Since the New Year, there have been revolutionary changes in the field of employment, agency employment, as well as in the field of labour inspection controls as a result of the adoption of several important amendments – the Employment Act[1], the Labour Code[2], the Act on the Protection of Employees in the Event of Employer Insolvency and the Labour Inspection Act (the “Amendment”).
Since we have only briefly introduced these changes in our overview article here, we have also prepared a three-part series of articles focusing on the most important areas that the Amendment modifies. Thus, in the first part here you could read about the changes in the field of agency employment, in particular the tightening of the conditions that employment agencies are now obliged to fulfil.
In this second article in the series, we will deal with without any doubt the most controversial regulation, namely the change in the definition of illegal work, i.e. the disguised employment relationship in practice referred to as the so-called švarcsystém. Although the change in the definition was originally omitted from the government proposal during the inter-ministerial procedure, it was reinstated in the approved text of the Amendment despite a wave of criticism from the professional community.
Illegal work before
The existing criteria for assessing illegal work completely replicated the parameters of dependent work as set out in Act No. 262/2006 Coll., the Labour Code, as amended (the “LC”), and relevant case law.
According to the original definition provided for in Section 5(e)(1) of Act No. 435/2004 Coll., on Employment, as amended (the “Employment Act”), illegal work meant, inter alia, dependent work performed by a natural person outside the employment relationship, within the meaning of Sections 2 and 3 of the LC.
Section 2(1) of the LC provides that dependent work is work which is performed in a relationship of superiority of the employer and subordination of the employee, on behalf of the employer, under the employer’s instructions and is performed by the employee personally for the employer. According to paragraph 2, dependent work must be performed for wages, salary or remuneration, at the employer’s expense and responsibility, during working hours at the employer’s place of work or at another agreed location.
According to Section 3 of the LC, dependent work may be performed exclusively in the basic employment relationship unless it is regulated by special legal regulations, which means the employment relationship and legal relationships established by agreements on work performed outside the employment relationship.
Another important feature for assessing illegal work beyond the statutory definition was the feature of consistency, which was introduced by case law[3] and continuously confirmed in judicial decision-making practice. However, this has changed with the effectiveness of the Amendment and this feature is for the assessment of illegal work no longer relevant.
Illegal work now
The amendment has changed the definition of illegal work by (i) explicitly referring to the characteristics of dependent work under Section 2(1) of the LC, (ii) making a grammatical change, as a result of which illegal work is no longer “performed” but “held”, and (iii) adding at the end the sentence “The duration of the performance of such work is not relevant for the assessment of whether it is illegal work.”
As a result of the above changes, the characteristic of consistency has been completely removed from the definition. The purpose is primarily to facilitate the proof of illegal work, which has often been problematic in practice.
During the inspection, the employer could very easily claim to the labour inspection authority that the person actually performing dependent work outside the employment relationship (i.e., in reality a self-employed person) was working for the employer only at the time of the physical inspection. Moreover, since employers usually do not keep any records of such persons, it was very difficult to obtain other evidence to show that the work was actually of a longer-term nature. As a result, the so-called švarcsystém became almost unprovable.
How to do it in practice?
The exclusion of the consistency characteristic represents a fundamental change and employers should therefore be more careful. In particular, they should ensure that both existing and newly established employment relationships are properly set up so as not to give rise to any suspicion that illegal work may be carried out.
Employers should be motivated to be more rigorous, particularly as the potential for such an offence to be committed could represent a significant disruption to their business, but one that could be far greater than has been until now. The amendment also introduces stricter penalties, with the new penalty of a ban of up to two years for committing the offence of illegal work.
Employers should therefore entrust, or at least consult, experienced legal professionals to help them prepare their employment documentation so that future labour inspections are a mere formality, not a serious threat.
Conclusion
It is already evident that the change in the definition of illegal work, long prepared by the Ministry of Labour and Social Affairs and not entirely positively perceived by the professional community, will bring fundamental changes in practice.
According to the Amendment, the existing requirement of consistency (or duration of work) is no longer a relevant feature, which will no longer be dealt with by the labour inspection authorities, which will be reflected in particular in the results of the inspections carried out.
Since only a few weeks have passed since the Amendment came into force, only time will tell whether the Amendment has fulfilled its purpose, i.e. whether it has succeeded in reducing the incidence of illegal work or at least made the work of the labour inspection authorities easier in proving it.
If you have any questions about illegal work or need help with setting up labour relations, please do not hesitate to contact us.
[1] Act No. 435/2004 Coll., on Employment, as amended.
[2] Act No. 262/2006 Coll., Labour Code, as amended.
[3] For example, the judgment of the NSS of 28 April 2022, Case No. 4 Ads 320/2019, or the judgment of the NSS of 13 February 2014, Case No. 6 Ads 46/2013.
Mgr. Kateřina Lansdorfová, junior lawyer – lansdorfova@plegal.cz
Rachel Kouklíková, legal assistant – kouklikova@plegal.cz
Mgr. Jakub Málek, managing partner – malek@plegal.cz
25. 3. 2024