Beware of Significant Provision in the Agreement on Providing Contribution from the Antivirus Programme Posted on 16. aprilie 202016. aprilie 2020 by Gabriela Fuchsová We would like to draw your attention to the relatively significant, albeit hidden, provision contained in the agreement („the Agreement„) concluded between the Labor Office of the Czech Republic and an employer that applies for provision of a state contribution as compensation of wages paid to its employees under the Antivirus Programme (see our newsletter „Compensation Package for Employers Adopted by the Government of the Czech Republic”). In Article IX. of the Agreement entitled “Settlement”, it is set out that by concluding the Agreement, all claims of the employer against the state for damages caused by the relevant emergency measures of the government are settled when it comes to damages arising from the employer’s statutory obligation to pay wage compensation to employees due to obstacles to work incurred during the period for which the employer is entitled to the contribution. For employers, this is to exclude the possibility of simultaneously drawing money for wage compensation from the Antivirus Programme and to claim damages from the state in the future caused by adopted emergency measures regarding wage compensation paid by the employer using its own money. If employers receive a state contribution of 80% of wage compensation paid to employees under regime A, then by entering into the Agreement, they undertake to waive the claim towards the state for reimbursement of the remaining 20% of the wage compensation. This applies equally to regime B employees, i.e. their employers receive a contribution of 60% of the wage compensation paid out and for the remaining 40%, the state requests a waiver of the right to reimbursement to which the employer might otherwise be entitled from the state. The aforementioned approach by the state and the ‘settlement’ appear logical in relation to the amount of the state contribution granted. On the other hand, we consider the waiver of any compensation from the state in relation to the part of the compensation paid by the employer using its own money to be really pushed here by the state. In addition, the application for the contribution itself is silent as to any exclusion of future claims for damages in connection with the Agreement entered into and the payment of the contribution to wage compensation. Employers fill out this application through a web application that automatically generates the application after filling in, together with the Agreement to be concluded with the Labor Office of the Czech Republic. Thus, in an automatically generated Agreement, employers may not even notice a provision limiting their right to compensation from the state. Also, employers do not have a real opportunity to change the wording of the Agreement in any way and must accept the agreement if they wish to draw money from the Anvitirus Programme. It is also important to note that the state has not yet informed employers of this restrictive provision. This requirement is also neither reflected in any way in the conditions for receiving contributions in the announced Antivirus Programme, nor in the Employer Manual that was published afterwards. The Agreement concluded by the employer with the Labor Office of the Czech Republic is a so-called adhesion contract as the draft Agreement is unchangeable and the employer has no possibility to change its content in any way if they want to receive the state contribution. In addition, employers can be considered to be the weaker party in relation to the state, among other things because the employer usually applies for a state contribution in an acutely critical economic situation. The Civil Code stipulates that a provision of an adhesion contract which is particularly disadvantageous for the weaker party (without a reasonable reason) is invalid. We believe that the conclusion regarding invalidity should also apply to the aforementioned ‘settlement’ clause in the Agreements. In this respect, however, the courts will have the final say in the event of a dispute with the state. Perhaps a positive factor is that the state acknowledges its liability for the damage caused by the measures adopted, otherwise the authorities would not insert the provision on ‘settlement’ and ‘waiver’ into the draft Agreements. Please do not hesitate to contact us if you have any questions regarding the right to compensation from the state arising from the adopted measures in crisis or otherwise.
How to Employ Foreigners During the State of Emergency? Posted on 9. aprilie 20209. aprilie 2020 by Gabriela Fuchsová In connection with the COVID-19 pandemic, the government adopted a series of crisis measures which have an immediate impact on the employment of foreigners and their work in the Czech Republic. These include:(i) a ban on entry for foreigners to the Czech Republic and a ban on leaving the Czech Republic; and(ii) suspension of the reception of new visa applications and applications for temporary and permanent stays in the Czech Republic, as well as the suspension or discontinuation of proceedings regarding previously submitted visa applications or applications for stays in the country. The above crisis measures have a major impact on employers who employ foreigners from third countries (i.e. countries outside the EU/EEA and Switzerland). However, the projects and supplies of entrepreneurs who do not directly employ any foreigners but who use the services or supplies from foreign subcontractors can be also significantly influenced by these measures. In order to minimize the negative consequences of the above-mentioned prohibitions, we have prepared a brief overview for you of selected specifics related to the employment of foreigners at the time of the state of emergency. Specifics of Entry of Foreign Workers into the Czech Republic During the State of Emergency There are several exceptions to the general ban on entering the Czech Republic and the ban on traveling out of the country during the state of emergency which can be applied in the case of arrival of foreign workers. One of them is an exception for workers who regularly cross the borders of the Czech Republic for the purpose of work (so-called cross-border workers). This exception is most often mentioned in relation to Czech employees commuting to work to Germany and Austria, but it can also be used the other way round (i.e. in relation to foreign workers coming from neighboring countries to work in the Czech Republic). Although this exception applies in particular to workers who normally commute to work in a neighboring state daily or at regular intervals, it can also be used for the arrival of employees of foreign suppliers or subcontractors for the implementation of an international project (e.g. in the construction industry). However, it should be mentioned that these workers must be workers from neighboring countries of the Czech Republic. Moreover, these cross-border workers (commuters) must meet several prerequisites which differ according to the state from which they enter the Czech Republic. Therefore, it is always necessary to consider carefully whether this exemption is applicable in a particular case, all the more so since the rules for applying this exemption have changed several times in the state of emergency. Another exception to the ban on entry for foreigners in the Czech Republic is the exception for employees of critical infrastructure services. This is an exception for foreigners who are to carry out urgent or emergency servicing of critical Czech infrastructure – i.e. infrastructure that is so important that any disruption of its functioning would have a serious impact on the security of the state, security of basic living needs of the population, human health or state economy. It follows from the above that only a limited group of entities will be able to benefit from this exemption (in addition to critical infrastructure operators, also certain major suppliers to such operators). The advantage of this exemption is that, unlike some of the exceptions for cross-border workers, it neither provides for a minimum period of stay nor for a maximum distance of the place of work from the borders. In this context, it should be emphasized that the possibility of using any exemption from the ban of entry at the time