Managing directors and members of the board of directors are in practice often appointed from the top management of the company.
Does Czech legislation allow an employee to be an executive or a member of the board of directors at the same time? Under what conditions is this permissible? And does it mean that the appointment of the employee to the position terminates the employment contract? What is true and false concurrence of functions? Find out in today's article.
The statutory regulation for managing directors and members of the board of directors (hereinafter referred to as "members of the elected body") provides for specific rules concerning their creation, their remuneration, liability and, finally, the manner of termination of their office. These differ from the relationships established by the Labour Code (Act No. 262/2006 Coll., the Labour Code) in that stricter requirements are placed on a member of an elected body and at the same time his liability is not limited by the rules of the Labour Code.
In practice, a member of an elected body performs his/her function, has a contract for the performance of his/her function with the company (pursuant to Section 59 et seq. of Act No. 90/2012 Coll., on Commercial Companies and Cooperatives (Act on Commercial Corporations)), and at the same time performs a managerial function as an employee on the basis of an employment contract. This situation is legally referred to as concurrence and has significant legal implications for both the member of the elected body and the company in which he/she works.
This article provides answers to the following questions:
True and false concurrence
A member of an elected body is responsible for the business management of the company and performs his/her function on the basis of a contract of office or the rules set out in the Companies Act, if no contract of office has been concluded. If a member of the elected body is also an employee of the company, there is a so-called concurrence, which can be divided into genuine and non-genuine.
True concurrence occurs when the performance of the duties of a member of an elected body and the employment relationship overlap in substance. This is most often the case when a member of an elected body is also an employee in a managerial position (CEO, CFO, Sales Director, Production Director).
The situation where a member of an elected body performs activities on the basis of an employment contract that do not overlap with business management is an unlawful concurrence. In this case, this may include various professional activities, auxiliary work, etc.
Consequences of concurrences
The answer to the question of the consequences of true and false concurrence can be found in a number of court decisions. Non-concurrency is generally legally permissible, but is not very common in practical life.
True concurrence has long been rejected by the courts of the Czech Republic and is not admissible. Thus, it is not possible for a member of an elected body to simultaneously hold a managerial position in a given company on the basis of an employment contract.
Should an employment contract for a managerial function be concluded between the company and a member of an elected body, the employment contract arrangement shall be assessed as an amendment to the contract of office or as a contract of office itself.
This has significant implications, in particular:
Subjecting the contract of service to the Labour Code
However, the content of the performance contract may be subject to the Labour Code, provided that the relationship does not become an employment relationship, but the rules of the Labour Code (e.g. calculation of holidays, travel allowances, meal allowances) are incorporated into the contract and act as an agreement between the parties. It remains the case that such a contract must be approved by the company and there can be no limitation on the liability of a member of an elected body.
Promotion of an employee to the position of a member of an elected body - termination of the employment contract?
Managing directors and members of the board of directors are in practice often appointed from the top management of the company. Thus, the CEO (employee) may be promoted and become a member of an elected body (executive director or board member) by decision of the company.
In this context, the question arises as to what are the consequences of the creation of the office of a member of an elected body on the existing employment relationship, should a true concurrence arise. Current case-law shows that, in such a case, the employment relationship based on an employment contract automatically ends at the moment of appointment as a member of an elected body.
If the Chief Executive Officer (employee) decides to accept a position as a member of an elected body, his/her employment shall terminate. If the member of the elected body is subsequently removed from his/her position, his/her employment with the company in question will end completely, since his/her employment contract has already ended in the past.
However, the court's decision recognises that the parties may deviate from this regime and negotiate different rules. Thus, it may be agreed that the contract of employment will be temporarily suspended, with full reinstatement upon termination, or that the dismissed member will be offered another position.
Conclusion
A member of an elected body is obliged to perform his/her function with due care and is obliged to ensure the business management of the company. These activities may not be performed on the basis of an employment contract or other relationship subject to the Labour Code and constituting an employment relationship.
In the case of true concurrence, a situation may arise where a member of an elected body receives remuneration from a commercial company illegally, without a legal reason, which may have a number of negative consequences for the member, especially in the event of bankruptcy of the commercial company and subsequent recovery of the remuneration by the insolvency administrator.
Setting up contractual relations between a member of an elected body and the company in which he or she operates is a complex issue with significant implications for both parties, which should be consulted with professional advisors.
This article was prepared for POHODA Portal -> https://portal.pohoda.cz/
Autor: Aleš Malach
Does Czech legislation allow an employee to be an executive or a member of the board of directors at the same time? Under what conditions is this permissible? And does it mean that the appointment of the employee to the position terminates the employment contract? What is true and false concurrence of functions? Find out in today's article.
