Category: Czech Republic

We would like to present to you a summary of the most important court decisions regarding employment law handed down in 2021.

1. Equal pay for equal work must be guaranteed (regardless of whether in Prague or in Olomouc)

The Constitutional Court of the Czech Republic confirmed that it is inadmissible to pay different wages to employees performing the same work for the same employer but in different regions.

Specifically, the dispute concerned the fact that a driver for the Czech Post in Olomouc was paid less than a driver performing an equivalent job in Prague. The Czech Post argued that the difference in wages between employees with equivalent jobs is due to factors that include higher costs of living. Since costs of living are higher in Prague, a driver in Prague should have a higher wage, according to the Czech Post. The Constitutional Court stated that such reasoning is inadmissible and the remuneration for equal work of equal value must be equal regardless of workplace. 

(Decision of the Constitutional Court, dated 31 August 2021, file No. I. ÚS 2820/20)

2. Employers may validly withdraw from a non-compete clause without stipulating any reason

The Constitutional Court concluded that an employer may withdraw from an agreed non-compete clause even without stipulating any reason if this possibility was agreed between the parties. Such practice was inadmissible until the issuance of this decision.

An employer and an employee concluded a non-compete clause. The employee was obliged to refrain from certain gainful activity for six months following the termination of his employment and was entitled to half of his remuneration for such restriction. The employee resigned. The employer withdrew from the non-compete clause several days before the expiry of the termination notice period without stipulating any reason. Until the issuance of this decision, such withdrawal was ineffective. The Constitutional Court reconsidered this practice and stated that it is possible for an employer to validly withdraw from a non-compete clause in this manner depending on the particular circumstances of the relevant case. However, the withdrawal should not be arbitrary or constitute an abuse of the employer’s rights against the employee (e.g. withdrawal just before the end of the employment relationship, even though the employer could have done so at any earlier time).

(Decision of the Constitutional Court, dated 21 May 2021, file No. II ÚS 1889/19)

3. Only employers are liable for damage caused by employees

The Supreme Court of the Czech Republic decided that employers have sole liability for damage caused by employees while performing their work. However, this applies only if the employees have not acted excessively while performing their work.

In the given case, the employee, acting on the instructions of his employer, unlawfully dismantled and removed a customer’s kitchen equipment. This conduct caused damage to the customer. The customer sued both the employer and the employee. The Supreme Court has held that if the employee does not deviate from the limits of the employer’s instructions in performing his work (i.e. if the employee does not act excessively), he cannot be obliged to compensate the plaintiff for damage. In such a case, only the employer is obliged to pay damages. 

(Decision of the Supreme Court, dated 26 October 2021, file No. 25 Cdo 1029/2021)

4. When to reimburse employees for stand-by time 

The Constitutional Court stated that if an employee remains at the employer’s disposal during a break (for a meal or rest break) (e.g. he is always ready to work as a firefighter at the airport), then such breaks must be paid. 

In addition, the CJEU decided in another case that stand-by time during which an employee performs other self-employed professional work with the consent of his employer, but must often be ready to work within ten minutes if called, does not constitute “working time” and thus does not require remuneration. The CJEU further stated that the possibility to engage in other gainful activity during stand-by time is an important indicator that the terms of the stand-by time do not impose significant restrictions on the employee that have a very significant impact on the way in which the employee manages his time.

(Decision of the Court of Justice of the European Union, dated 11 November 2021, file No. C‑214/20, and decision of the Constitutional Court, dated 18 October 2021, file No. II. ÚS 1854/20)

In closing:

This is just a short summary of a selection of the most important employment case law from 2021. 

If you are interested in other topics, we would be happy to talk about them as well. Some of the topics that are still being addressed in the current situation include regulations regarding working from home, determination of annual leave, flex time accounts, compulsory vaccination of employees, obligation of statutory board members to act with due care. 

By Borivoj Libal, Associated Partner, and Barbora Safarikova, Associate, Noerr

There are few people who have not experienced a situation where a builder implements a project that complies with the spatial planning documentation, but is highly incongruous with the prevailing character of the area in which the structure is to be built. Specifically, construction of buildings in the 1990s and early 21st century, which belong to the pseudo-style called “entrepreneurial baroque”, is evidence of grossly insensitive location of buildings, ignoring the character and nature of the existing neighbourhood. Nonetheless, the trend in Czech building legislation over the last decade and a half has been an increasing emphasis on the aesthetic features of new developments and their integration into the urban and architectural environment, whereas individual interests of the builder and his oftentimes wild ideas about the appearance of the structure tend to be sidelined. The key here is the concept of “urban and architectural values in the area”.

