CMS Expert Guide to Dismissals

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

An employee may give notice of termination without providing cause. An employer, on the other hand, is only permitted to give notice of termination for one of the reasons explicitly stated in the Labour Code, which are as follows:

  1. organisational reasons – the employer’s enterprise shuts down or relocates, or the employee is made redundant; or
  2. health reasons − the employee no longer has the capacity to carry out his present work in a satisfactory manner; this must be confirmed with a medical certificate issued by the occupational medical services provider or under a ruling of the competent administrative agency having duly reviewed the medical certificate; or
  3. an employee no longer meets the requirements outlined for the work they are carrying out; or
  4. there are reasons for immediate termination of the employment relationship − the employee has committed a gross breach of duty or has been lawfully sentenced to prison for a crime; or
  5. the employee has seriously, or less seriously but repeatedly, breached a statutory duty relating to their work performance; or
  6. the employee breaches their obligation to observe the prescribed regime of an insured person being temporarily unfit for work in the first 14 calendar days of temporary incapacity for work due to sickness in an especially gross manner.

Employees with more than six months’ continuous service with an employer which employs more than ten employees (in exceptional cases: more than five) will fall under the Protection Against Dismissals Act. Dismissals must be justified for business-related reasons (e.g. business closure), conduct-related reasons (e.g. theft) or person-related reasons (e.g. health).

1.2 Form

Written form is necessary; must be delivered to the other party (both employer and employee may terminate the employment relationship by notice of termination). Under certain circumstances a fiction of delivery applies (e.g. if the employee refuses to accept the notice when it is delivered personally to them or when delivered by a postal worker). Under specific and strict conditions, it is also possible to deliver the termination documents electronically.

Written form necessary, signed by a duly authorised representative of the employer. Must not be faxed or emailed.

1.3 Notice period

The statutory minimum notice period is set at two months, the period starting on the first day of the month after the month in which the notice of termination was delivered. 

It is possible to agree upon a probationary period of a maximum of three months (six months for managerial employees) with no statutory notice period. There is no notice period in cases of immediate termination of the employment relationship (i.e. in particular if an employee has committed a gross breach of duty or has been lawfully sentenced to prison for a crime).

Statutory minimum notice period: four weeks to seven months, dependent on length of service. It is possible to agree upon a probationary period of a maximum of six months with a statutory notice period of only two weeks. Collective bargaining agreements may provide for variations.

1.4 Involvement of works council

No involvement in termination process except in collective redundancies.

Works council (if established) must be properly informed prior to dismissal of an employee (excluding high ranked executives). The works council must approve the dismissal of an employee who is a member of the works council.

1.5 Involvement of a union

Employer must discuss in advance any notices of termination and any immediate termination of the employment relationship with the trade union. Trade union approval is only required where the employee is a trade union officer. Such approval can be substituted by a court decision if the approval was withheld and the employer cannot be justifiably required to continue employing the trade union officer.

No involvement.

1.6 Approval of state authorities necessary

Approval of the state authorities is not required. The Labour Office need only be notified of a collective redundancy or the dismissal of a disabled person or of an employee who is not a Czech citizen.

Obligatory for certain groups of employees, e.g. the severely disabled, pregnant women, and employees on parental leave or dismissals in the context of collective redundancies.

1.7 Collective redundancies

Collective redundancies are defined as dismissals within a 30-day period of:

  1. more than ten employees in an establishment of 20 − 100 employees; or
  2. 10% or more of the employees in an establishment of 101 − 300 employees; or
  3. at least 30 employees in an establishment of 300 or more employees. The total number of employees also includes those employees whose employment relationship was terminated by agreement between the employee and the employer based on the same grounds for which other employees are being dismissed, if at least 5 employees were dismissed by notice of termination.

The employer must inform the works council and trade union (or directly affected employees if there is no works council or trade union) of its intentions at least 30 days prior to giving notice of termination, and must enter into negotiations to reach a compromise or reduce the number of affected employees, etc.

The employer must simultaneously inform the Labour Office in writing:

  1. that it has discussed the collective redundancies and its implications (i.e. the later results of these discussions) with the trade union, works council or affected employees; and
  2. of the actions it has taken in cooperation with the trade union / works council in relation to the collective redundancies; and
  3. of the number, characteristics, professional qualification, etc. of the employees to be made redundant.

Collective redundancies are dismissals within 30 days of the following numbers of people:

  1. more than five employees in an establishment of 20 to 60 employees; or
  2. 10% or more than 25 employees in an establishment of 60 to 500 employees; or
  3. at least 30 employees in an establishment of 500 or more employees.

