practice group corporate/m & a 


Czech Republic: Statutory Body v Employee 



Veronika Odrobinová / Michaela Handrejchová 

It is a common practice in the Czech Republic that the statutory body or member 
of the statutory body (executive in a limited liability company and board member 
in a joint stock company)1 is at the same time employed as a director. However, 
since 1992 the Supreme Court (SC) has steadily decided that this arrangement is 
not permissible, as the employment cannot overlap with the performance of the 
position of the statutory body, which must be performed in a commercial law 
relationship. 

The main difference compared to employment is that 
the liability of the statutory body is stricter, with 
no limitations and no employment protection (eg, statutory 
vacation, notice period, severance payment, 
etc.). Further, statutory bodies are partly subject to different 
tax, social security and health insurance (SSHI) 
treatment.2 

Although this point was regularly raised by lawyers, it 
was ignored in practice. Over 80% of companies, including 
such giants as CEZ and Sazka, have used the incorrect 
scenario. 

New court decision 

Fresh air was brought in by the decision of the Supreme 
Administrative Court (SAC) published in spring 2011. 
Referring to the case law of the SC, the SAC decided 
that an executive of a limited liability company performing 
his activities in an (invalid) employment relationship 
is not entitled to sickness allowances because the 
sickness insurance payments he made to the system 

were based on an invalid employment agreement. Although 
this conclusion logically follows from the decisions 
of the SC, it has sparked a lively discussion in the Czech 
Republic. This reasoning about sickness allowances 
would also apply to pensions and health insurance. 

The most usual example is an executive in a limited liability 
company with no contract and receiving no remuneration 
for this position who is, at the same time, employed 
as a general director/manager. This person has 
paid (high) SSHI contributions, but under an invalid employment 
agreement. Using the reasoning of the SAC, 
they are not covered by the SSHI meaning, for example, 
that no pension accrues for the period in question. 
Furthermore, they usually cannot recover the funds 
paid into the system as this is subject to strict time 
limitations. 

Public debate, finally 

As a result, a public discussion has finally started. The 
Ministry of Work and Social Affairs has published a po


1 
In a limited liability company, each executive (jednatel) is considered a statutory body. In a joint stock company, the board of directors (predstavenstvo) is considered a statutory body and 
each board member is a member of the statutory body. For the purposes of this article, we use only the term statutory body. When referring to companies, we refer to limited liability and 
joint stock companies. 

2 
Currently, executive remuneration is subject to pension and health insurance but not to sickness insurance. It is fully tax deductible. On the other hand, the board member remuneration is 
not subject to social security or health insurance but is not tax deductible for the company. 


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