Category: Czech Republic

Many employers currently find themselves in a precarious position, faced with deciding how to deal with the obstacles to work arising from the coronavirus crisis, irrespective of whether these obstacles are the result of government measures (total or partial restrictions on operations) or due to real operational reasons (difficulties in the supply of materials for production, drop in sales). The Labour Code does not take into account obstacles to work caused by the pandemic, and employers are thus faced with issues in the interpretation of the relevant provisions of the Labour Code. In the text below we will attempt to clarify the issue of obstacles on the part of the employer, at least in part.

Note: This post does not take into account businesses with working hours accounts. 

OBSTACLES TO WORK ON THE PART OF THE EMPLOYER

Downtime (Section 207 (a) of the Labour Code)

If employees are temporarily unable to work due to a reduction in the supply of raw materials or power, or for other operational reasons, this is known as downtime.

In such a case, the employer may transfer the employee to another task, and if the wage is lower for that task, the employer will be obliged to provide the employee with a wage supplement up to the amount of his/her average earnings.

If the employer does not transfer the employee to another task, the employee will be entitled to wage compensation to the amount of at least 80 % of their average earnings.

Downtime provisions will most often be applied by employers whose production requires the importing of a large number of component parts, e.g. from abroad.

Natural disaster (Section 207 (b) of the Labour Code)

Opinions are now also being voiced amongst the professional community that a coronavirus pandemic could be considered a natural event, even if this does not reflect the traditional understanding of its meaning.

If this interpretation were upheld by state administration bodies (or in courts), the employer would have the option to reduce wage compensation due to this obstacle to up to 60 % of average earnings if it did not transfer the employee to another task.

Other obstacles to work (Section 208 of the Labour Code)

In general, if an employer is unable to allocate work to an employee (and there is no reason for this to be defined as downtime or interruption of work due to adverse weather conditions or natural disaster), this is a so-called other obstacle to work on the part of the employer, for the duration of which the employee is entitled to wage compensation of 100 % of their average earnings.

On 12 March 2020, the Ministry of Labour and Social Affairs published an opinion on its website, from which it can be inferred that employers who have closed down or restricted a workplace for some time in connection with government measures should, in the current situation, proceed as if it were an obstacle on their part under Section 208 of the Labour Code and provide employees with wage compensation of 100 % of their average earnings (unless they are able to utilise their employees in other ways). It can be anticipated that, for many employers, such a procedure would be unacceptable after a certain period of time and could lead to even less desirable redundancies. 

On 18 March 2020, the State Labour Inspection Office issued an opinion confirming the aforementioned opinion of the Ministry of Labour and Social Affairs. At the same time, however, it admitted the application of the Labour Code on partial unemployment (see below) for other cases, i.e. if it is not an obstacle that has occurred as the result of government measures ordering them to close premises to the public, or restrict their operations, but nevertheless resulted in a fall in sales of their products or services, and a fall in sales and production, as a result of the situation that has occurred with these employers.

It should be noted that these opinions are not legally binding.

Partial unemployment (Section 209 of the Labour Code)

The wording of the Labour Code implies that so-called partial unemployment occurs when the employer is not able to allocate work to the employee within the weekly working hours due to a temporary restriction of sales of its products or a reduction in demand for services provided by it.

In such a case, wage compensation may be reduced to 60 % of the average earnings by agreement with the trade union and, if no trade union is active with the employer, on the basis of the employer’s internal regulations.

There is considerable uncertainty around the interpretation of the term partial unemployment. According to an unofficial statement of an employee of the Ministry of Labour and Social Affairs, it is necessary for the employee to work at least a certain number of hours per week (e.g. instead of 40 hours per week, the employee works for only 10 hours per week). According to other opinions, the requirements for partial unemployment are met by working at least some weeks of the month. According to others, it is sufficient that at least one of the employees does “some” work. The ambiguous wording of the provision in question contributes to the inconsistent interpretation.

However, if the intention and purpose of this regulation is to seek to preserve as many jobs as possible, i.e. in order to avoid full unemployment for the workers concerned, the above views cannot be justified.

It remains to be hoped that in the near future another (although still legally non-binding) opinion of the Ministry of Labour and Social Affairs, one that offers a more comprehensive interpretation of the concept, i.e. that can also apply, for example, to cases in which the employer closes entire premises for a period in excess of a week, will be issued. We will have to wait for a legally binding interpretation – either in the framework of an amendment to the Labour Code, which would clarify the vague wording, or in the case law of the Supreme Court.

