New government wants to reform Labour Code

The new coalition government in the Czech Republic has agreed on the need to reform the Labour Code in force since January 2007. Proposed changes include liberalisation of employment for a determinate period, reduced severance pay for those working for an employer for less than two years, and enhanced opportunities for companies to employ people on a so-called ‘contract for the performance of a work assignment’. Employee benefit changes are opposed by the trade unions.

The new government coalition in the Czech Republic, consisting of the Civic Democratic Party (ODS), TOP 09 and the Public Affairs party (VV), has agreed on the need to reform the Labour Code (Act No. 262/2006 Coll.) that has been in force since 1 January 2007.

Key changes to Labour Code

Perhaps the most radical change to the Labour Code will be the possibility for companies to offer a contract of employment for a set period without limitations. At present employers can offer fixed-term employment contracts for a maximum of two years. ‘Tentatively, we agreed the employment contracts for a determinate period to be without any limit. This should motivate companies not to be afraid of hiring graduates,’ Jaromír Drábek, the TOP 09 negotiator, told the Czech daily newspaper Hospodářské noviny. This measure should increase flexibility in the labour market and help inexperienced graduates find a job more easily.

Another important change is a reduction in severance pay for employees who have been working for the same employer for less than two years. An employee working in the company for less than one year will receive one month’s severance pay and an employee who has been with the company for one to two years will receive two months’ severance pay. The previous entitlement to three months’ severance pay will come into effect only after two years’ of work with the same employer. ‘Severance pay reduction should motivate companies not to be afraid of creating new jobs,’ according to Mr Drábek.

The third radical change is a proposal that people who only work for a company occasionally could work for up to 300 hours a year on a ‘contract for the performance of a work assignment’. No health and social insurance is paid under such contracts and at present no-one can be employed on such a contract for more than 150 hours a year. It was feared that employers would be allowed to dismiss workers without notice, but it is proposed that the current minimum of two months’ notice remains a requirement of the Labour Code.

‘These changes to the Labour Code will improve the business environment in the Czech Republic,’ said the negotiator and new Vice-Chair of ODS, Pavel Drobil.

Reaction to the proposals

The head of the Confederation of Industry of the Czech Republic (SP ČR), Jaroslav Míl, welcomed these changes, saying that if companies can dismiss people more easily, they will also hire new ones more willingly. He considers the plans of the coalition partners (ODS, TOP 09 and VV) a move in the right direction.

Whereas employer representatives accept these changes, trade unions warn that the emerging coalition wants to reduce employees’ security. ‘Proposals like that will only make people angry and will divide society even more than it is divided nowadays,’ claimed Josef Středula, head of the Czech Metalworkers’ Federation (OS KOVO).

Another forthcoming change with which the trade unions disagree is the cancellation of state subsidies of employee benefits, especially meal vouchers and the so-called ‘free rail passes’ (discounted tickets for railway employees and their family members). Cancellation of employee benefits had been unsuccessfully proposed by Mirek Topolánek’s government in 2008 (CZ0802019I). ‘Tax advantage of benefits is unsystematic, unfair and no minister of finance should agree with it. This opinion is shared by my future coalition partners. We have talked about it. Therefore, I hope it will change soon,’ said Miroslav Kalousek, the new Minister of Finance.

The Czech-Moravian Confederation of Trade Unions (ČMKOS) considers the announced cancellation of employee benefits highly ill-considered, since according to ČMKOS canteen meals in particular are absolutely commonplace for employees’ motivation and health in EU countries at a time of economic crisis. By cancelling the advantageous taxation of employee benefits in terms of the value-added tax (VAT), the state may lose more than the tax would yield.

For the time being, however, the proposed changes are at the design stage.

Soňa Veverková, Research Institute for Labour and Social Affairs (RILSA)

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