Penalties for disguised employment intermediation are set to become tougher.
Penalties for disguised employment intermediation are set to become tougher.
It is also set to become a criminal offence. What risks do companies face?
How to distinguish between legitimate outsourcing and disguised employment intermediation, and why a contract for work alone is not enough
What penalties companies already face and how the proposed criminal law could extend liability to suppliers, clients and their management
Why companies should review how their supplier relationships operate in practice and what measures they can take to reduce the risk of penalties
For several years, disguised employment intermediation has been one of the areas on which labour inspectorates have focused intensively when inspecting employers. Illegal labour hire currently carries fines of up to 10 million Kč, a ban on activity and other restrictions on business activities.
A further significant tightening of the legislation is now being prepared. A parliamentary amendment proposes introducing a separate criminal offence of disguised employment intermediation, which would carry a prison sentence of up to eight years in more serious cases. Criminal liability could affect not only suppliers of labour, but also companies that use their services.
Where is the line between legitimate outsourcing and disguised employment intermediation? This article summarises how these models are distinguished, what penalties companies already face and what the proposed criminal law would bring. It also includes practical recommendations on what to focus on when reviewing supplier relationships.
When does outsourcing become disguised employment intermediation?
Using external suppliers is a common part of doing business. Companies use them to provide, for example, production, logistics, cleaning or other operational activities, and outsourcing itself is, of course, not unlawful. A problem arises, however, when the supplier does not in fact provide the agreed service or deliver the agreed work, but merely supplies labour.The Employment Act defines disguised employment intermediation as an activity consisting of hiring out labour to another person without complying with the conditions for employment intermediation.
Typically, this occurs when a company enters into a contract for work or a services agreement with a supplier, but the supplier’s employees in practice work as the client’s employees: they follow instructions from the client’s managers, work at the client’s premises and generally use its equipment.
In practice, such a model resembles agency work. This is, however, subject to specific legal regulation and may be carried out, under the conditions laid down by law, only by employment agencies holding the relevant authorisation. The following table explains the differences between regulated agency work and ordinary outsourcing.
| Criterion | Agency work | Outsourcing |
|---|---|---|
| Type of contract | Typically a framework agreement setting out common terms and conditions, together with individual agreements for each employee. Agreement on the temporary assignment of a specific employee of an employment agency to a user undertaking. |
Contract for work. Mandate agreement. Unnamed contract (e.g. for the provision of services). |
| Nature of cooperation | The agency supplies labour to the client. | The supplier independently provides the agreed work or service. |
| Management of workers | The client organises and manages the work. | The supplier organises and manages the work. |
| Responsibility for the outcome | As a rule, the agency is not responsible for the outcome as for a work product. | The supplier is responsible for the agreed performance and any defects. |
| Supplier’s independence | The agency supplies workers according to the client’s needs. | The supplier independently organises its activities and ensures they are carried out. |
| Workplace and equipment | Workers generally use the client’s workplace and resources. | The supplier provides the resources it needs or, where relevant, uses the client’s resources under a contractual arrangement. |
| Remuneration | Generally based on the amount of labour supplied. | Based on the agreed performance or another method of price calculation. |
The line between legitimate outsourcing and disguised employment intermediation may not always be clear.
The fact that an agreement is labelled a contract for work is not decisive: depending on how the cooperation operates in practice, it may constitute legitimate outsourcing or disguised employment intermediation.
As a contract for work is a very flexible type of contract, individual circumstances do not in themselves determine the legal nature of the relationship. For example, using the client’s machinery or invoicing by hours worked does not necessarily mean that disguised employment intermediation is taking place. The actual nature of the cooperation is decisive.
The Supreme Administrative Court also emphasises this in its case law. The key question is whether the supplier genuinely provides an independent service under its own responsibility, or whether its activities are limited to supplying employees whose work is managed by the client.
The case law considers a range of circumstances that must be assessed in their overall context.
| Criterion assessed | What may indicate disguised employment intermediation | Relevant case law |
|---|---|---|
| Independence and complexity of the service | The supplier does not provide its own comprehensive service, but merely supplies labour in line with the client’s current needs. | NSS, 2 Ads 173/2014-28; NSS, 1 Ads 20/2023-49 |
| Organisation and management of work | Specific work tasks are assigned and monitored by the client’s managers, not the supplier’s. | NSS, 7 Ads 244/2024-23; NSS, 3 Ads 240/2020-29 |
| Responsibility for the outcome | The supplier bears neither genuine business risk nor responsibility for a service provided independently. | NSS, 2 Ads 173/2014-28; NSS, 4 Ads 349/2021-53 |
| Certainty and separability of the work | No specific independent work product can be identified; workers perform routine activities interchangeable with those of the client’s permanent employees. | NSS, 7 Ads 244/2024-23; NSS, 1 Ads 240/2023-53 |
| Operational and organisational integration | The supplier’s employees work alongside the client’s permanent employees, perform similar activities and are subject to the client’s work organisation. | NSS, 4 Ads 349/2021-53; NSS, 1 Ads 240/2023-53 |
| Equipment, materials and work tools | The supplier does not use its own resources and performs the work mainly using the client’s equipment. This is, however, only a supporting circumstance. | NSS, 4 Ads 349/2021-53; NSS, 3 Ads 240/2020-29 |
| Contractual arrangements and actual performance | The contract defines the subject of performance in general terms, does not correspond to the actual organisation of work, or the agreed handover procedures for the work are not followed in practice. | NSS, 1 Ads 20/2023-49; NSS, 7 Ads 244/2024-23 |
Note: The criteria summarise case law; they are neither an exhaustive list of indicators nor arranged in a fixed hierarchy.