STATE AID

Contribution at a time of partial unemployment

Based on an agreement with the employer, the Labour Office may provide the employer with a contribution during a period of partial unemployment (pursuant to Section 115 of the Employment Act) in the event of both partial unemployment and natural disasters (here, though, natural disaster is defined as a natural phenomenon under the directly applicable EU regulation, which does not provide for a pandemic), provided that the following conditions are met for the conclusion of a contribution agreement:

 a) The employer may not allocate work equal to at least 20 % of the set weekly period;
 b) It will provide wage compensation in accordance with the Labour Code and, at the same time, will provide wage compensation of at least 70 % of average earnings since the conclusion of the contribution agreement with the Labour Office;
 c) In the contribution agreement, the employer undertakes not to terminate employment due to organisational changes during the period agreed with the employer for the provision of a contribution.

The amount of the contribution is 20 % of the employee’s average earnings, but not more than 0.125 times the average wage in the national economy in the first to third quarters of the previous calendar year, i.e. CZK 4,178 (0.125 x CZK 33,429). The contribution agreement is subject to the prior consent of the government.

FLASH NEWS:

Upcoming antivirus employment protection programme

In the evening of 19 March 2020, the Ministry of Labour and Social Affairs introduced the Antivirus Employment Protection Programme, under which the state is to compensate employers through the Labour Office in the form of a contribution for full or partial wage compensation in the event of an obstacle on the part of the employee (quarantine order) or the employer (obstacle – closure of premises due to a government order to close) if it is shown that the obstacle at work was due to infection by COVID-19.

According to a press release, this contribution will be paid

 (i) in the case of the quarantining of employees, to the full amount of wage compensation (i.e. 60 % of the average assessment base), and
 (ii) in the event of impossibility to assign work to employees due to government emergency measures requiring the closure of premises, and the employer will pay compensation to the employee of 100 % of wages, the employer will receive a contribution equal to 80 % of paid (replacement) wages. It follows from the text of the press release that it appears to not deal with cases in which operation is merely restricted due to government regulation, for example.

The Programme is expected to cost CZK 1.2bln.

Changes to care benefit

At the same time, the Ministry of Labour and Social Affairs issued a press release according to which people will be able to receive care benefits (for further information on the care benefit, please see our newsletter of 16 March 2020) for the whole period of school closure, whereby the parents of children up to the age of 13 years (rather than the current 10 years) will now also be eligible to receive the benefit. However, the amendments must still be approved by Parliament in emergency proceedings and, after approval, the care benefits will be paid retroactively.

By Marie Gremillot, Attorney at Law and Lenka Kubicka, Associate, Schoenherr

A new Act No. 39/2020 Coll., on Real Estate Brokerage, came into effect in the Czech Republic on 3 March 2020. The Act tightens the requirements on real estate brokers (including real estate agencies) and implements new elements of protection for those using real estate brokerage services.

The main line of business of real estate agencies, i.e. real estate brokerage, is newly considered a regulated trade. This means that besides proving impeccability (including the impeccability of the beneficial owner and executive body), the real estate broker must prove professional qualification, i.e. sufficient level of education, the combination of both education and experience, or have passed a professional exam.

During the performance of his activities, the real estate broker has the duty to be insured. The indemnity limit is at least CZK 1,750,000 (approx. EUR 69,200) on one insurance claim and CZK 3,500,000 (approx. EUR 138,000) in case of the concurrent occurrence of several claims. These limits are reduced to 50 % for real estate brokers who provide real estate brokerage (i) on behalf of a legal entity or (ii) in their own name, but with the unmistakable use of the business name (or brand name) of a legal entity.

To be valid, an agreement on real estate brokerage must be concluded in written form and contain statutory requirements (including the amount of commission or the method of its determination). Only the user of the service can raise an objection of invalidity of the agreement for such reasons.

The commission is due at the earliest on the day of the conclusion of a real estate agreement (i.e. purchase agreement, lease agreement, etc.). The commission may be agreed to come due by the day of the conclusion of the real estate agreement if the real estate brokerage agreement (e.g. an agreement between a real estate agency and a user) contains an acknowledgement of the user that the due date of the commission is not bound to the conclusion of the real estate agreement. However, the commission may not come due before the moment the opportunity for the user to enter into a real estate agreement was created. It is possible to agree on a commission deposit, which in the case of a consumer may not exceed two-thirds of the commission amount agreed.

The real estate broker has several notification duties towards the user, e.g. he must provide him, to the extent stipulated by law, with (i) information on the amount of the commission or the method of its determination in case it was agreed on with the other party, and (ii) information on encumbrances on the object of transfer or lease.

Agreements on exclusive real estate brokerage with a consumer are newly limited to a maximum period of six months. Subsequently, the parties may extend the real estate brokerage agreement (however, not earlier than 30 days before the expiry of the agreed time period).

The real estate broker is newly authorised to accept funds into escrow only if the user explicitly requires so in writing on a separate document. At the same time, the real estate broker must fulfil a number of duties, e.g. to establish a separate bank account for each transaction, to inform the bank of the beneficial owner of the funds and to keep records of the escrow.