The statutory regulation for managing directors and members of the board of directors (hereinafter referred to as "members of the elected body") provides for specific rules concerning their creation, their remuneration, liability and, finally, the manner of termination of their office. These differ from the relationships established by the Labour Code (Act No. 262/2006 Coll., the Labour Code) in that stricter requirements are placed on a member of an elected body and at the same time his liability is not limited by the rules of the Labour Code.
In practice, a member of an elected body performs his/her function, has a contract for the performance of his/her function with the company (pursuant to Section 59 et seq. of Act No. 90/2012 Coll., on Commercial Companies and Cooperatives (Act on Commercial Corporations)), and at the same time performs a managerial function as an employee on the basis of an employment contract. This situation is legally referred to as concurrence and has significant legal implications for both the member of the elected body and the company in which he/she works.
This article provides answers to the following questions:
- Can a member of an elected body also be an employee of the company in which he/she serves?
- Does the employment contract of an employee (e.g. CEO) who is promoted to the position of managing director terminate?
True and false concurrence
A member of an elected body is responsible for the business management of the company and performs his/her function on the basis of a contract of office or the rules set out in the Companies Act, if no contract of office has been concluded. If a member of the elected body is also an employee of the company, there is a so-called concurrence, which can be divided into genuine and non-genuine.
True concurrence occurs when the performance of the duties of a member of an elected body and the employment relationship overlap in substance. This is most often the case when a member of an elected body is also an employee in a managerial position (CEO, CFO, Sales Director, Production Director).
The situation where a member of an elected body performs activities on the basis of an employment contract that do not overlap with business management is an unlawful concurrence. In this case, this may include various professional activities, auxiliary work, etc.
Consequences of concurrences
The answer to the question of the consequences of true and false concurrence can be found in a number of court decisions. Non-concurrency is generally legally permissible, but is not very common in practical life.
True concurrence has long been rejected by the courts of the Czech Republic and is not admissible. Thus, it is not possible for a member of an elected body to simultaneously hold a managerial position in a given company on the basis of an employment contract.
Should an employment contract for a managerial function be concluded between the company and a member of an elected body, the employment contract arrangement shall be assessed as an amendment to the contract of office or as a contract of office itself.
This has significant implications, in particular:
- such a contract must be approved by the body that appointed the member of the elected body (most often the general meeting), otherwise it does not produce legal consequences,
- it will not be an employee-employer relationship (for example, the liability of a member of an elected body cannot be limited).
Subjecting the contract of service to the Labour Code
However, the content of the performance contract may be subject to the Labour Code, provided that the relationship does not become an employment relationship, but the rules of the Labour Code (e.g. calculation of holidays, travel allowances, meal allowances) are incorporated into the contract and act as an agreement between the parties. It remains the case that such a contract must be approved by the company and there can be no limitation on the liability of a member of an elected body.
Promotion of an employee to the position of a member of an elected body - termination of the employment contract?
Managing directors and members of the board of directors are in practice often appointed from the top management of the company. Thus, the CEO (employee) may be promoted and become a member of an elected body (executive director or board member) by decision of the company.
In this context, the question arises as to what are the consequences of the creation of the office of a member of an elected body on the existing employment relationship, should a true concurrence arise. Current case-law shows that, in such a case, the employment relationship based on an employment contract automatically ends at the moment of appointment as a member of an elected body.
If the Chief Executive Officer (employee) decides to accept a position as a member of an elected body, his/her employment shall terminate. If the member of the elected body is subsequently removed from his/her position, his/her employment with the company in question will end completely, since his/her employment contract has already ended in the past.
However, the court's decision recognises that the parties may deviate from this regime and negotiate different rules. Thus, it may be agreed that the contract of employment will be temporarily suspended, with full reinstatement upon termination, or that the dismissed member will be offered another position.
Conclusion
A member of an elected body is obliged to perform his/her function with due care and is obliged to ensure the business management of the company. These activities may not be performed on the basis of an employment contract or other relationship subject to the Labour Code and constituting an employment relationship.
In the case of true concurrence, a situation may arise where a member of an elected body receives remuneration from a commercial company illegally, without a legal reason, which may have a number of negative consequences for the member, especially in the event of bankruptcy of the commercial company and subsequent recovery of the remuneration by the insolvency administrator.
Setting up contractual relations between a member of an elected body and the company in which he or she operates is a complex issue with significant implications for both parties, which should be consulted with professional advisors.
This article was prepared for POHODA Portal -> https://portal.pohoda.cz/
Autor: Aleš Malach