The focus on the protection of the urban and architectural character of the development is demonstrated in Title I of Act No. 183/2006 Coll., on Spatial Planning and Building Code (“Building Act” or “BA”). According to Section 18(4), one of the objectives of spatial planning is the protection and development of the “natural, cultural and civilization values of the area, including the urban, architectural and archaeological heritage.” Section 19 of the BA describing the tasks of spatial planning refers to these values in two places: 

• in paragraph 1(a), according to which the task of spatial planning is to identify and assess its natural, cultural and civilization values; and
• in paragraph 1(b), which provides that the area development shall be conducted with respect to the values and conditions of that area.

At first glance, it would seem that, considering that the existence of urban and architectural values in a particular area is determined in the context of the preparation of spatial planning documentation[2], the protection of these values takes place solely within the framework of the assessment of compliance of the construction project with the spatial planning documentation. Since the Building Act came into force, however, legislation[3] has distinguished between the assessment of whether the applicant’s project complies with the spatial planning documentation and the assessment of whether the project meets the objectives and tasks of spatial planning, which include the preservation of urban and architectural values, see above. The interpretation that these are two independently assessed criteria has been upheld by the Supreme Administrative Court, which ruled as follows: “The assessment of the conformity of the project with the issued spatial planning documentation and the conformity of the project with the objectives and tasks of spatial planning, in particular with the character of the area, with the requirements for the protection of architectural and urban values within the area are, pursuant to Section 90 of the Building Act, two different categories of aspects.“

The assessment of a construction project under current legislation is carried out pursuant to Section 96b(3) of the BA, but its method remains unchanged: even if the project complies with the spatial planning documentation, any nonconformity with the urban and architectural values in the area precludes the issuance of a positive binding opinion of the spatial planning authority. But what exactly are these urban and architectural values which are not necessarily identifiable from the spatial planning documentation, yet may play an important role in spatial planning proceedings? Because the language enshrined in the recently passed new Building Act also observes the aforementioned scheme, it is worth clarifying the content of the term “urban and architectural values.” 

If we sought a legal definition, we would look in vain; although the law uses the term, it does not define it at any point. Considering that even higher courts’ case-law does not provide a definition of this term, we have to resort to consulting state administration’s conceptual and methodological documents.

One definition of urban values can be found in the Methodology for Identification and Classification of Areas with Urban Values: “an area with a historically and aesthetically valuable urban composition including parts of settlements, dispersed developments or urbanized landscapes.”  A rough analytical definition of architectural values in a specific area can be derived from the list of characteristics that the Architecture and Building Culture Policy of the Czech Republic assigns to a quality architectural work; for buildings, the following are evaluated: aesthetic aspect, technical design, social value, setting in the environment, maintenance and other criteria. As is apparent, both definitions are rather vague.

We believe that the umbrella term “urban and architectural values” is broader than the term “heritage protection”. In keeping with the Ombudsman’s Office we are of the opinion that the concept of assessing conformity of a construction project with urban and architectural values in the area is a complementary tool for protecting valuable structures in cases where a certain area is not listed as a conservation site. Where developments are to be built in an area in which the state conservation authority invokes an interest pursuant to section 14(4) of Act No. 20/1987 Coll., on State Conservation, the state conservation authority issues a binding opinion within the proceedings conducted under the Building Act, which by itself provides the urban and architectural values in a particular area with the protection they deserve. Conversely, let’s imagine a situation where the approved spatial planning documentation does not sufficiently meet the objectives and tasks of spatial planning (e.g. urban and architectural values in the area have been insufficiently identified) – in such a case, the assessment of the conformity of the project with the urban and architectural values of a particular area is practically the only tool safeguarding the characteristic nature of the given development.

In practice, it is primarily the participants in spatial planning proceedings who draw attention to possible nonconformity of a construction project with urban and architectural values. The Building Act provides participants in the proceedings with the possibility to raise objections to the project under Section 89(1), where this argument can be applied. We are well aware, however, that this is an abusable tool that, if overused, might unnecessarily hinder development construction even in locations not requiring increased protection of values. In this respect, it is worth mentioning the Supreme Administrative Court’s case-law concerning the location of the construction work in an area without architectural and urban values. The Court has ruled that in the context of such a development, the “foreignness” of the project need not be detrimental; on the contrary, the Supreme Administrative Court has spoken on this occasion of “architectural provocation”, i.e. of projects that are “in conscious and architecturally sophisticated opposition to the existing style of development”, which may be “a style-forming element or the basis for a gradually emerging new architectural character of the locality.”