The employer must duly notify the employment agency, which is a state authority with local branches, of the proposed redundancies in writing prior to serving dismissal letters. However, the employment will not end before expiry of the waiting period after notification (in general one month, exceptions possible). Further, on condition that the employees of the establishment have elected a works council, the employer must prior to serving notice of termination engage in time-consuming negotiations with the works council to reach a reconciliation of interests (‘Interessenausgleich’), which is usually combined with negotiations regarding a social plan (‘Sozialplan’).

1.8 Summary dismissals

Immediate termination (without notice period) of employment by the employer is possible only if the employee has breached a statutory duty in an especially gross manner or for a lawful conviction of the employee, following the employee intentionally committing a crime which leads to unconditional imprisonment for a duration longer than one year (or six months in the case of crimes committed in connection with exercising their job).

The employer may immediately (with effect upon delivery to the employee) terminate the employment within a period of two months of learning the reason for immediate termination, but not later than one year from the date of occurrence of the respective reason for termination.

An employer cannot dismiss with immediate effect any employee who is pregnant or during the employee's maternity or parental leave.

An immediate termination must be made in writing and be delivered to the employee in accordance with the Labour Code, with the reasons for immediate termination being specified in such a way that prevents confusion with any other reason(s) for termination.

Dismissal without notice is in general only possible where there has been a serious breach of duty. Notice must be delivered within two weeks after a representative of the employer with the authority to dismiss has gained knowledge of the reason for dismissal.

1.9 Consequences if requirements are not met

Termination may be held invalid by the court and the employment relationship reinstated if the employee files a claim to the court no later than two months after the date of the purported termination of the employment relationship, and the court finds the termination to be invalid.

If employees file a successful action within three weeks following the receipt of the written notice: Employees are reinstated and awarded continued payment of salary. High ranked executives who themselves have authority to employ or dismiss a significant part of the workforce are not entitled to claim reinstatement if the employer does at least file a motion to terminate the employment combined with a severance. The court will in such cases terminate their employment and award severance pay of up to a maximum of 18 months’ remuneration.

1.10 Severance pay

Minimum statutory severance pay depends on the reason for dismissal and  /  or the length of employment, and ranges from one average monthly salary for any dismissals for organisational reasons (including collective redundancies) of employees whose employment lasted less than one year, to 12 times the average monthly salary for dismissals for health reasons. The parties may negotiate a larger severance payment, or the payment of severance pay in the case of dismissal for other reasons.

No statutory severance payment. But based on court order (see above) claims are possible. Further, severance payments may be due because of   an amicable settlement by the parties, especially common if the justification of a dismissal may be doubtful, and in case of dismissals for business-related reasons according to:

  1. a social plan (‘Sozialplan’) to be agreed between the employer and the works council or determined by a conciliation board, or
  2. a collective bargaining agreement (‘Sozialtarifvertrag’) to be agreed between the employer or relevant employers association on the one hand and the union on the other.

1.11 Non-competition clauses

A post-contractual non-competition clause may be agreed upon between the employer and the employee and, if agreed, it must be in written form and must not last for more than one year. The agreement may be included in the employment agreement. Monetary compensation from the employer must, as a minimum, equal half the employee’s average monthly salary (i.e. of the wage / salary that the employee had prior to termination of the employment relationship) for each month during which the employee met the obligation not to compete stated in the clause. If the agreement sets out a financial penalty for breach of the clause by the employee, the employee’s obligation not to compete is discharged upon the payment of the penalty sum. The agreement is automatically terminated if the employer fails to pay the monetary compensation to the employee when it falls due. An employer may only withdraw from the non-competition clause during the term of employment. As far as case law is concerned, the withdrawal is only effective if it has been explicitly agreed upon, and such a provision is only enforceable if it contains reasons for the withdrawal, provided, in addition, such reasons are legitimate.

Post-contractual non-competition covenants are only valid if the employer promises to pay at least half of the entire usual remuneration (including fringe benefits etc.) during the term of the clause. However, compensation and other income must not exceed 110% (subject to a necessary relocation   of the employee: 125%) of the former total remuneration. Dismissal will usually trigger this payment obligation. Post-contractual non-competition covenants only apply to competition-relevant activities (e.g. employee may also work for a competing company during the post-contractual non-competition covenant if the activity there is not relevant to competition).

1.12 Miscellaneous

The employer may not give notice of termination during a ‘protection period’ (i.e. where an employee is temporarily unfit for work, a night-shift employee is temporarily unfit to perform night work, an employee is conscripted or released from work to exercise a public office, or during pregnancy, maternity or parental leave), unless the termination is for organisational reasons due to the closure or relocation of the enterprise. There are several exceptions to this rule.