of the state of emergency must always be assessed individually. For the application of individual exceptions, it may be decisive e.g. the worker’s domicile, the content of the employment contract or the activity to be performed by the worker in the Czech Republic. Specifics of Employment of Foreigners from Third Countries During the State of Emergency Currently, receipt of applications for residence permits is suspended at embassies of the Czech Republic. As a result of this measure, foreigners from third countries wishing to work in the Czech Republic can obtain a work permit, but they cannot receive a residence permit that is absolutely necessary for employment in the Czech Republic. If foreigners are already working in the Czech Republic, then they can continue to work here during the state of emergency. This applies even if their work permit expires before the state of emergency ends. The validity of a work permit is automatically extended after certain conditions have been met, up to a period of 60 days from the date of expiry of the state of emergency. Also, foreigners whose residence permit expires during the state of emergency are entitled to remain in the Czech Republic for the duration of the state of emergency. Foreigners working in the Czech Republic can change their employer during the state of emergency at any time. However, the change can only be made if (i) the new job is registered in one of the relevant central records of vacancies for foreigners maintained by the Labor Office of the Czech Republic or (ii) a new work permit is obtained. In view of the above, it is recommended to employers who are currently interested in employing foreigners to focus primarily on recruiting foreigners already residing in the Czech Republic. If an employer is forced to terminate or not prolong their employment relationship with a foreigner due to the economic impact of the pandemic, they are asked by the Ministry of Labor and Social Affairs to assist such employees with registration of the status of a job seeker on the website of the Ministry of Labor and Social Affairs, or to provide them with assistance in dealing with the situation (e.g. assistance to return to their country of origin). If the employer fails to comply with this obligation, the employer is at risk of limiting participation in or exclusion from government migration programs. We have extensive experience with the issue of employment of foreigners (including the application of individual exceptions to the ban on foreigners entering the Czech Republic during the state of emergency). We regularly monitor all restrictions and obligations arising from the crisis measures issued in connection with the state of emergency. We will be happy to provide you with legal assistance in this matter. If you have any questions regarding the employment of foreigners, not necessarily only during the state of emergency, please contact Lenka Droscová lenka.droscova@randalegal.com or Jakub Adámek jakub.adamek@randalegal.com.
New Insolvency Rules Resulting from the COVID-19 Pandemic Posted on 6. aprilie 20206. aprilie 2020 by Gabriela Fuchsová The current unusual situation caused by the COVID-19 pandemic will undoubtedly have substantial consequences for the economy of the Czech Republic. It can be expected that the amount of debts will rise sharply not only on the side of the state, but also on the side of citizens and business entities. Subsequently, many of these debts are not going to be repaid. Therefore, such debts will be claimed before the courts and other competent authorities sooner or later and subsequently enforced (either individually through enforcement proceedings or collectively through insolvency proceedings). The current emergency may thus lead to the bankruptcy of many entrepreneurs, both in the form of insolvency and in the form of over-indebtedness. In spite of the current extraordinary situation, entrepreneurs are still obliged to file an insolvency petition without undue delay after they have learned of their insolvency or should have learned about it exercising due care. This obligation is also not affected by the fact that the insolvency could have been caused by the current emergency and it could be expected that the debtor will be able to recover from the inability to pay its debts in the near future (the so-called temporary insolvency). This puts many entrepreneurs at considerable risk, as their personal property may also be at stake. Failure to file the insolvency petition creates the liability of these persons (including members of the statutory body) for damages. On March 31, 2020, the Government of the Czech Republic tried to mitigate the negative consequences of the COVID-19 pandemic on the economic situation of citizens and entrepreneurs by passing a bill (adopting draft legislation) to amend, inter alia, the Insolvency Act and the Act on Private Enforcement Procedure (hereinafter referred to as the „Amendment”). The Czech Republic thus follows the countries such as Germany or Spain which have already adopted certain changes to their enforcement or insolvency regulations. The most important proposed changes to the Czech insolvency law can be summarized as follows: 1.Limitation of the obligation of entrepreneurs to file debtor insolvency petitions: A new rule is introduced for entrepreneurs not being obliged to file a debtor insolvency petition within the period from the effective date of the Amendment until 6 months from the termination or cancellation of an emergency anti-epidemic measures (but no later than by December 31, 2020). An exception to this rule exists when (i) the insolvency occurred even before an emergency anti-epidemic measure was adopted, or (ii) the insolvency was not mostly caused by the emergency anti-epidemic measure that would make it impossible or substantially difficult for the debtor to fulfil its payment obligations. 2. Limitation of creditor insolvency petitions: Creditor insolvency petitions filed from the effective date of the Amendment till August 31, 2020 will not be taken into account. Thus, there is a legal fiction that no such insolvency petition will have been filed. Therefore, such filing will not even be published in the insolvency register. The purpose of this measure is, inter alia, to prevent the debtor from spending money to defend against a creditor’s insolvency petition. However, the creditors will still be entitled to exercise their civil-law rights (e.g. by offsetting or enforcing a collateral), in court proceedings or out of court. [1] This measure – unlike the limitation of the obligation of entrepreneurs to file debtor’s insolvency petitions – affects all debtors (i.e. not only entrepreneurs) and regardless of why and when the insolvency occurred. 3. Introducing an extraordinary moratorium: The Amendment establishes the rule that a debtor who is an entrepreneur and who has not been in bankruptcy at the date of March 12, 2020 can file a request for a so-called extraordinary moratorium by August 31, 2020. The effect of the moratorium is that: (i) the debtor cannot be declared insolvent for the duration of the moratorium, (ii) the debts required to maintain the debtor’s enterprise that arise after the extraordinary moratorium is introduced can be paid by the debtor during the moratorium preferentially, before previously due liabilities are met and (iii) the time limits for exercising rights against the debtor for the duration of the extraordinary moratorium neither commence nor continue to run. The debtor may file a motion for a moratorium order even before the filing of an insolvency petition and the commencement of the insolvency proceedings. In addition, unlike the current „normal” moratorium, the proposal for an extraordinary moratorium does not need to be approved by the majority of the debtor’s creditors. 