Restructuring – a view from Czech Republic

Out-Law News | 29 Jul 2021 | 10:07 am |

Czech Republic lawyer Sabina Krajickova outlines the essential steps when restructuring a business in the Czech Republic
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  • Transcript

    What does employment law in the Czech Republic require of employers when it comes to making redundancies? It is an important question if you're a business with a presence in the Czech Republic where, just like the rest of the world, mass redundancy exercises are commonplace as businesses restructure in an effort to survive the pandemic. We will come on to the procedure shortly, but first the background.

    The first three confirmed cases in the Czech Republic were reported on 1 March last year. On 12 March, the government declared a state of emergency and four days later the country closed its borders, stopped the entry of foreigners without residence permits, and issued a nationwide curfew. The measures were originally planned to be in force until 24 March but had to be extended many times subsequently as concerns about the spread of the virus grew. The Czech Republic was the first European country to make the wearing of face masks mandatory from 19 March onwards but started gradually easing measures soon afterwards, from 7 April 2020, with most restrictions being lifted by 11 May 2020. 

    The BBC reported how on 1 July the Czechs held a 'farewell party' to give a symbolic goodbye to the virus despite the fact that the World Health Organisation was warning that the pandemic was not even close to being over. Thousands of guests sat at a 500-metre-long table on the Charles Bridge in Prague sharing food and drinks. Guests were encouraged to share with their neighbours and there was no social distancing. However, by the end of October the BBC was reporting how the Czech Republic’s response went wrong. So, after being praised for its swift initial response, seven months on it was recording 15,000 new cases a day and had the second highest per capita death rate over seven days in the world. Dr Marie Bourne, a GP in the city's Karlin district, said people in the country had become complacent at precisely the moment when the virus was threatening to spiral out of control. By April 2021, the Czech Republic had recorded the highest confirmed death rate in the world after Hungary.

    As with every European country the Czech Republic introduced various state aid measure to help businesses. They established a programme called ‘Antivirus’ designed to help employers bear the costs of continuing to employ their staff in the face of the stringent limitations being imposed on businesses. Employees were able to benefit from income protection the rate of which varied depending on the nature of the problems experienced by the business, with the government offering compensation in relation to three categories. First, operational challenges such as a lack of supplies or non-functioning machinery. Secondly, business stoppage which might be caused by a temporary lockdown due to public health measures. Thirdly, partial unemployment resulting in a decreased need for labour. In each case the level of support varied from around 60% to 100% of the employer’s lost revenue. 

    Notwithstanding the Czech government’s support for businesses, many have unfortunately been forced to shut down completely, or they're restructuring in an attempt to survive resulting in mass redundancies. That is when the country’s collective redundancy laws kick in which we can now come on to.  Earlier in the year we were due to hold a webinar on this subject, looking at a number of countries across Europe including the Czech Republic, but because of the pandemic we had to cancel that. Nonetheless, everyone involved was keen to adapt and the result is a series of programmes we will be releasing as HR Guides, covering each of those countries, hearing from lawyers based in each one. The theme of the webinar for all countries was to set out 5 do’s and 5 don’ts when it comes to restructurings. So, let’s hear from our Czech contact who is Sabina Krajickova, a senior associate at our best friend firm Wolf Theiss based in Prague. She is an employment law specialist at the firm:

    5 Do’s
    Sabina Krajickova: “1 – First of all, do always analyse the current situation of your business and the intended restructuring measures in detail before going forward. That means expected savings versus restructuring costs, legal framework, time schedule and so on. 2 – Define goals and budgets and the roles in the negotiation process. Furthermore, try to accommodate employees’ representatives, if any, early in the process to make the whole negotiation as smooth as possible. 3 – Afterwards it is also important to define any selection criteria which will apply for employees’ dismissal. In this respect, please also note that the selection criteria belong among the information which must be provided to the Czech labour office authority in the event of the collective dismissal. 4 – Do always inform and consult employees in advance about the intended restructuring and potential redundancies. Where trade unions or work councils have been established at the company this obligation can also be met towards these employee representatives. More consultation obligations may even arise if the collective dismissal is triggered. In such a case, you are required to inform employees representatives in writing, the employees themselves, about the reasons for the collective dismissal at least 30 days before serving any termination notices and you must submit a written report to the relevant labour office authority outlining the reasons and the outcomes of the negotiation with employees or their representatives. 5 – Always try with the affected employees to terminate their employment by a mutual agreement to avoid potential unfair dismissal disputes and prevent collective dismissal from being triggered, which may significantly delay the whole process. 

    5 Don’ts
    Now we can skip to some recommendations what definitely not to do during any restructuring process. 1 – As the timing goes, one of the crucial factors during any organisation changes, do not start the restructuring process late. Aim to finish it not only by the intended deadline, but also taking into account any notice periods and consultation processes. 2 – Also do not forget to properly calculate restructuring costs which may occur, in particular statutory severance pay and notice period compensations and also consider the potential costs of court proceedings if some of the affected employees decide to challenge the termination incurred. 3 – During the consultation process, you should not ignore the concerns and proposals of the employees or employees’ representatives. 4 – Before starting any negotiation with employees concerned you should first internally discuss and approve termination packages in order to know the maximum proposal limits which can be offered to the employee. 5 – Finally, you should definitely avoid violation of the duty to inform and the obligation to consult employees’ representatives to prevent any sanction from the labour inspection authority which can significantly increase the entire restructuring costs. In this respect, do also not forget to inform and cooperate with the relevant labour office authority within the statutory deadlines. Well, that is probably all from my side and I really hope that you find our summary useful and helpful. Thank you for your attention.”

    That was Sabina Krajickova who is one of our contacts at the Prague branch of our best friend firm Wolf Theiss. We have put a link to the firm in the transcript of this programme.

    LINKS
    - Link to law firm Wolf Theiss
    Czech Republic: Wolf Theiss - Leading Lawyers in CEE/SEE