The aforementioned Supreme Administrative Court’s judgment 7 As 17/2010-101 is important for another reason. It clearly states (and the Methodology for Identification and Classification of Areas with Urban Values supports this conclusion) that even an entirely modern development can manifest urban and architectural values. In contrast to urban sprawl, where the developer sells off land plots with basic infrastructure and leaves the actual construction to the landowners, there are new housing developments in the Czech Republic that are implemented in line with a unified urban and architectural concept, comprise attractively designed public spaces and generally conform to the existing structures. Such developments may be of urban and architectural value and, therefore, eligible for protection in the implementation phase of spatial planning. Again, it is apparent that the protection of urban and architectural values in the area and conservation are not one and the same. 

In conclusion, it can be said that the concept of assessing the conformity of a project with the urban and architectural values in a specified area is a functional tool protecting the urban and architectural environment of a particular locality from disturbing construction projects. On the other hand, it should not be overestimated, as it only protects urbanistically and architecturally valuable buildings. Nonetheless, with regard to increasing pressure to speed up construction, it is positive that Czech legislation includes this concept, because, as is well known, the aesthetic value of construction is one of the prerequisites for the well-being of its inhabitants.

By Kristyna Faltynkova, Attorney at Law, PRK Partners

Allen & Overy has advised Raiffeisenbank on the opt-in of its outstanding English law governed mortgage covered bonds into the new regulatory framework in the Czech Republic, stipulating rules as to the governance of cover pools, and on the consequent issuance of EUR 500 million mortgage covered bonds listed on the Luxembourg Stock Exchange.

According to Allen & Overy, “the opt-in was of most importance for Raiffeisenbank a.s. as it allows it to maintain a single cover pool regulated by the same regulation for mortgage covered bonds issued under its legacy English law governed mortgage covered bond program and recently established German law governed mortgage covered bond program. Following the single combined meeting of the mortgage-covered bondholders in which they consented to the opt-in, Raiffeisenbank a.s. issued mortgage covered bonds under its international German law mortgage covered bonds program that was originally established in November 2020.”

Allen & Overy’s team included Prague-based Partner Petr Vybiral, Associate Tomas Kafka, and Junior Lawyer Josef Pavlicek, with further teams in the UK and Germany.

Clifford Chance has advised Ceskoslovenska Obchodni Banka on the refinancing of the Czech solar portfolio consisting of five photovoltaic power plants acquired in 2020 for Czech subsidiaries of Enery Development group. CMS advised Enery on the deal.

Enery Development is a Vienna-based renewable energy company that has recently made an investment in the Czech Republic by acquiring 36 photovoltaic power plants.

Clifford Chance’s team was led by Partner Milos Felgr and included Senior Associates Hana Cekalova and Dominik Vojta and Junior Lawyer Tomas Kubala.

CMS’ team included Partner Pavla Kreckova, Associates Lenka Kucerova and Hana Ricankova, and Lawyer Andrea Haushalterova.

The government of the Czech Republic has approved a new decree concerning investment incentives. The new rules should bring significant changes not only for large investors, but also for small and medium-sized technology companies, which will now also be able to access direct financial support. The new rules will take effect as of 1 January 2022.

The Czech Republic has become an economy that is highly oriented towards industry, but with low added value. In the 1990s, the Czech government supported the model of maximizing the workforce, when the state attracted manufacturing companies to the Czech Republic which were intended to employ as many people as possible. However, this model has become inefficient against the backdrop of the modern economy. Therefore, the Czech government aims to provide subsidies to domestic and foreign companies which may create operations with a high added value for the Czech economy.

Possibility of obtaining direct payments

The amendments introduce substantial changes to the area of investment incentives, which aim to motivate and increase the efficiency of how investment incentives are used both in the field of advanced technologies and in deprived regions of the Czech Republic. One significant change is the extension of the possibility of obtaining direct financial support for strategic investment actions, which has proven to be a very effective motivational tool for investors to actually implement their project. 