4. Suspension of performance of a reorganization plan: A debtor whose reorganization plan has been legitimately (finally) approved as of March 12, 2020 at the latest is entitled to propose to the insolvency court to state that the debtor is entitled to temporarily suspend performance of the reorganization plan (provided that the plan has not yet been fully fulfilled). The performance of the reorganization plan may be interrupted for the period of time during which the obligation of entrepreneurs to file debtor’s insolvency petitions is to be limited (see section 2 above). During the said period, it will not be possible to convert reorganization into bankruptcy (i.e. the liquidating way of the bankruptcy solution). However, the insolvency trustee and the creditor committee must comment on the debtor’s proposal to suspend the reorganization plan. 5. Discontinuation of time limits for relative ineffectiveness of legal acts: During the period of limitation of the obligation of entrepreneurs to file debtor’s insolvency petitions (see section 2 above), time limits for objections to relative ineffectiveness of legal acts should be suspended. By claiming ineffectiveness of a legal act, creditors can defend themselves within the statutory time limit against legal acts of the debtor that jeopardize the payment of their enforceable claim. When the measures described above provide special protection to the debtor, it is equally fair, during the period of such emergency measures, to discontinue the time limits for creditors within which they can defend themselves against the debtor’s prejudicing acts. Nevertheless, it is recommended that creditors should, even during the state of emergency, carefully monitor changes in the structure of their debtors’ assets (e.g. in the land registry) so that they can effectively defend themselves against any prejudicing disposal of the debtor’s assets. The Government proposes that the Amendment is to be discussed by both chambers of the Parliament of the Czech Republic in an abbreviated procedure. Therefore, it can be expected that the Amendment may be passed in a few days. However, before the described changes to insolvency law become effective, entrepreneurs still have the obligation (i) to perform the so-called insolvency test and (ii) to file a debtor’s insolvency petition without delay after the defined prerequisites of insolvency are met. Failure to comply with this obligation may have far-reaching consequences not only for the legal entity, but also for the members of its statutory body, consisting mainly in incurring liability for damage caused thereby. We would like to assure you that we have extensive practical experience with insolvency law, from the point of creditors and debtors (and their statutory bodies). We also continuously monitor the current changes in Czech insolvency law. Please feel free to contact us if you have any questions regarding the above. At the same time, we are ready to provide you with comprehensive legal advice on imminent or already existing bankruptcy situation (if any) and solutions thereto under insolvency law, including protection against personal liability of members of statutory bodies of legal entities. Such advice can be provided in connection with your (imminent) bankruptcy situation, but also in the case of bankruptcy of your contractual partners (either suppliers or customers). Should you decide to enforce your receivables in a different manner than by insolvency, we will be happy to propose the best solution for you and to provide you with comprehensive legal representation. If you are in danger of bankruptcy as a result of the crisis-related measures of the Government of the Czech Republic, we are ready to provide you with comprehensive legal advice regarding claiming damages towards the state. [2] At the same time, insolvency can be an opportunity to expand your business activities, for example by buying a debtor’s enterprise. We also have considerable experience with insolvency acquisitions and, therefore, we can provide you with the necessary assistance in this regard. [1] For out-of-court dispute resolution options at the time of the coronavirus epidemic, see the ŘANDA HAVEL LEGAL newsletter called „Impact of the COVID-19 Epidemic on Dispute Resolution” that is available here: https://www.randalegal.com/download/files/newsletter_newsletter_praktickprvninformace_vii._engid244236.pdf. [2] For the possibility of claiming compensation from the State for crisis measures, see the ŘANDA HAVEL LEGAL newsletter on „Recent Developments in the Matter of State Liability for Damage in Connection with Measures in Crisis” that is available here: https://www.randalegal.com/download/files/newsletter_newseletter_praktickprvninformace_viii.engid244494.pdf.
Compensation Package for Employers adopted by the Government of the Czech Republic Posted on 3. aprilie 20203. aprilie 2020 by Gabriela Fuchsová Government of the Czech Republic yesterday (i.e. on 31 March 2020) adopted the new modified Compensation package for employers (“Antivirus Programme”) which we have previously reported. For the sake of clarity, the Government has combined the previously published compensatory measures into two (2) compensatory measures, i.e. regimes A and B listed below. Under the A regime the state will provide employers with a contribution in the amount of 80% of the wage compensation provided to an employee, including social and health insurance contributions, if the reason for the obstacle to work is • on the employee’s side “Quarantine ordered to an employee” (an obstacle under Section 191 of the Labour Code), whereas the amount of wage compensation provided by the employer is 60% of the employee’s average assessment base; or• on the employer’s side “Inability to assign work due to enterprise closure as a result of adopted emergency measures” (an obstacle under Section 208 of the Labour Code), whereas the amount of wage compensation provided by the employer to is 100% of the employee’s average earnings. The maximum amount of the contribution is derived from the current average supergross wage including social and health insurance contributions, and in this case amounts to approximately CZK 39,000. Under the B regime the state will provide employers with a contribution in the amount of 60% of the wage compensation provided to an employee, including social and health insurance contributions, if the reason for the obstacle to work is on the employer’s side • “Childcare or Quarantine Ordered to a significant part of employees, i.e. at least to 30% of employees” (an obstacle under Section 208 of the Labour Code), whereas the amount of wage compensation provided by the employer is 100% of the employee’s average earnings; or• “Limitation of the availability of inputs, i.e. material, products and services which are necessary for its activities” (an obstacle under Section 207 of the Labour Code), whereof the amount of wage compensation provided by the employer is 80% of the employee’s average earnings; or• “Reduced demand for services, articles and other products of the company” (an obstacle under Section 209 of the Labour Code), whereas the amount of wage compensation provided by the employer is at least 60% of the employee’s average earnings. The maximum amount of the contribution in this case is approximately CZK 29,000. The conditions for obtaining the above contributions are as follows: • the employer operates in the business sphere;• the employer strictly complies with the Labour Code;• the employees are in an employment relationship and participate in sickness and pension insurance;• the employees have not been served with a termination notice and are not in the notice period as of the accounting date (with the exception of termination pursuant to Section 52 (g) and (h) of the Labour Code); and• the employer pays the wages and social and health insurance contributions. For the sake of completeness, we add that the contributions will also apply to agency workers, provided that the employment relationship with the employment agency was entered into before the day of the declaration of a state of emergency (i.e. 12 March 2020) and lasts for the entire duration of the Antivirus Programme. The above contributions shall be provided to employers on the basis of an agreement concluded with the respective Labour Office of the Czech Republic retroactively. Employers shall be entitled to submit their applications for the contributions for March from 6 April 2020 (the expected launch date of the web application). All necessary operations between the employer and the labour office will be carried out remotely in electronic form. If you have any questions regarding the state compensation in the area of employment or regarding other measures that an employer can use in the current difficult situation, please do not hesitate to contact us. More specifically, please contact our attorney-at-law, Lenka Droscová, who specialises in labour law.
