Employee protection against employer’s insolvency reinstated
The protection of employees against their employer’s insolvency is not new in the Czech system of law. However, with the adoption of ‘Lex Covid’ in connection with the coronavirus pandemic, it had been temporarily taken away: employees lost the possibility to file for their employer’s insolvency, a prerequisite for claiming due wages from the Labour Office. The legislators have now adopted an act to remedy this.
Under Act No. 118/2000, on the protection of employees in the event of their employer's insolvency, employees may apply for their due wages to be paid to them by the Labour Office. To be able to do so, two conditions have to have been met simultaneously: the employer has to have failed to pay wages to the employee in a due and timely manner; and the employee has to have filed an insolvency petition against the employer (or a moratorium before initiating insolvency proceedings has to have been declared for the employer).
From the end of April, this became far more complicated for employees through the adoption of Lex Covid: under this rule aiming to protect debtors, insolvency petitions filed by creditors between 24 April and 31 August 2020 were to be disregarded. The legislators thus made it impossible for employees to effectively file for their employer’s insolvency and thus to ‘activate’ their insolvency. In practice, this led to situations where while the employer was in fact insolvent and did not pay wages to employees, the employees still could not access support from the Labour Office as the conditions stipulated by the Act on Employee Protection were not formally met (for the purposes of the act, the employer was not yet in insolvency).
This deficiency was removed on 19 May 2020 by Act No. 248/2020, on certain measures to mitigate the impact of the coronavirus SARS CoV-2 pandemic as regards the protection of employees in the event of their employer’s insolvency. The act stipulates that, for the purposes of Act No. 118/2000, if an employer fails to settle wages due to employees, they shall be considered in insolvency from the date the Labour Office receives a resolution from the insolvency court disregarding an insolvency petition filed by a creditor (an employee) against them.
This means that while an insolvency petition filed between 24 April and 31 August 2020 shall still be disregarded, employees to whom the employer did not pay wages may now again apply to the Labour Office to settle the due wages, based on the insolvency court’s resolution to that effect.
Employers will still be obligated to refund the Labour Office the money thus paid, within 15 days from receiving a written request. In this respect, the act also reflects the current circumstances as it stipulates that the Labour Office shall not make this request before 1 December 2020.
Under the current economic circumstances caused by the coronavirus pandemic, it is certainly appropriate to return to employees an adequate protection against their employer’s insolvency, which had been taken away from them. Employers should proceed prudently in this respect: by failing to settle their wage obligations to their employees, they run the risk that employees may file an insolvency petition against them, and then terminate their employment with immediate effect only to be entitled to wage compensation corresponding to the length of their notice period (even if the employer is in fact not insolvent). Employers should therefore carefully consider their options to save wage expenses while not risking the complications outlined above.