According to the amendments, an investor will be able to receive up to 20% of its investment costs (with no limit on the total amount), if it invests in the Karlovy Vary, Ústí nad Labem or Moravian-Silesian regions. In other regions, the incentive-to-cost ratio of the project remains at 10% and the total value of incentive is capped at CZK 1.5 billion (approximately EUR 60 million). 

In order to obtain such a direct subsidy, the investor will have to create at least 250 new jobs and invest at least CZK 2 billion in total (approximately EUR 80 million), from which at least half has to be spent on the acquisition of machinery.

This means that in the relevant regions, if the investor invests at least CZK 2 billion in total and creates at least 250 new jobs, the state will directly reimburse the investor up to 20% of its costs, without any limit on this payment.

Advanced technology support 

However, the above-mentioned conditions for investment incentives in the form of direct payments (i.e. a minimum number of new jobs and minimum value for a total investment) will not apply to privileged technological industries. 

The government will support investments in the manufacturing of products of strategic importance for the protection of life and health (e.g. respirators, surgical instruments and defibrillators) as well as investments focusing on selected branches of the manufacturing industry involving a high level of technological complexity. This includes the production of pharmaceutical products and preparations, the production of computers, electronic and optical instruments and equipment, aircraft production and their engines, spacecraft and related equipment that are carried out by high added value activities (e.g. advanced materials technology, nanotechnology, advanced manufacturing technology, biotechnology, photonics, microelectronics, nanoelectronics and artificial intelligence technology). 

In the best-case scenario, the technological industries mentioned above may obtain an investment incentive in the form of a direct payment amounting up to 20% (with no limit on the total amount of such direct payments), without the obligation regarding the total amount of investment and new jobs. 

This change will provide substantial support to medium and small technological start-ups which are not able to invest a huge amount of money and employ many workers. Such start-ups may, however, carry out research and development and in this way create a modern economy with high added value in the Czech Republic.

Transformation of the Czech economy

The Czech Republic needs to take steps to become a modern high added value economy. But the new rules regarding investment incentives are not the only opportunity for investors to modernize their operations. 

The Czech Republic has approved a National Recovery Plan setting out plans for reforms and investments, which intends to use funds under the European Recovery and Resilience Facility (RRF). The National Recovery Plan will allocate billions to digitalization, sustainable energy and safe transport, decarbonization, clean mobility, science and preventative healthcare. The National Recovery Plan will take effect as of 2022. 

The Czech Republic is on the verge of major changes in the structure of its economy.

By Michal Janicek, Senior Associate, Matej Korduliak, Legal Advisor, Noerr

Clifford Chance has advised Generali Real Estate on the acquisition of two office buildings in Prague from CPI Property Group. Rybar, Soppe & Partners reportedly advised CPI on the deal.

According to Clifford Chance, “the buildings are located in the dynamic business district of Pankrac and span 37,700 square meters of office space. They have been Generali Group’s headquarters for Central and Eastern Europe since 2008 and have been adapted to a hybrid working model in the last two years in order to ensure flexibility and work safety of the employees. The properties will undergo extensive refurbishment to minimize its carbon footprint by reducing energy consumption and increasing the use of renewable energy resources and smart technologies.”

Clifford Chance’s team was led by Partner Emil Holub and Counsel Milan Rakosnik, supported primarily by Associate Josef Lysonek.

Partner and Head of the Energy and Infrastructure practice Vit Stehlik has been promoted to Executive Partner at White & Case in Prague, as of January 1, 2021, replacing Partner and Head of the firm’s CEE Real Estate practice Petr Panek. Panek will be in charge of developing White & Case’s operations in eleven SEE countries as the firm’s new SEE Country Practice Head.

Stehlik specializes in the areas of energy law, construction, M&A, PPP projects, and disputes. Stehlik joined White & Case in 1999, as a Legal Intern, and was promoted to Attorney in 2000 and Partner in 2009.

Panek’s areas of practice include Real Estate, Financial Restructurings, Fund Formation, M&A, Dispute Resolution, and Regulatory Matters. Panek has been leading Prague Office as Executive Partner since 2018. He has been with the firm since 2003, having first joined as an Associate, and later promoted to Partner in 2009. Prior to joining the firm, he was an Associate at Glatzova & Co for five years.

“I feel honored at the opportunity to lead our successful Prague office, and am very much looking forward to this new role,” Stehlik commented. “I would like to thank Petr for the work he has accomplished in this position … As we enter a new era, we are facing a number of challenges. One of them surely is the unprecedented transformation of the energy sector, with its fundamental consequences for all segments of society. Giving good counsel to our clients as they tackle the impact of this reform will be among my main priorities.”