Update on state liability for damages in connection with emergency measures Posted on 3. aprilie 20203. aprilie 2020 by Gabriela Fuchsová In attempt to slow down the spread of a disease COVID-19 the legislative activity of the government and respective ministries has become quite hasty and even confusing. Significant changes in emergency measures are being adopted on daily basis and every day brings new bans, precautions and exceptions from already existing exemptions. On 23 March the government adopted resolutions Nos 279 and 280 to repeal certain measures adopted in order to slow down the spread of COVID-19, which were in effect since 6 March. The repealed measures include restrictions on the free movement in the Czech Republic, closing most of retail stores, services and catering facilities and closing of gambling ventures, casinos and other facilities, including indoor and outdoor sporting facilities. With effect from 24 March the above-mentioned government measures were replaced with almost identical emergency measures adopted by the Ministry of Health under the Public Health Protection Act (previous government measures were adopted under the Crisis Management Act). The public statements of government officials suggest that the different legislative procedure was chosen in order to avoid the state’s obligation to compensate entrepreneurs for damages occurred in connection with the prohibitions and restrictive measures that have been imposed. Are the injured persons entitled to claim compensation from the state? We believe that they clearly are, regardless of the legislative framework of adopted emergency measures. There are several arguments supporting this conclusion. The main argument arises out of one of the key constitutional principles of a democratic rule of law: • The right to own property can be limited only for compensation. We would like to mention the previous court decisions regarding the state of emergency. In connection with the measures adopted after the 2002 floods, Czech courts declared that: • If the measures are adopted during and related to the state of emergency, the state liability for damages remains unaffected, notwithstanding which authority adopted such measures. Concerning the state’s liability for the damages caused under the Crisis Act, the courts have concluded that the state is liable for the damages in case that the following conditions are met: mergency measure was adopted and executed;damage occurred; andthere is a causal link between adopted emergency measure and the occurrence of damage. Which entities are directly affected? Mainly the entities which – due to the emergency measures – cannot fully operate and suffer significant losses, such as: • Organizers of sport, cultural and similar events;• Operators of fitness and wellness facilities;• Operators of indoor and outdoor sporting facilities;• Store owners;• Providers of catering and dining services. Scope of compensations In general, damage includes both actual damage (damnum emergens) and lost profit (lucrum cessans). The actual damage comprises not only of a loss or damage to a property (e.g. expired food or unusable goods), but also the costs incurred as a result of the emergency measures or the costs of avoiding damage, costs of damages calculation or remedying them. This applies providing that the expenses incurred necessarily and effectively. The state can only be exempted from its responsibility if it is proved, that the damage was inflected by the injured party itself. In order to claim damages incurred in connection with the emergency measures the casual link has to be proved by the injured party as well as the amount of suffered damage. In our opinion an efficient solution of state liability for damages should include compensation for loss of income suffered by the entrepreneurs as a result of the measures adopted. What to do next? We advise to gather and maintain detailed evidence and documentation to support possible future claims against the state. At the moment government officials are declaring that the state is not supposed to pay any compensation for damages resulting from the adopted emergency measures. Regardless whether the government policy remains unchanged, the claim for damages against the state has to be raised within 6 months after becoming aware of the damages. Should the state fail to pay the damages, the claim must be brought before the court. It is quite possible that the issue of state liability for the damages will by ultimately decided by the Constitutional Court. We believe that the compensatory measures recently adopted by the government are not sufficient. More often than not they don’t aid the subjects who suffered the most from the adopted measures. And if these subjects will be forced to cease their business activities, it will constitute a major economic burden for the entire society recovering of which will last considerably longer than the consequences of COVID-19 epidemic itself. Our law firm keeps monitoring newly adopted measures connected to the COVID-19 epidemic and continuously evaluates their impact on rights and obligations of the clients. We are available to provide details about the current situation and answer any questions you may have.
