In the Czech Republic, the law on employee involvement in the European Company was adopted in December 2004.
Country overview
No substantial national debate on transposition.
There was no substantial national debate on the transposition of the directive into national law, although the issue of European companies has been seen as potentially important for the Czech Republic, as it could hope to attract some companies to move their head offices there. The Czech Republic also has its own domestic legislation providing for employee board-level representation in a wide range of companies. In the detailed discussions, while the unions attempted to extend employee’s rights as far as possible, the employers were concerned to keep them as limited as possible.
Directive was transposed by law in November 2004, just after the October 2004 deadline.
The directive on employee involvement in European companies was transposed through the following legislation dated 11 November 2004: 627 – Act of 11 November 2004 on the European Company (Zákon č 627/2004 Sb. ze dne 11. listopadu 2004 o evropské splolečnosti).The legislation was in two parts: part one dealt with changes to Czech company law to adapt it to the Regulation on European companies; part two dealt with the involvement of employees in European companies.
Special negotiating body (SNB)
Czech members of the SNB are initially chosen by the unions, where these are present. Only if there is no union are they chosen either by the works council, where one exists, or by representatives specially elected by the employees.
The method of appointing Czech SNB members is not set out in detail in the legislation transposing the European company directive. Instead the legislation states that the choice of Czech SNB members “shall be governed by Section 25e (4) of the Labour Code” as well as the parts of the legislation which determine how SNB members are to be distributed between the participating companies (Section 48). The Labour Code in turn states that Czech SNB members should be appointed by the “employees’ representatives” at a joint meeting (Section 25e Labour Code). However, elsewhere the Labour Code states that “employees’ representatives” can be either the local trade union grouping or a works council. However, the trade union grouping clearly has primacy, as a works council can only be set up if there is no trade union organisation. And it must be dissolved if a trade union organisation is subsequently set up (Labour Code Sections 24 and 25).
Only if there are no employee representatives, or these representatives fail to function – in other words, where there is no functioning union organisation or works council – do the employees elect representatives specifically for the purpose of choosing Czech SNB members. Voting strength is in line with the number of employees represented (Section 25e Labour Code).
External trade union representatives from the Czech Republic may be members of the SNB.
The legislation specifically states that an individual not employed by the participating companies may represent Czech employees in the SNB “if this person is authorised or delegated by a trade union organisation of such employees” (Section 48).
The companies are required to fund only one expert at a time.
The legislation makes it clear that the SNB has the right to invite external experts. However, it also states that “without prejudice to the number of invited expert advisers”, the participating companies are only required to pay for one “in a given area” (Section 49).
Standard rules under the fallback procedure
Czech members of the SE representative body are chosen initially through the unions.
Czech members of the SE representative body, known in the Czech legislation as the “employees’ committee” (výbor zamĕstnanců), are selected in a similar way to the method used to choose Czech members of the SNB. However, in the case of the representative body, the mechanism is spelled out in the legislation transposing the European company directive (Section 55), rather than through reference to the Labour Code. The legislation states that members of the employees’ committee are appointed by “employees’ representatives” at a joint meeting. As already noted, the Labour Code states that “employees’ representatives” can be either the local trade union grouping or a works council. However, a works council can only be set up if there is no trade union organisation, and it must be dissolved if a trade union organisation is set up subsequently.
If there are no employee representatives, the employees elect representatives specifically to attend these joint meetings. Voting strength is in line with the number of employees represented.
Czech members of the employees’ committee must come from among the Czech employees of the European company. For the representative body, unlike the SNB, there is no provision for external union representatives to be chosen.
The budget arrangements for the SE representative body are the same as those for the SNB.
The arrangements for the funding of the employees’ committee are the same as those for the funding of the SNB, although this is set out in a separate section (Section 60) rather than just through a reference to the SNB arrangements. This means that the costs of the employees’ council, including the cost of a single expert are borne by the European company. The company is obliged to “ensure that the employees’ committee and its members have sufficient financial material and organisational conditions for the due performance of activities”.
Czech employee representatives at board level are elected by the employees, either directly or through delegates.
Misuse of procedures and structural change
This is not specifically referred to in the Czech legislation.
There is no reference to misuse of procedure in the Czech legislation.
The Czech legislation does not refer to structural changes.
There is no reference in the Czech legislation to mechanisms protecting employees’ rights in the event of structural changes after a European company has already been set up.