These principles are well illustrated by a Supreme Administrative Court judgment concerning the provision of handling work at the Penny Market retail chain.
Although the supplier had entered into a contract for work and had a coordinator for its own employees, the court concluded that the substance of the cooperation was the supply of labour. The decisive factor was particularly that the client determined the scope of the daily work through its shift supervisors and the supplier’s employees did not produce a separate, identifiable work product, but merely supplemented the client’s workforce.
Disguised employment intermediation already carries fines worth millions
The first significant milestone in the development of the legislation was 2 August 2021, when an amendment to the Employment Act came into force. It made it possible to penalise not only disguised employment intermediation itself, but also enabling it. Liability was therefore extended to clients, meaning companies that use labour in this way.Under the current legislation, a legal entity or a natural person carrying on business may be fined from 50 thousand Kč up to 10 million Kč for disguised employment intermediation or enabling it. In addition to a fine, a ban on activity for up to two years or publication of the decision on the administrative offence may also be imposed from 2025.
The level of penalties is also significant in practice. According to the State Labour Inspection Office’s annual summary report for 2025, a total of 253 fines amounting to over 172 million Kč were imposed for disguised employment intermediation and enabling it. Of these, 95 fines totalling approximately 89 million Kč related specifically to enabling disguised employment intermediation.
Problematic supplier models may also be subject to tax inspections. In addition to employment law penalties, they may therefore give rise to tax risks, such as a challenge to the right to deduct VAT or an additional assessment of obligations relating to dependent activity.
It is therefore clear that liability has long extended beyond illegal labour suppliers and also represents a significant risk for their business partners.
Criminal liability is also set to apply
The existing administrative offence penalties are now set to be supplemented by criminal liability. Its introduction is included in a parliamentary amendment to the government’s bill on certain measures in connection with the armed conflict in Ukraine in relation to the amendment of the Criminal Code, currently being considered as Chamber of Deputies Bill No. 213.From a business perspective, the most significant point is that the proposed criminal liability is intended to apply not only to companies supplying labour, but also to those that enable disguised employment intermediation to take place.
Depending on the specific circumstances and whether the conditions for criminal liability are met, the client’s responsible managers and members of its statutory bodies, as well as the legal entity itself, may also be at risk.
Specifically, the proposal provides for the insertion of a new criminal offence under § 250a into the Criminal Code, which would allow disguised employment intermediation on a larger scale, as well as enabling it as part of business activities, to be punished as a criminal offence.
The proposal does not, however, define the element of the offence ‘on a larger scale’ in greater detail.
For similar elements of offences under § 342 and § 251 (unauthorised business activity) and § 342 (unauthorised employment of foreign nationals) of the Criminal Code, legal literature primarily considers the results of the activity carried out, the number of people employed, the duration of their employment, the form and frequency of recruitment, as well as the amount of profit earned. The standard threshold for damage on a larger scale of 100 thousand Kč under § 138 of the Criminal Code therefore cannot be regarded as an automatic criterion for criminal liability. Unless the proposed legislation is changed, its specific interpretation will depend on enforcement practice.
The proposed sentencing ranges are summarised in the following table.
| Seriousness of the conduct | Proposed penalty |
|---|---|
| Basic offence | Imprisonment for up to 3 years or a ban on activity. |
| Commission of the offence as a member of an organised group or obtaining a substantial benefit (1 mil. Kč) | Imprisonment for 1 to 5 years. |
| Obtaining a benefit on a large scale (10 mil. Kč) | Imprisonment for 3 to 8 years. |
Tougher penalties for foreign nationals and new investigative powers
The amendment does not, however, stop at introducing a new criminal offence. It also expressly extends the offence of unauthorised employment of foreign nationals under § 342 of the Criminal Code to disguised employment intermediation and enabling it.It will therefore target cases where this is used to arrange work for foreign nationals residing unlawfully in the territory of the Czech Republic or foreign nationals without the required work authorisation. In the most serious cases, a prison sentence of up to ten years would apply.
The proposal also expands the powers of law enforcement authorities to detect this criminal activity. For example, in cases of disguised employment intermediation committed by a member of an organised group, interception and recording of telecommunications may be used subject to the conditions laid down by law. The possibilities for sharing information between the Police of the Czech Republic, the tax administration and the labour inspectorates will also be expanded.
According to the explanatory memorandum, the proposed changes aim to combat more effectively organised structures that generate high profits through illegal employment and circumvent their legal obligations.
What should companies do now?
The starting point is a critical assessment of whether the supplier genuinely provides the agreed service independently or merely supplies labour. This should be reflected not only in the contractual arrangements, but above all in how the cooperation operates in practice.Amending the contracts alone will not solve the problem. If the cooperation continues in practice to operate as a hire of labour, even a carefully drafted contract for work will not remove the risk of the arrangement being classified as disguised employment intermediation.
In some cases, it may therefore be necessary to change the way work is organised, strengthen the supplier’s independence or replace the existing cooperation model with another lawful solution, such as using a properly licensed employment agency or employing workers directly.
If the supplier operates as an employment agency, it is advisable to verify the existence and scope of its authorisation in the register of employment agencies.
The changes outlined above should not be underestimated. The proposed criminal law represents a further significant tightening of the penalties for disguised employment intermediation. Given that high penalties already affect both parties to a supplier relationship, companies should not wait until the legislative process is complete before reviewing their business relationships.