Is your business in the Czech Republic adversely affected by coronavirus or respective preventive measures? Posted on 1. aprilie 20201. aprilie 2020 by Gabriela Fuchsová Then, the Czech support loan program “COVID II” is just for you. The acceptance of applications for the program commences already tomorrow, on 2 April 2020. We will be happy to assist you with their express processing! The Ministry of Industry and Trade of the Czech Republic has announced another supporting loan program “COVID II”. It is designed to support small and medium enterprises and self-employed persons operating within the Czech Republic. Its purpose is to eliminate the impact of the coronavirus on the entrepreneurs in the Czech Republic. The program will enable access to operational financing. It is intended for those whose economic activities are restricted due to the coronavirus or related preventive measures. The program has several advantages. The Czech-Moravian Guarantee and Development Bank will provide guarantee for commercial loans up to 80 % of the principal. It will also provide financial contributions to cover interests up to CZK 1 million. The guarantee period will be up to 3 years, free of charge. The maximum amount of the loan can be up to CZK 15 million. Entrepreneurs can finance the costs of wages and energy, payments of rent, payments of supplier-customer invoices, pre-financing of receivables, or acquisition of material, inventory and other small assets. The program is financed from the EU structural funds within the Operational Program Enterprise and Innovation for Competitiveness. Therefore, it is not intended for the implementation of projects in the capital city of Prague. However, applicants based in Prague may also apply if the funded establishment is located outside the capital city. The program starts already on 2 April 2020. It can be expected that the funds from the program will run out rapidly. Therefore, we recommend to entrepreneurs to take fast action. We offer you a legal assistance and representation in the express processing of documents and applications for receiving a guarantee for commercial loans. We offer our services for a special price of EUR 800 plus 0.25% from the amount of actually provided facility line (excluding VAT). We will be also pleased to provide you with legal assistance and representation in arranging commercial loans with the relevant banks. The price of these services is negotiated individually depending on the specific circumstances of the credit case. If case of any questions regarding COVID II loan program, please do not hesitate to contact us. We will be happy to assist you.
Impact of the COVID-19 Epidemic on Dispute Resolution Posted on 31. martie 202031. martie 2020 by Gabriela Fuchsová The epidemic of COVID-19 disease and the government emergency measures are already affecting the functioning of courts in the Czech Republic. In recent weeks, the courts have adjourned most of the hearings that did not have to be scheduled without delay. [1] An adjournment is likely in particular in proceedings involving a large number of participants or witnesses. In practice, this means that under the current conditions, it is not possible to expect an early ruling, especially of those disputes before courts that require an oral hearing being scheduled. Current restrictions on the functioning of courts. In addition, courts have reduced physical contacts with members of the public, which is manifested, for example, by limitations to the possibility to inspect the court file or the complete closure of the court building. Inspection of the file can only be carried out at most courts in urgent cases and urgency must be demonstrated in each case. The buildings of the Constitutional Court and of the Supreme Court are completely closed to visitors. In addition, some courts have introduced special makeshift mailboxes to minimize contact with visitors and have stopped accepting cash at the court cash register. No rapid improvement in scheduling hearings in individual proceedings can be expected after the state of emergency is over. The courts are preparing for a sudden increase in the bailiff and insolvency agenda. It is also likely that there will be an increase in claims (in particular against the state for compensation of damages caused by the emergency measures, as described in another newsletter issued by our law firm). The expected outcome will be an increased caseload of Czech courts and ensuing extension of the duration of court proceedings in the Czech Republic. However, this can be a serious problem in a situation where at least one of the parties to the dispute has an interest in a quick decision of the matter. Be careful, all deadlines apply regardless of emergency! Nevertheless, the chairmen of regional courts have asked the Ministry of Justice to set rules governing the suspension and discontinuation of time limits during the period of the state of emergency (possibly even retroactively as of the date of the declaration of the state of emergency).[2] The chairmen of regional courts propose the suspension and discontinuation of time limits in all areas of law, namely the following time limits: substantive time limits (e.g. statutes of limitation);procedural time limits (e.g. time limits for replying to a motion);time limits for issuing a decision or another measure. The Czech Bar Association also supported the request of the chairmen of regional courts.[3] However, the standpoint of the Ministry of Justice to this request is not yet known. What is the alternative to court proceedings during the state of emergency? Also under state of emergency, there is an alternative to the standard legal process, namely online dispute resolution (also referred to as „ODR”). Generally, the advantage of online dispute resolution is the speed of such proceedings [4] and lower costs associated with raising a claim.[5] Currently, an undisputed advantage is that online dispute resolution does not require parties to the dispute to meet in person. Thus, unlike usual court proceedings, online dispute resolution can also take place under the current extraordinary conditions. What are the forms of online dispute resolution? On the Internet, disputes can be resolved both in arbitration and by mediation. Procedures for online dispute resolution may be determined by the parties to a certain extent, in an arbitration agreement or in a mediation contract. In the case of proceedings before the Arbitration Court attached to the Economic Chamber of the Czech Republic and the Agricultural Chamber of the Czech Republic, the Rules for Online Arbitration issued by the Arbitration Court shall apply. [6] When it is suitable to choose online dispute resolution? Online dispute resolution can be recommended especially for disputes between entrepreneurs. As mentioned above, online dispute resolution is particularly useful in cases where the dispute needs to be decided quickly and it is not suitable to wait for an end to the state of emergency. Additionally, online dispute resolution is also possible in disputes among entrepreneurs and consumers, which can however only be initiated by the consumer in certain cases. [7] How can we help you? Our law firm has extensive experience in