“Leading the Prague office, with its fantastic team, hugely successful clientele, and excellent results was my great pleasure and honor,” Panek added. “I am confident that we will continue to go from strength to strength with Vit at the helm … I hope to be able to contribute, in my new managerial role, to growing our business in the SEE region, and to strengthening the position of the Prague office as a hub for this region.”

CMS has advised J&T and Concens Investments on their EUR 150 million sale of five Ostrava logistics halls to EQT Exeter. Dentons reportedly advised the buyer.

The Ostrava assets cover a total of 140,000 square meters. The warehouses are located in two industrial parks: Logistics Park Nosovice and the Ostrava Airport Multimodal Park, located in Mosnov.

EQT Exeter is a global real estate solutions provider serving corporate and consumer tenants. The company focuses on acquiring, developing, and managing logistics/industrial, office, life science, and residential properties in Europe, the Americas, and Asia.

The CMS team was led by Partner Lukas Hejduk and included Senior Associate Magda Ullmannn and Associates Michal Samek and Jaroslav Lepka.

In the run-up to Christmas, two interesting opinions were issued by public authorities that address some controversial matters frequently encountered in practice regarding cookies and telemarketing.

On 22 December 2021, the Office for Personal Data Protection issued an opinion in the form of a reply to questions raised about the new legislation on cookies under the amended provision of Sec. 89 (3) of the Act on Electronic Communications (the “Act”). Under the amended provision, a user’s consent is required to store data or to gain access to data stored on the user’s equipment (with the exception of so-called “strictly necessary cookies”).

Key points:

• Withdrawing/refusing consent should be as easy as giving it. So, merely giving users the option to accept or to manage cookies is insufficient. A third option – “reject all (except strictly necessary cookies)” – is also necessary.
• Storage and access to cookies under Sec. 89(3) of the Act must be differentiated from the processing of data obtained through these cookies. Such processing is governed by the GDPR and, theoretically, there might be other legal reasons for the data processing (e.g. legitimate interest of a data controller). Even in these cases, however, it is necessary to obtain users’ consent to store cookies on their devices, and without such consent further processing is banned.
• Pre-ticked consents are not allowed, not even for analytical cookies.
• After having refused to give consent to storing or processing of cookies, the user cannot be prevented from visiting the relevant website.

The new legal regulation on telemarking was also clarified thanks to a joint opinion of the Ministry of Industry and Trade, the Czech Telecommunications Office and the Office for Personal Data Protection, issued on 21 December 2021. The opinion, also in the form of a reply to questions, addressed the amended sections 66, 95 and 96 of the Act on Electronic Communications. Under these new provisions, telemarketers may only use information available in public telephone directories if the users have indicated in the directory that they wish to be contacted for marketing purposes (this is contrary to the previously used “opt-out” principle). 

Key points:

• These provisions apply only to telemarketing carried out using information available in a public telephone directory. The new legislation does not affect the contacting of customers in accordance with Section 7 of Act No. 480/2004 Coll. on Certain Information Society Services or customers and users who have given their explicit consent.
• This legislation does not apply to information published directly by the user, e.g. contact details on company websites. For this information the GDPR or Act No. 480/2004 Coll. applies.

Even a call to obtain a user’s consent to telemarketing is considered telemarketing.

By Michal Matejka, Partner, PRK Partners

Kinstellar has advised the Portiva investment group on its acquisition of the Astrid Offices building in Prague from the UBM Group. Deloitte Legal advised the UBM Group on the sale.

According to Kinstellar, the building was completed in May 2021 and has 4,300 square meters of office space and 440 square meters of retail space on the ground floor. Its tenants include Budejovicky Budvar, Algon, EAG, and SKF. Since December, the building has also become the headquarters of the UBM Group.

Portiva is a Czech investment group focusing on energy, real estate, automotive software services, and investment fund management.

The Kinstellar team was led by Partner Jan Juroska and included Counsel Martina Brezinova, Managing Associate Adam Nemec, Senior Associate Martina Mazurkova, Associate Anna Veselska, and Junior Associate Alice Radvanovska.

The Deloitte Legal team was led by Senior Managing Associate Martin Kolacek and included Senior Associate Lukas Kade and Associate Simon Dusek.