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Cheap Labour Can Be Very Expensive

Cheap Labour Can Be Very Expensive

15.7.2013 17:20
Autor: Alica Stegmannová, KSB

To meet their needs, they turn to certain companies to “supply” them with the people they need. As a result, they sometimes find themselves in situations where they risk being penalised millions of crowns for violating labour regulations.

Although this is not news, a refresher course on the basic rules of employment could be worthwhile, given the fair number of recurring problems. In addition to the well known, highly publicised battle against the “Švarc” system (employment in practice but self-employment under the law), breaching or circumventing the rules for employment through an agency is also considered illegal employment.

Besides being carried out under a standard employment contract or work agreement, work can also be carried out through another company. For example, an employer temporarily lends an employee to another employer to carry out work under the latter’s instructions. However, by law, only licensed employment agencies are allowed to hire workers out for a fee. In this employment scenario, the agency and the employer must enter into an agreement that complies with statutory requirements. The Labour Code calls this “agency employment”.

For the sake of completeness, it should also be mentioned that two regular employers, where neither is a licensed employment agency, can enter into an agreement for temporary employment. Unlike employment through an agency, no fees can be charged in this case (although costs can be reimbursed). As this option was not permitted until last year, it has been used fairly rarely and mostly within corporate groups for temporary secondments.

Breach of Agency Employment Rules

Since employment agencies are not cheap, some businesses try to save money by entering into a pseudo contract or another agreement under which employees are effectively hired to perform work. However, labour inspectors are aware of such tricks. In reviewing each case, they assess whether the work has all the characteristics of work (employment), such as a superior-subordinate relationship, work in person for and on behalf of the employer in line with the employer’s instructions and work within predetermined working hours for regular pay.

It is clear that there are many uncertain cases, which is why legal literature and court practice employ other factors to help them identify whether a given employment relationship is valid or illegal. For example, they look at whether the employee’s position is highly specialised, i.e. whether he/she is replaceable, whether he or she works with the employer’s tools and materials, whether third parties perceive the person as an employee, whether the relationship is permanent, etc. The final conclusion cannot be drawn based on the mere presence of certain features – it is always necessary to assess the specific case in hand by looking at the mutual relationship of the parties. 

High Penalties and How to Avoid Them

Businesses involved in illegal employment risk fines of CZK 250,000 to CZK 10 million. In other words, if found guilty, a business should be prepared to fork out at least a quarter of a million crowns regardless of any other factors.
A fine of up to CZK 2 million awaits agency-like businesses that are not licensed and businesses that otherwise breach the law or good morals in carrying out labour agency activities.

Moreover, there are penalties, including the risk of criminal prosecution, for failure to make statutory payments (tax, social and health insurance).

Businesses seem to be incorrigible, however, despite the severe penalties. Therefore, inspections to weed out illegal employment are a chief concern for the Ministry of Labour. For example, in 2012 the Ministry conducted 35,577 inspections and handed out CZK 12.68 million in fines for illegal employment.

Avoiding the penalties is quite easy, though: obey the law. This means hiring workers only through licensed labour agencies. To help businesses do this, the Ministry of Labour has put together a list of licensed agencies, which you can find on its website

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