A new ruling of the Czech Constitutional Court represents a turning point in the compatibility of a performance agreement with an employment agreement. Under previous case law of the Supreme Court, one could not simultaneously be a member of a statutory body of the corporation and an employee. This resulted in the invalidation of numerous employment agreements including salaries agreed therein. However, the new ruling of the Constitutional Court held that both agreements can be simultaneously valid.
The Constitutional Court issued the ruling in proceedings regarding the constitutional complaint of a former chairman of a board of directors, who was simultaneously employed by the company. In 2009, he was stripped of his chairmanship. He claimed the right to a paid notice period based on his employment agreement. Lower courts denied his claim based on established Supreme Court case law and their decision was subsequently upheld in extraordinary appellate proceedings before the Supreme Court. Although incompatibility of the two functions was not prescribed by law at the time the agreement was entered into, the Supreme Court argued that a chairman’s duties cannot be considered as “dependent work” and that the same obligations cannot arise from two different agreements, thus rendering the employment agreement invalid. The chairman lodged a constitutional complaint against the Supreme Court decision, asserting a violation of his rights to due process and fair labour conditions.
The Constitutional Court decided in his favour in a ruling heavily critical of the Supreme Court’s reasoning. As the ban on the simultaneous performance of the two functions was not established by law, the general principle of contractual freedom must prevail and courts are to respect the will expressed by the parties in the employment agreement.
The new ruling is unlikely to resolve this issue once and for all. Firstly, the Court did not explicitly permit the simultaneous performance of the two functions, but rather ruled that the Supreme Court did not provide sufficient reasons to ban such an arrangement. Secondly, the case was decided based on law that has since been repealed and it is unclear whether the ruling can be applied to the current Civil Code. Furthermore, Constitutional Court rulings are not binding precedents for proceedings in different cases, though they are generally respected. Still, the ruling was made by a senate of three and the Court’s plenary session could adopt a different opinion. Only time will tell whether the Supreme Court will bow down to the Constitutional Court or defend its stance.