representing clients in alternative dispute resolution. Our team of attorneys-at-law also includes (i) mediators registered in the list of mediators maintained by the Ministry of Justice and (ii) arbitrators registered in the list of arbitrators maintained by the Arbitration Court attached to the Economic Chamber of the Czech Republic and the Agricultural Chamber of the Czech Republic. If you wish, we will be pleased to assist you in the above alternative ways of online dispute resolution. _____________________________________________________________________________ [1] Courts postpone hearings to May, measure temperature of visitors or don’t allow members of the public to enter their buildings [online]. Česká justice [cit. March 25, 2020]. Available at: https://www.ceska-justice.cz/2020/03/soudy-odrocuji-jednani-na-kveten-meri-lidem-teplotu-nebo-do-budov-nepousti-verejnost/ [2] Procedural deadlines need to be urgently addressed, the chairmen agree. They are also preparing for quarantine [online]. Česká justice [cit. March 25, 2020]. Available at: https://www.ceska-justice.cz/2020/03/lhuty-rizeni-se-musi-urychlene-resit-shodli-se-predsedove-pripravuji-se-i-karantenu/ [3] The Czech Bar Association supports the suggestion of the chairmen of the courts for a speedy resolution regarding the time limits [online]. Česká justice [cit. March 27, 2020]. Available at: https://www.ceska-justice.cz/2020/03/cak-podporila-vyzvu-predsedu-soudu-k-urychlenemu-reseni-lhut-rizeni/[4] For on-line arbitration, the whole procedure usually takes a maximum of 35 days – see JANKŮ, Martin. Rozhodčí řízení před Rozhodčím soudem při HK ČR a AK ČR [online]. Bulletin advokacie [cit. March 25, 2020]. Available at: http://www.bulletin-advokacie.cz/rozhodci-rizeni-pred-rozhodcim-soudem-pri-hk-cr-a-ak-cr?browser=mobi [5] Eg. the fee for on-line arbitration before the Arbitration Court attached to the Economic Chamber of the Czech Republic and the Agricultural Chamber of the Czech Republic is 3% of value of the object of the dispute. – cf. https://www.soud.cz/sazebniky#online-spory[6] Available here: https://www.soud.cz/rady/zvlastni-dodatek-radu-pro-rozhodci-rizeni-online-2017 [7] cf. Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online consumer dispute resolution. Available here: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013R0524
Personal data processing during the COVID-19 outbreak Posted on 30. martie 2020 by Gabriela Fuchsová The European Data Protection Board (the “Board”) has issued a statement on personal data processing in association with the outbreak of the COVID-19 infection (the “statement”). In its statement, the Board has stated that the fight against the infection is most certainly in the interests of all humankind, but that administrators and processors must still adhere to the fundamental data processing principles set out in the General Data Protection Regulation (the “GDPR”) and secure adequate protection of all the personal data of the data subjects even in these exceptional times. The Board’s statement also deals with the processing of personal data associated with the infection on the part of the public health authorities and employers, amongst other things. According to the Board, GDPR also covers exceptional situations and it enables processing which is in line with national law. In the case of employers, the Board has stated that the processing of any such data may be necessary for compliance with employer’s legal obligations associated with securing health and safety in the workplace. The statement also draws attention to the possibility of processing so-called sensitive personal data (which includes data on an individual’s state of health) in cases where the processing is necessary for reasons of public interest in the area of public health or for the protection of the vital interests of the data subject. However, the Board calls upon employers to exercise restraint when processing sensitive personal data. It has especially emphasised the principles of proportionality and data minimisation. According to the Board, the employer may only process any sensitive personal data, if it is obliged to do so according to national law or if the national law enables it to do so. The Board has also appealed to the principle of integrity and confidentiality, whereby employers should not provide more information than is actually necessary in a specific case (for example, not providing the identity of any infected employees to the other employees when adopting protective measures, unless it is absolutely necessary to do so). The Office for Personal Data Protection (the “Office”) has also issued statements on the processing of the health data of employees by employers in association with COVID-19 infections on its website. It has essentially permitted said personal health data processing with reference to the legal obligation of employers to provide a safe working environment and working conditions which are conducive to good health by means of the suitable organisation of occupational health and safety practices and measures aimed at preventing any risks. It is because GDPR enables the processing of sensitive personal data, if it is necessary for the purposes of carrying out the obligations of the controller in the field of employment. At the same time, however, the Office recommends proceeding in cooperation with the public health authorities. Like the Board, the Office has also stated that, if an employer informs the other employees of a potential risk (for example, that there is an infected person in the workplace) within the framework of the performance of its obligations, said employer should only provide this information about a specific individual at the extent which is necessary for the protection of health and always so that the dignity and integrity of the person in question is not impugned. The Board’s statement further resolves the use of mobile location data to determine the positions of individuals by the governments of the member states for the purpose of monitoring, controlling or mitigating the spread of the infection. According to the Board, the public authorities should attempt to process any location data anonymously (i.e. process data aggregated in a way that individuals cannot be re identified). Each member state should adopt the appropriate legislation to process any non anonymised data. In this regard, we hereby state that so-called tracing has been made possible in the Czech Republic by Government Resolution no. 250 dated 18th March 2020 in association with the subsequent exceptional measures of the Ministry of Health dated 19th March 2020. Based on these decisions, the Ministry of Health or the authorised regional hygiene stations can request mobile telephone operators to provide data on the movements of infected individuals based on the location data acquired from their mobile phones. The individual in question must give explicit consent for this to happen. If you have any questions pertaining to personal data processing connected with the COVID-19 infection in your company, please do not hesitate to contact our specialists Matyáš Kužela or Tomáš Zwinger. They will be happy to help you set-up the data processing so that it is fully in line with GDPR.