Not applicable.

2. Dismissal of managing directors

2.1 Reasons for dismissal

In the Czech Republic managing directors are not considered employees, therefore labour law protection does not apply to them. The relationship between the managing director and the company is of a commercial nature, not an employment one. An appointment as managing director (as a statutory body or a member of a statutory body of an entity, i.e. not as an employee) may be revoked without stating any reason.

Limited companies (‘GmbH’): the company may revoke the appointment / terminate the service contract without cause, unless the articles of association or the contract provide otherwise. Stock corporation companies (‘AG’): revocation of appointment / termination of service contract only with important reason. Withdrawal of confidence by resolution of the shareholders may be an important reason to revoke the appointment as such, but it does not justify a termination of the service agreement.

2.2 Form

A valid shareholder resolution at a general meeting is required. There must be a simple majority of shareholders present, unless stated otherwise in the relevant company’s statutory documents. Apart from cases when entities have a sole shareholder, revocation of an appointment as managing director must be on the programme of the invitation to the general meeting. If not, the appointment may only be revoked, if all shareholders are present and agree to change the programme to include the revocation.

By valid shareholders’ resolution or, if a supervisory board is established, a valid supervisory board resolution on revocation of appointment as managing director and on termination of the contract; both must be delivered to the managing director in written form (signed by the representative of the shareholders’ meeting / supervisory board).

Note: a supervisory board is mandatory at companies with limited liability with more than 500 employees, and at stock corporations.

2.3 Notice period

Not applicable.

Revocation of appointment: no statutory notice period (true for both limited companies (‘GmbH’) and stock corporation companies (‘AG’)). Termination of the service contract:

  • GmbH: managing directors usually have fixed-term contracts or long contractual notice periods. However, the statutory minimum notice period is just four weeks, and may be extended depending on the length of service.
  • AG: a managing director’s service contract must be a fixed-term contract (max. five years, min. one year), and only summary dismissal – generally without notice – is possible.

2.4 Involvement of works council

No involvement.

No involvement.

2.5 Involvement of a union

No involvement.

No involvement.

2.6 Approval of state authorities necessary

Not required.

However, revocation of a managing director from his/her office must be filed in the Commercial Register without undue delay. The appropriate court managing the Commercial Register may review the revocation in order to verify whether the revocation was done in accordance with applicable laws and the relevant entity’s statutory documents.

Not required.

2.7 Collective redundancies

Not applicable.

If one wants to be on the safe side the notification of the employment agency shall at least count in managing directors of a GmbH.

2.8 Summary dismissals

Not applicable.

Generally only possible in case of a serious breach of duty. Notice must be delivered within two weeks of the shareholders’ meeting / supervisory board’s meeting at which the shareholders / supervisory board members were informed of the reasons which will justify the termination. Further, such meeting has to be arranged within due course if some of its members become aware of the aforementioned reasons.

2.9 Consequences if requirements are not met

Invalidity of revocation.

The revocation of an appointment as managing director and / or termination of the service contract will be invalid. It is possible for the revocation to be valid, but the termination of the service contract invalid. In such cases, the managing director is entitled to continued payment of salary.

2.10 Severance pay

No statutory severance pay.

There is no statutory severance payment. Severance payments are subject to negotiation, but amounts granted by a supervisory board are limited by the criminal offence of ‘fraudulent breach of trust’.

2.11 Non-competition clauses

May be agreed in a performance agreement usually concluded with a member of a statutory body. The requirements set out in the Labour Code do not apply to managing directors unless explicitly agreed.

Post-contractual non-competition clauses are possible. However, the permitted scope is not clearly fixed by statutory law but depends on the merits of the single case (somehow confusing case law). In any case, the post-contractual non-competition clause only applies to competition-relevant activities. To avoid high risks the company shall promise to pay a reasonable compensation (at least half the fixed salary) during the term of the clause, the term shall not exceed a period of two years and the regional and factual scope shall be focused on activities carried out by the manager during the last two years of service. There is no statutory limit which must not be exceeded by the compensation and other income generated by the former managing director during the term of the covenant not to compete, but the parties may agree on a limit according to the law applicable to employees.

2.12 Miscellaneous

Managing directors shall not enter into employment contracts with companies, unless the type of work performed under the employment contract is materially different from the role of managing director. Instead, they should conclude an agreement on the performance of the office of the managing director. Such an agreement will not be governed by Czech Labour Code. 

Due to the sophisticated case law it is highly recommendable to not use standard forms but to seek advice of a specialist in the case given.