Changes in employee representation on supervisory boards

The Czech Parliament has approved an amendment to the Corporations Act which ensures a renewed obligation upon joint-stock companies to have employees represented on their supervisory boards of (also referred to as co-determination).

Historic overview

Historically, the obligatory representation of employees on supervisory boards of joint-stock companies was stipulated by the Czech Commercial Code. However, the Code was repealed on 31 December 2013.

According to the Commercial Code, for companies with more than 50 employees and which satisfied minimum working hours requirements, two-thirds of the members of a supervisory board should be selected by the General meeting of the company and one-third by the employees.

By-laws of the company were nonetheless able to determine a higher ratio of supervisory board members elected by employees (provided the number did not exceed those elected by the General meeting) or could permit employees to elect supervisory board members even if the number of company employees was less than required by the law.

From 1 January 2014, the Corporations Act contained no provision with regard to the obligatory representation of employees on supervisory boards, leaving a void following the repeal of the Commercial Code. In the interim it was not clear how the requirements continued to operate, especially how existing employee representatives and by-laws of the company stipulating voluntary co-determination, might be affected.

Current situation

Amendment to the Corporations Act on 14 January 2017 re-asserts the obligatory representation of employees on supervisory boards of joint-stock companies although allows a transitional period for compliance.

Importantly, the new provisions do not affect as many companies as previously. The Act only imposes an obligation upon joint-stock companies with more than 500 employees. However, by-laws of the company may still determine that employees can elect supervisory board members even if the number of company employees does not reach the required limit.

The Act requires that two-thirds of the members of supervisory board shall be selected by General meeting of the company and one-third by the employees. The number of supervisory board members shall be divisible by three. By-laws of the company may determine a higher number of supervisory board members elected by employees, although such number cannot exceed the number of members elected by the General meeting.

Affected Czech companies have a two year transitional period to adjust their by-laws, organise elections and change the composition of their supervisory board to comply with the new provisions.