This Commentary, prepared by Jaroslav Skubal, an attorney with PRK Prochzka / Randl / Kubr in Prague, describes the position of CEO under Czech law and the differences between a CEO, regulated by the Commericial Code, and the position of "top manager" hired under the Labour Code. In addition, the Commentary describes the common practice of Czech companies where the CEO is also a top manager, a practice recently criticized by the Supreme Court.
Mr. Skubal writes: The mutual relationship between a limited liability company and its CEO(s) in the Czech Republic is governed by the Commercial Code, which means that the CEO is not an employee since all relationships between companies or other employers and their employees are governed by the Labour Code. The Commercial Code does not regulate the position of CEO in great detail; rather, it is quite flexible, allowing both parties to agree on the terms they wish to apply to their relationship (the Commercial Codes few regulations, however, are mandatory and cannot be changed, even by mutual agreement). It should further be noted that the Commercial Code does not give CEOs the same protections as employees are given under the Labour Code. For instance, a CEO may be recalled with immediate effect without any specific reason; moreover, the recalled CEO is not entitled to any severance unless such as been agreed in an agreement on performance of the office of CEO. Employees, on the other hand, are more protected; the employer may dismiss them only for a specific ground set out in the Labour Code (e.g., poor performance, breach of employee obligations or employee redundancy which entitles the employee to severance pay of at least three monthly salaries) and the minimum statutory notice period of two months applies.
The Commercial Code does not mandate any written agreement on the performance of the office of CEO. Instead, the office originates on the basis of an appointment by the companys general meeting of shareholders. This is accompanied by the CEOs registration in the Commercial Register the official registry of all companies located in the Czech Republic held by regional courts.
However, if no agreement on performance of the office of CEO has been agreed, the provisions of the Commercial Code regulating mandate contracts would regulate the relationship between a CEO and the company. One characteristic feature of a mandate contract is that services rendered under such a contract should be compensated by usual remuneration. This would also apply to the services rendered by a CEO, provided that nothing else was agreed in the agreement on performance of the office of CEO (e.g., a clause stipulating that the CEO is not entitled to any remuneration). To avoid the possibility that the CEO would raise a claim to usual remuneration, and generally to protect both parties, an agreement by and between the parties on performance of the office of CEO, including a clause regarding remuneration, is recommended. The agreement must be approved by the general meeting of shareholders to become valid; because of this rule it is not problematic if the CEO signs the agreement on his or her behalf and on behalf of the company (which is usual in cases where the company has only one CEO). [footnotes omitted]