The Czech Labour Code, which implemented the EU Acquired Rights Directive (ARD),  briefly and ambiguously deals with TUPE type transfers of employees (typically resulting from a sale or transfer of a business). Consequently, the practical application of the Code in this regard is uncertain and far from being settled law.

In practice, despite the Czech TUPE legislation which provides for the automatic transfer of employment contracts, Czech companies often formally terminate the employment contracts of the affected employees by a termination agreement, which is followed by a new employment contract with the subsequent employer.

In such cases, the Czech Supreme Court has heard a number of claims from “transferred” employees alleging that their employment termination agreement was concluded “de facto” due to organizational reasons and therefore claiming a statutory severance payment from their original employer. Up until now, the Supreme Court in has consistently dismissed such claims on the basis that the formal termination agreement and the new subsequent employment contract means, for the purpose of severance payments, that the employer remains the same and so entitlement to a statutory severance payment cannot arise.

Notwithstanding these decisions, what was not clear was whether or not the termination of employment prior to and because of a TUPE transfer, was valid at all and, further, whether it could affect the automatic transfer of employment under the Czech TUPE regulation.

This issue has now been answered by the Supreme Court (21 Cdo 2911/2012), which decided that the transfer of employment under TUPE regulation is excluded if the employment contract has been terminated prior to the transfer date. If a new employment contract is concluded immediately thereafter between the employee and the transferee company, its terms are new and independent from the original employment contract.

The Supreme Court also declined to consider the prior employment termination as only a formality, due to the automatic TUPE transfer of the employment contract, as this interpretation would lead (according to the Supreme Court) to the possibility of avoiding the two month statutory time limit following the termination date, during which the alleged invalidity of the employment termination by a notice or an agreement must be challenged in court pursuant to the Labour Code. 

It is worth emphasizing that Supreme Court decisions on this subject contradict, in our opinion, the basic underlying principles of the ARD, including the automatic transfer of employment to a new employer and the protection of employees against termination because of the transfer.

It remains unclear whether this case was an intentional deviation from EU law, which will therefore have influence on how other cases are decided, or an isolated decision reflecting the specific factual circumstances. There is some concern that this judgment may further increase uncertainty surrounding the application of the Czech TUPE legislation, which will only be clarified or rectified by future case law of either the Supreme Court or the Court of Justice of the EU.