No concern expressed by either employers or unions.
The European company legislation has not provoked any concern in the Czech republic, either on the part of the unions or the employers.
SEEurope report (2005)
Markéta Nekolová (Research Institute for Labour and Social Affairs, Prague)
According to the government department responsible for social welfare and the oversight of employers and trade unions, the foundation of SEs and their incorporation into the Czech legal system represents a new and very important step aiming at the better functioning of the Single Market and supporting one of the fundamental freedoms of the EU, freedom of movement. The companies which are trying to profit from the extended EU market will by means of the SE be able to avoid the complicated and financially burdensome issues facing their subsidiaries, each subject to national legislation. They will be able to relocate their headquarters within the EU without having to dissolve and re-incorporate. The SE Regulation did not take effect in the Czech Republic until October 2004, and the Czech executive law on the SE has not yet been approved, although it was again discussed at the 16 November 2004 legislative assembly and will be considered for adoption soon. This is why no SE has been established in the Czech Republic and the regulation has had no concrete outcome so far.
A major challenge linked to SE foundation is the possibility of multinational corporate mergers, which have not so far been allowed by the Czech legal system or by the other EU member states. Since 8 October, when the Regulation came into effect, it has been possible to merge an incorporated company with a company in the Czech Republic or Slovakia through an SE and to relocate the headquarters to any EU country.
The possibility of establishing an SE has made the financing and reorganisation of multinational corporations less problematic in administrative, legal and financial terms. This creates attractive conditions for joint ventures, favourable opportunities for investors and profitable possibilities for the country in which the SE will be established. However, it is important to say that only countries with well functioning legal systems and suitable business environments will become candidates for corporate residence.
Other frequent points of discussion in relation to this new form of corporation are: efforts to eliminate the psychological barriers between EU members and pursuit of an integrated European identity and business approach.
Since the SE will not exist as a large integrated corporation, but will function in 25 national ‘versions’, the question is whether relations between these variations could be any closer (and how much) than the present national regulations imply. Another issue is whether declaration of the company as “European” will influence people’s thinking and behaviour and contribute to the formation of a European identity.
Since no SE has yet been established in the Czech Republic and the short time available for preparation of the executive law did not allow any discussions, we cannot really talk about an open debate on the effects and results of SE implementation in Czech business conditions.
In fact, the only open debate covered no more than the most problematic areas.
While preparing the law, the government, the employers and the trade unions worked on establishing employees’ rights to participate in the foundation and functioning of SEs. The Directive itself allows the transfer of one country’s rules on employees’ participation to another EU country. Each country takes an individual approach, which raises the question of how the particular SE will be willing to accept a higher level of employee ‘interference' in its management if the country of origin is more open in its management style.
While the Czech employers preferred the Anglo-Saxon model of representing employees’ interests, the trade unions were pursuing the German model, with ‘above-standard’ rights and privileges for employees. The strict rules in this area may have a ‘discriminatory’ effect on companies with strong employee participation in management – e.g. German companies could be prevented from merging with corporations from other EU members with stricter guidelines regarding employee involvement.
Another problematic area is tax.
Each EU member should apply the general European and domestic legal regulations. The present form of the EU Tax Directive doesn’t specify SEs or the relocation of an SE residence from one EU country to another. The problem is being addressed by an upgrade of this Directive which is being discussed by the EU Parliament.
In all EU countries in which an SE operates but does not have its seat, certificates of incorporation will be registered only after fulfilment of the legal requirements of participating countries.
Since the experience of Certificates of Incorporation based on the similar Czech legal institution – e.g., registering the raising of basic capital on the basis of the notarial deed of Directorate’s certificates (according to the Business Law, § 206 paragraph 2, stating that the notarial court should not examine further facts except for the management’s condition and procedures) – has been rather difficult, the fear is that Czech judges will be willing to implement registration based only on the certificates of fulfilment without further examining these documents. This has the potential to cause significant problems down the line, and additional attention should be paid to this area.
The Czech law on SEs, with reference to the Directive, regulates at least the basic rules of one-tier corporations in the EU, and SE founders have a choice of establishing either a one-tier or a two-tier corporation. Unfortunately, Czech law in general covers only the dualistic form, so choice of the one-tier form would lead to a certain legal insecurity and doubts concerning which legal system would apply.