Labour Inspection Office focuses on concealed mediation of employment – CZK 10 million penalty possible
The fact that illegal work is closely watched by the Czech Labour Inspection Office is nothing new for employers. ‘Svarc’ systems (where workers formally maintain a self-employed status while in fact carrying out dependant work) or the employment of foreigners without proper permits are among the most frequent violations uncovered by the office. Recently, inspectors have been targeting yet another form of illegal work: the lease of labour concealed as a contract for work or services. Such outsourcing structures may carry a risk of a penalty of up to 10 million Czech crowns.
The office’s inspection practice is responding to a fairly new offence: the concealed mediation of employment, which was incorporated in the Employment Act in the autumn of 2017. The law defines it as a lease of labour without observing the conditions for the mediation of employment that apply to employment agencies. Typically, this involves situations where, e.g., a company lacks its own staff to carry out assembling work, therefore finds an external contractor and concludes with them a contract for the delivery of the assembling work. The contractor, however, does not deliver the work on a ‘turn-key’ basis, but only mediates personnel who then carries out the work for the client, same as their regular employees.
The line between permitted and prohibited outsourcing is fine and unclear and many companies may not be aware of problems in their supplier contracts. Yet, the lease of labour for consideration may legally be provided solely by employment agencies holding a permit issued by the Labour Office’s General Directorate. The strict conditions that must be met to obtain such permits (incl. qualification requirements, insurance coverage, or half a million deposit), and the duties that employment agencies must comply with while they do business (e.g. requirements regarding contracts with clients/users of agency employees, necessity to ensure comparable working and wage conditions, and a wide range of reporting duties) are the main reasons why companies increasingly often resort to concealed agency employment, which is illegal.
While the number of inspections by the office has been decreasing, their scope has increased. In our experience, an inspection initiated at one company will frequently be extended to others, typically subcontractors providing labour. Supplier structures have become increasingly complex, often involving a chain of contracts for work or services. Yet, the office is usually able to untangle them and detect individual breaches.
The office also confirms another phenomenon not uncommon in the labour market: employing foreigners without a valid permit for work in the Czech Republic – typically, foreigners with Polish visas that allow them to work in Poland. These foreigners are also frequently involved in complex customer-supplier relations. Employment agencies with workers holding work permits issued for work entirely different than the work they actually carry out are also no exception.
It is obvious that the office will continue to focus its inspection activity on illegal employment: it is the most severe labour-law offence and carries the highest penalty. At the moment, sanctions for the failure to meet the conditions for mediation of employment mainly concern providers not holding the respective licence. However, the possibility that sanctions may also affect the customers of such providers cannot be entirely ruled out. How to avoid a fine? The recipe is simple – have your outsourcing contracts reviewed by a lawyer and adjust the conditions of collaboration to conform with a legal form of outsourcing.