Extension of Compensation Package for Employers Posted on 25. martie 202025. martie 2020 by Gabriela Fuchsová In order to protect the employment in time of spreading the COVID-19 epidemic, further emergency measures were adopted by the Government of the Czech Republic yesterday (i.e. on 23 March 2020). These measures, among others, are consisting in extension of the Compensation Package for Employers. This “Compensation Package” is a state financial support to employers that have to incur costs of paying wages to employees even when their business is significantly affected by the impact of governmental measures adopted in connection with the declared state of emergency. Please find below an overview of the three new compensatory measures adopted. If the reason for the obstacle to work on the employer’s side is „Reduced demand for services, articles and other products of the company”, the amount of wage compensation provided by the employer is at least 60% of the employee’s average earnings and the amount of the state contribution is 50% of the wage compensation provided by the employer. If the reason for the obstacle to work on the employer’s side is „Childcare or Quarantine Ordered to a significant part of employees (at least 30% of employees)”, the amount of wage compensation provided by the employer is 100% of the employee’s average earnings and the amount of the state contribution is 80% of the wage compensation provided by the employer. If the reason for the obstacle to work on the employer’s side is “Limitation of the availability of inputs, i.e. material, products and services which are necessary for its activities”, the amount of wage compensation provided by the employer is 80% of the employee’s average earnings and the amount of the state contribution is 50% of the wage compensation provided by the employer. Please note that the above-mentioned compensatory measures complemented the measures already adopted as of 19 March 2020 which, for clarity, are summarized below: If the reason for the obstacle to work on the employee’s side is „Quarantine ordered to an employee”, the amount of wage compensation provided by the employer is 60% of the employee’s average assessment base and the amount of the state contribution is 100% of the wage compensation provided by the employer. If the reason for the obstacle to work on the employer’s side is „Inability to assign work due to enterprise closure as a result of adopted emergency measures” (an obstacle under Section 208 of the Labor Code), the amount of wage compensation provided by the employer to is 100% of the employee’s average assessment base and the amount of the state contribution is 80% of the wage compensation provided by the employer for 10 days period. The state contributions shall be provided to employers on the basis of an agreement concluded with the respective Labor Office of the Czech Republic retroactively. Employers shall apply for contributions for March at the beginning of April. The Ministry of Labor and Social Affairs shall prepare and adopt a methodology for claiming and paying the above-mentioned contributions by the end of this week, as well as a sixth compensatory measure under which the state shall pay a positive incentive bonus to employers who are operating fully, despite of the difficult situation. If you have any questions regarding the state compensation in the area of employment or regarding other measures that an employer can use in the current difficult situation, please do not hesitate to contact us. More specifically, please contact our attorney-at-law, Lenka Droscová, who specializes in labor law.
Legal Consequences of the Coronavirus Epidemic for your Contractual Relationships Posted on 23. martie 202023. martie 2020 by Gabriela Fuchsová Due to the COVID-19 disease, the government declared a state of emergency in the territory of the Czech Republic on March 12, 2020. In this context, the government also issued a series of crisis measures which are published as government resolutions in the Collection of Laws of the Czech Republic. Prohibitions, restrictions, and orders resulting from the state of emergency and crisis measures can have a major impact on individual parties in terms of meeting their contractual obligations. This will be particularly important in the case of long-term customer-supplier relationships, in projects in construction and energy sectors, or for investment projects. However, the legal consequences of the current emergency situation may vary from case to case. An ongoing epidemic may be a reason to change the contract price, postpone deadlines, or waive the obligation to pay damages. In some cases, the contract may also be terminated. However, these legal consequences may not occur automatically in all cases. Each contractual relationship needs to be assessed individually. In general, some of the following legal principles may apply in the context of an ongoing epidemic: force majeure (applicable particularly in situations where the proper performance of the contract is hindered by extraordinary and unforeseeable external circumstances);subsequent impossibility of performance (applicable in particular in situations where the contract objectively cannot be performed); anda substantial change in circumstances (applicable particularly in situations where performance of the contract has become extremely disadvantageous to one of the parties). A more detailed description of these legal principles and the prerequisites for the application thereof can be found in this newsletter. However, it can already be pointed out that the conditions or consequences of force majeure, a subsequent impossibility of performance, or a substantial change in circumstances may (and generally will be, in practice) be regulated individually in the relevant contracts. Therefore, when examining the legal implications of the COVID-19 outbreak to your supplier-customer relationships, it is not enough to only apply statutory rules, but primarily, it is vital to search for relevant arrangements in your contractual documentation. 1) Force Majeure What is force majeure? There is no legal definition of force majeure in Czech law. Nevertheless, this expression is used in the Civil Code and can also be found in other Czech statutes. Generally, force majeure is considered to be an extraordinary, unforeseeable and insurmountable obstacle that arises independently of the will of the person concerned. In addition to the concept of force majeure, the Czech Civil Code also uses the words „unpredictable circumstance” and „unpredictable and insurmountable cause / obstacle”. In our opinion, it is possible that in a number of legal relationships, the current epidemic of COVID-19 could be considered an event of force majeure. In this context, for the sake of completeness, we would like to point out that force majeure will not apply if a contract has already been concluded at the time of the outbreak or with the knowledge of the ongoing epidemic. In such a situation, it will no longer be possible to regard the COVID-19 epidemic as an unforeseeable event. What is the result of force majeure? If a force majeure event occurs, it may bring about a number of different legal consequences, which usually take the form of (i) release from a specific obligation, (ii) change to the obligation or (iii) extension of deadlines. According to the Czech legislation, it may include, for example, the following consequences: the obliged party may be released from the obligation to compensate for any damages incurred by the other party;the limitation period may be suspended;a court may decide to increase the price of the work in question if it was determined according to a budget, or to cancel the contract for work in which price was negotiated according to a budget;an entrepreneur may change some of the information in a contract concluded with a consumer which it communicated to the consumer prior to the entering into the contract;an eligible party to a contract may withdraw from the contract if it had the right to choose from several variants of the performance of such a contract, but the possibility of such a choice was frustrated as a result of a force majeure event;the deadlines for submitting a promissory note (bill of exchange) may be extended, etc. At the same time, it should be noted that a force majeure event does not automatically lead to a release from the obligation to pay liquidated damages (a contractual penalty) to the other party unless such an exemption is expressly agreed in the contract. Indeed, liability for liquidated damages (a contractual penalty) generally (unless expressly agreed otherwise) arises absolutely – i.e. irrespective of fault. The contractual arrangements for force majeure events are essential. It is customary for the parties to negotiate force majeure clauses in their contracts which govern (i) what specific events are considered to be force majeure events under the given contract and/or (ii) what specific consequences the force majeure