By Viktor Pakosta, Attorney at Law, Schoenherr

The acquisition of a sports club is definitely a specific process in many respects and requires preparation on several fronts. This article takes a closer look at one of the first steps to undertake before acquiring a sports club, namely legal due diligence. Along with the areas usually checked, one must pay attention to several specific areas stemming from the specific characteristics of the sport (and each type of sport has not only its own considerable further specifics, but also its own unique risks).

First, it is important to understand that a professional sports club can often be a trading company.¹ The reasons for this are mainly economic and are related to the legal person’s area of work which in most case is “entrepreneurship”. There are many parallels and legal risks in acquiring a sports club that can also be seen in the acquisition of any other trading company. In that respect, the methods commonly applied in a standard due diligence can be followed.

Along with legal, tax and financial advisors, it is recommended that further advisors also participate in a sports club acquisition, particularly sports advisors. Without them, it can be quite hard to detect all the risks and cover them in transactional documentation.
On what areas then should the prospective bidders for a sports club or the lawyers performing due diligence for them focus?

Sports venues

The most valuable property of a sports club will typically be its sports venue. One might imagine that the owner of the venue is the sports club itself. But in fact, professional sports clubs are not the owners of their venues in most cases. One of the reasons for this may be the regime for providing subsidies according to Section 6b of Act no. 115/2001 Coll. on sports promotion (“Act on Sports Promotion”), which states that the government primarily supports societies whose area of activity is sport.² It is common for a sports club to conclude a lease contract with another legal person corresponding to the parameters of Section 6b of the Act on Sports Promotion. In that case it is appropriate to check the conditions of lease, including all appendices, and to know the conditions regarding possible easements and other burdens connected to the property. Beside contractual stipulations, it can be noted at the same time that Section 7a of the Act on Sports Promotion provides definite duties regarding not only the owner of the sports venue, but also the operator, or the organizer of sport events, which in some cases is the sports club itself.

In terms of due diligence, it would be advised to check whether a particular sports venue fulfils the specific criteria for participating in certain sports competitions (e.g. the minimum capacity of the sports venue)³ and, if needed, other norms stipulated by general legal regulations. Not all of those criteria can be verified by a lawyer, therefore at some points cooperation with other advisors might be required. Other property which is also owned or used by a sports club should not be neglected (sports arenas for training, restaurants, sporting goods shops, parking, etc.) and could be subject to similar audits to the main sports venue itself (i.e. a stadium or other sporting arena).

Athletes and others

The other valuable assets of a sports club are the athletes themselves, therefore their contracts should also be subject to due diligence, particularly the relevant provisions on the length of the contractual relationship, sanctions, termination of contract and of course remuneration, the level of which can be established in advance for the whole duration of the contract or can be contingent upon results. In practice, clauses regarding remuneration cuts in case of injury or temporary indisposition or disqualification are also common.⁴ The state of health of an athlete who is unable to perform should not ultimately be seen as the worst scenario, considering there is also the possibility of temporary suspension due to breaking anti-doping rules (where an athlete may be disqualified from performing sports for four years).⁵ In case of the main star of the team this can be the key parameter that might influence the total acquisition price.
Professional contracts with athletes can set out fines linked to so-called best effort clauses. For instance, they may contain a stipulation that the player is obliged to participate in games that he is selected for, and to play “according to the best of his ability”.⁶ Considering the requirement of a fairly exact and fixed specification of the duty, which, if not fulfilled, gives rise to the right to a conventional fine, as inferred from consistent case law⁷, it is probable that a contractual stipulation regarding the athlete’s performance formulated as “according to the best of his ability” or “with maximum effort” could be classified as too vague.

Apart from the athletes themselves, it is important to keep in mind the other persons connected to the sports club and helping to achieve the results, be it individual members of the team (coaches, team physicians) or sports club employees. Contracts with these individuals should also be subject to due diligence.

State aid

In practice, state aid for the sports sector is quite common, so it is important to note that during the acquisition of a sports club it is worth making sure the sports club has not received illegal state aid under Article 107(1) of the Treaty on the Functioning of the European Union. Support constitutes state aid if (i) it was granted by the State or through State resources, (ii) the support distorts or has the potential to distort competition by (iii) favoring certain enterprises or (iv) affecting trade between EU countries. The European Commission through decision-making practice has come to the conclusion that sports clubs can be considered enterprises in the sense of the TFEU and can affect trade between EU countries (e.g. participation in multinational sports competitions, providing wider access to more effective propagation of the sports club, sponsorship or media law).⁸ One example is a case that was heard by the Office for the Protection of Competition, in which the provision of illegitimate state aid (rent cuts, advertisement ordering and credit granting by a company controlled by the city) by the statutory city of Pardubice to HC ČSOB Pardubice a.s. sports club. The Office expressed the opinion that procurements regarding financing of top level sport from the public budget can lead to trade disruption and can affect competition.⁹

Sports regulations

Sport governing bodies issue their own regulations, which all members (sports clubs) are obliged to follow. These sports regulations have certain specifics which potential bidders have to know in case they intend to participate in competitions organized by such sports union. In the future, sports regulations could influence bidders’ decisions concerning, for instance, the issue of the transfer or acquisition of an athlete. Typically, these are transfer regulations, according to which a so-called registration period (transfer window) is established, when it is possible to complete the transfer of an athlete to another sports club in terms of competition [under competitive terms?/which is a competitor?]. Therefore, the analysis of further sports regulations that may determine the functioning of the sports club is necessary.

