economic units, mostly comprising tangible equipment needed to operate the business. Where no equipment is needed to carry out the business activity, an economic unit comprises a group of workers especially and permanently assigned to carry out certain specific tasks.
Until now the SC has ignored the criterion calling for the transfer of economic units. It considered it irrelevant whether equipment or an organised group of workers was being transferred; it sufficed that the new entity carried out activities or tasks similar to those previously undertaken by the preceding entity. The duty to take over employees was thus confirmed, for instance, even between two entities that happened to rent the same café premises in a shopping mall one after the other with no equipment being transferred. In its last judgment, the SC finally acknowledged the CJEU’s conclusions as to the necessity of a true economic unit being transferred.
This is good news for employers, as it narrows down the range of situations involving the obligatory transfer of employees by operation of law. Furthermore, admitting that CJEU case law is indeed applicable to Czech cases may help in addressing situations that Czech courts themselves have not yet encountered. We may only hope that the decision is not just a one-off occurrence but the beginning of new, more stable interpretations.
Nevertheless, employees will still be transferred by operation of law not just in a business combination or a sale of (a part of) business where the participating companies are well aware of their duty to take over the employees but also in other cases where the transfer may be less obvious: for instance, when taking over a contract previously performed by another contractor, or when transferring individual parts of business assets. Both the SC and the CJEU case law requires neither a direct relationship between the employers nor the chronological continuity of the activities being carried out by the transferor and the transferee. We therefore recommend consulting legal advisors about the labour-law implications before making any similar business decisions.