has regarding the rights and obligations of the parties. Such individual arrangements will generally take precedence over statutory regulation of force majeure. Each contract must therefore be subject to an individual legal analysis. In this context, please note that some contract templates (e.g. FIDIC) may contain specific clauses governing force majeure events. Beware of any international element. In the case of contracts with an international element, it is first necessary to consider the law applicable to the contract in question. This is because force majeure legislation may differ substantially from one legal system to another. In addition, it should be noted that some international treaties (e.g. the Vienna Convention on the International Sale of Goods – CISG) may contain their own rules for force majeure events. How to proceed in case of a force majeure event? As mentioned above, the specific procedure may depend on the contractual regulation of force majeure. In general, however, the following steps may be recommended to a party to a contract affected by a force majeure event: notify the other party without delay that a force majeure event has occurred;carry out a legal analysis of the relevant contract to determine what your course of action should be;continually assess the impact of force majeure on your obligations and provide evidence to help you demonstrate the impact of the force majeure event on your obligations;try to minimize the consequences of the force majeure event. 2) Subsequent Impossibility of Performance What is the subsequent impossibility of performance? Under the expression “impossibility of performance”, the Czech Civil Code regulates a situation in which the payment of a certain debt or complying with an obligation becomes objectively impossible. In this context, the Civil Code states that performance is impossible if it cannot objectively be fulfilled, not even (i) under difficult conditions, (ii) at a higher cost, (iii) with the assistance of another person, or (iv) after a specified period elapses. What is the consequence of subsequent impossibility of performance? In the event that a particular performance becomes objectively impossible, the relevant obligation to provide such performance ceases to exist by operation of law. According to the Civil Code, the obligation can also completely cease to exist even if the performance is impossible only partially, but due to the nature of the obligation or the purpose of the contract (which was known to the contracting parties at the date of the contract), the performance of the remaining portion of the obligation is pointless for the entitled party (the creditor). Contractual clauses on subsequent impossibility of performance. The consequence that an obligation automatically ceases to exist if its fulfillment is objectively impossible cannot be excluded by contract. However, the contracting parties may agree to a wider range of situations when the obligation ceases to exist (e.g. where performance is objectively possible, but only at significantly higher costs). Likewise, the parties may contractually adjust the scope of the liability for damages in the event of subsequent impossibility of performance. Each contract must therefore be subject to an individual legal analysis. Beware of any international element. In the case of contracts with an international element, it is first necessary to consider the law applicable to the contract in question. Indeed, the rules governing the subsequent impossibility of performance (and, where appropriate, the related compensation) may differ considerably from one legal system to another. What to do in case of subsequent impossibility of performance? As mentioned above, the specific steps to take in the event of subsequent impossibility of performance may to some extent be regulated by the contract. In general, however, the party the performance by which has subsequently become impossible should immediately notify the same to the other party. In this context, we would like to point out that under the Czech Civil Code, a contracting party which has not notified the impossibility of performance in time is obliged to compensate the other party for any damage caused by such late notification of the subsequent impossibility of performance. For completeness, we would like to mention that subsequent impossibility of performance may in some cases be caused by governmental measures in crisis or by the announcement of the state of emergency. In such a case, compensation for damages against the state under the Crisis Act can be requested if the statutory conditions are met. You can find more information on this topic in a newsletter of our law firm dealing with this issue. 3) Change of Circumstances What is a substantial change in circumstances? The legal regulation of substantial change in circumstances primarily regulates a disparity in the rights and obligations of the parties that occurs as a result of a change in external circumstances. Typically, it is a change of circumstances caused by war, a coup, revolution, embargo, boycott or prohibition of certain goods. However, this legislation may be also applied to changes in circumstances caused by epidemics and quarantines. Legal regulation of substantial change in circumstances relates in particular to longer-term liabilities and facilitates. It makes easier the path to the continuation thereof despite unexpected fluctuations in important external factors. In this context, it should be noted that not every change in circumstances is a reason for a change of the obligation (typically to a contract). The mere fact that, as a result of objective external causes, the performance of the contract becomes less favorable does not alter the continuation of the obligation to perform the contract, even under these difficult conditions. From the point of view of legal implications, only a change in circumstances that brings surprising (extreme) impacts on the partiesʼ position in the contractual relationship (one that does not correspond to any reasonable review and assessment of risks) is substantial. The Czech Civil Code lays down the following defining features of a substantial change in circumstances that must be met simultaneously: (i) the existence of a change of circumstances; (ii) the unpredictability of the change; (iii) the uncontrollability of the change; (iv) absence of acceptance of a future risk of a change of circumstances; (v) the occurrence of a particularly gross disproportion in the rights and obligations; and (vi) causal link between the change and the emergence of a particularly gross disproportion. What is the consequence of a substantial change in circumstances? If all the above statutory prerequisites are met, then the affected party has: primarily the right to pursue a renewal of the contract negotiation (thus, the law urges the parties to reopen the contract, to consider changes that have occurred and to restore the balance that the original distribution of rights and obligations in their original arrangement was aimed at); andin the event of unsuccessful negotiations of the parties to restore balance, the right to ask the court to modify the content of the obligation by its own decision or to cancel the obligation as of the date and under the conditions specified in the decision. Contractual clauses on substantial change in circumstances. In the basic statutory regime, the legislation is based on the principle that each contract is concluded subject to a change in circumstances. However, the parties may deviate from this legal regime in their contract. The parties may assume the risk of a change in circumstances and, as a result, bear the costs resulting therefrom. This may include assuming all risks or only some of the risks (e.g. all currency risks, technical, legal, etc.) or risks specifically laid down by the parties. Each contract must therefore be subject to an individual legal analysis of whether and to what extent the risk of change of circumstances has been assumed by either party. Beware of any international element. In the case of contracts with an international element, it is first necessary to consider the law applicable to the contract in question. The rules governing substantial change in circumstances may, in principle, differ from one legal system to another. What steps to take in case of a substantial change in circumstances? The party concerned (i) must exercise its right to resume contract negotiations vis-à-vis the other party, (ii) shall state the reasons on which its right is based, and (iii) prove the facts that justify its claim. The said right should be exercised within a reasonable period of time, which – as the default – the Civil Code regulates to be no later than two months after the party must have ascertained the change in circumstances. The consequence of this deadline elapsing in vain is that the party concerned loses the right to demand the subsequent restoration of the contractual balance by a court.