Sponsorship contracts

Sports clubs often enter into several sponsorship contracts, thus creating a further significant source of income, e.g. Naming rights agreements, the aim of which is the building up of sponsors and their brand awareness, oftentimes by means of naming the sports venue at which a sports club performs after them.¹⁰ While undertaking due diligence, one should pay attention to sponsors’ rights and duties clauses, the duration and termination conditions of contracts, conventional fines, options and exclusiveness that would disable cooperation with other sponsors, and any other advertisement restrictions in case of holding other non-sports competitions in the venue.

Broadcasting rights contracts

Broadcasting rights contracts can also be counted among one of the further sources of a sports club’s income. These are standard license contracts, the key provisions of which concern the extent of the rights of a particular media type (television, the Internet, radio, etc.), as well as the language and territory of broadcasting. Next, it is possible to come across provisions concerning broadcasting by means of as yet poorly developed technologies, which might effectively limit future interested parties, especially if other better advanced technologies are suggested to them by rival companies. By way of illustration, sports broadcasting by means of virtual reality technologies, which offer fans the feeling of being present in the stadium, could be cited as a good example. Some experts even speculate that in the future, the connection of sport with virtual reality will allow the sale of virtual tickets that will help overcome the obstacle of the limited capacity of sports stadiums, which in effect may increase viewer ratings and the popularity of a chosen sport.¹¹ The renowned NBA, for instance, is already experienced in broadcasting sports by means of virtual reality; they have been using the technology since 2016.¹² In the Czech First League, the standard practice is for sports clubs to grant broadcasting rights on the basis of an exclusive license to one subject who then offers them as a single block of broadcasting rights.

Conclusion

In conclusion it can only be added that proper preparation pays off not only in sport, but also in the acquisition of a sports club. If an investor does not want his opponent to win (not only on the sports field, but also in transaction negotiation), it always comes in handy to have the “Mannschaft” that will guarantee your success

¹ In practice, it is no more an exception that sports clubs function like joint-stock companies or limited liability companies. For instance, during the 2019/2020 season of the highest-level ice hockey competition (Tipsport Extraliga), there were 14 hockey teams in total, 8 of which had the legal structure of stock company, and 6 teams had the legal structure of LLC.
² In this regard, the subsidy program managed by the Ministry of Education, Youth and Sport called “Podpora materiálně technické základy sportu – ÚSC, SK a TJ“, can be mentioned. One if its aims was to support the reconstruction of sports venues.
³ E.g. License Rules for participation in Extra League Ice Hockey. Available >>> here [online]. ceskyhokej.cz [as at 11.11.2019].
⁴ JURKA, H. Právní úprava profesionálního sportu v České republice a zahraničí. Praha: Wolters Kluwer ČR, 2018, pg. 28.
⁵ Section. 10.2.1 Guidelines for control and sanctions in sport in the Czech Republic. Available >>> here [online]. antidoping.cz [as at 11.11.2019].
⁶ E.g. Section III., B paragraph 1 in conjunction with Section IX. of sample Players Contract. Available >>> here [online]. ceskyhokej.cz [as at 11.11.2019].
⁷ Decision of the High Court as at 27 April 2006, file no. NS 33 Odo 469/2006.
⁸ Hamerník, P. Regulace veřejné podpory profesionálnímu sportu jako příklad vyvažování zájmů na periferii práva EU, Právník no. 8/2017, pg. 686-706.
⁹ Statement of the Director of the State Aid Department of the Office for the Protection of Competition. Available >>> here [online]. uohs.cz [as at 11.11.2019].
¹⁰ For instance, Werk Arena in Třinec, DRFG Arena in Brno or O2 Arena in Prague.
¹¹ GREENBERG, J. Laura. MARTINEZ, M. Diana. The role of “extended reality” in sport & an overview of key global licensing considerations. lawinsport.com [online]. LawinSport, publikováno 22.2.2018 [as at 11.11.2019].
¹² NBA extends virtual reality deal with NextVR. Available >>> here [online]. SportBusiness, publikováno 26.9.2019 [as at 11.11.2019]. 

By Irena Kolarova, Senior Associate, and Jiri Ganger, Junior Lawyer, Rowan Legal