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Civil Code Abandons Special Manner of Representation in Labor-Law Relations

Czech Republic: Amendment abolishes the requirement for legal entities with a collective statutory body to act in a special manner towards their employees

The provision of Sec. 164 (3) of the Civil Code, which will remain in force until 27 February this year, requires that legal entities which have a collective management body (the "collective statutory body") authorize one of the members of this body to engage in legal transactions vis-a-vis employees; in the absence of any specific appointment, this particular competency lies with the chairperson of the statutory body. This obligation is typically relevant for the board of directors of a joint-stock company, but also for the managing directors of a limited liability company if its memorandum of association envisions that several directors form a management board (collective statutory body).

Back when the Civil Code was adopted, a dispute broke out over the question whether the cited provision gave rise to a special manner of acting on behalf of the legal entity vis-a-vis its employees, and if so, whether this special manner of engaging in legal transactions was "superseding" the general rule of representation. To put it differently: if the Articles of Association of a joint-stock company stipulate that two board members must always act jointly on behalf of the company (general rule of representation), should the appointed "labor" director nonetheless act alone vis-a-vis employees (special rule of representation and manner of acting towards the employees)? These ambiguities should have been removed by a decision by the Supreme Court, which found that the said appointment, or "authorization", did constitute a special manner of acting on behalf of the legal entity vis-a-vis its employees, and as such will have to be entered in the relevant public register (case No. 29 Cdo 880/2015). According to the Supreme Court, the lawmaker, by including this provision in the Civil Code, presumably sought to bolster legal certainty on the part of employees of the legal entity, because following this rule ought to make it clear which particular member of the collective statutory body has the authority to act on behalf of the legal entity in labor-law matters. However, the said decision was subject to substantial criticism, and moreover left a number of questions unanswered and issues unresolved.

The amendment to the Civil Code contained in Act No. 460/2016 Coll. finally abolishes this provision altogether which envisioned a special kind of manner in acting for legal entities with a collective management body in interactions with their employees. Beginning as of 28 February 2017, the general rules for acting on behalf of a legal entity will apply also to legal transactions involving employees of that legal entity.

Source: Act No. 460/2016 Coll., amending Act No. 89/2012 Coll., the Civil Code, and related other laws