The prohibition of parallel work functions confirmed…

Jana Kopáčková

The age old discussion, if persons working for Czech companies and cooperatives (“companies”) in the position of a statutory body can pursue their function on the basis of the work contract, is at an end. The Highest court has definitely confirmed that the mentioned functionaries cannot have a validly closed contract with a company they are working in, in the position of a statutory body on any activity, which is related to the company’s business management. In spite of the risks and during the tiring legal discussions, if some of the companies have closed a work contract with their statutory bodies with some sort of work, which is connected with the management of the company (for example Director, General Director, etc.), this contract is invalid. The transactions, which the statutory bodies received on the basis this contract, can be required to give them back to the companies as they are not barred by the statute of limitation.

So, is it enough, when the companies do not raise a claim on the expenditure of sums paid on the basis of an invalid contract against their Managing Directors or Members of the Board and everything is ok? Theoretically, in the relationship with the Managing Directors, yes, it is ok. However, the whole thing is not yet finished – if the company used to provide some transactions on the basis of an absolutely invalid work contract to the statutory bodies without these transactions, the discharge of the function passed by general meeting would have been mentioned in the contract or would have been passed by very resolution of general meeting without the passing of each transaction, the risk cannot be ruled out, that the tax administrator will consider such payments for fiscally ineffective expenses.

What is possible? It would be possible to rectify the transactions provided incorrectly in the past in the way that the general meeting of a company has to pass all of the transactions (additionally) by its decisions, which the statutory body received on the basis of an invalid contract in the past. In case of stock company and cooperatives, the statement of control from the authorities will be necessary (it means a board of trustees and control commission).

This step additionally heals the wrong practice and avoids the risk that the Managing Directors or Members of the Board would have to return anything. As for a tax eligibility, a healing effect is definitely not 100%. If the past payments in favour of statutory bodies are not based on historical records from the general meeting about the fact that it is possible to pay a reward to the statutory body for the discharge of the function up to the specific amount annually. It is not possible to rule out that passing all of the historically paid rewards, which would have been paid only by one resolution of the general meeting accepted on the basis of the new decision of the Highest court, will be not convincing enough to consider it to be fiscally effective.

Nevertheless, the decision of the general meeting can only be recommended in the above-mentioned spirit – it is certainly better than not solving the situation at all.

What does the fresh decision of the Highest court bring into practice? Does it follow on from it, perhaps, that it is not possible to apply the advantages to the statutory bodies, which the civil code offers to the employee? No fear – it is not like this. However, if the company wants to provide some advantages and security following on from the civil code for employees to its statutory body, the company must deal with this. It is not possible to subordinate the contract with the Managing Director or Member of the Board without the civil code. However, the specific provision of the civil code the contractors wish to apply to the contract of the statutory body in the company could be expressly stipulated in the text of the contract about the discharge of the function. On the basis of that provision, the stipulated regime will be binding for both of the contractors and the civil code will assert itself indirectly.

Do not forget to prove what contract protects the discharge of the function of the statutory authority for your company and in case of need to rectify the situation, we are ready to help you.

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