On 27 May 2005, an amendment to the Employment Act (Act No. 435/2004 Coll.) was promulgated under number 202/2005 Coll. and entered into force on the same day. This amendment brought a change in the possibility of so-called outsourcing. Let us therefore now focus in more detail on this change and on the basic concepts related thereto.

Švarcsystém

The term švarcsystém in the Czech legal environment is commonly understood to mean a situation where an entrepreneur “employs” another entrepreneur. Instead of employing an employee in an employment relationship (on the basis of an employment contract), the subject attempts to conclude a commercial law (or, less frequently in practice, also civil law) contract (mandate contract, cooperation agreement, etc.). Formally, this should therefore be a relationship between two independent entrepreneurs; however, in fact it is an employment relationship where one subject is dependent on the other and is subordinate to it (set working hours, use of the employer’s resources, energy, raw materials or aids, performance of work only at the employer’s workplace, etc.). It is therefore not a case of business activity on the part of the “employed” party, as its activity does not display the basic characteristics of business activity (continuous activity carried out independently by an entrepreneur in his own name and on his own responsibility for the purpose of making a profit).

The employer’s motivation for applying the švarcsystém is an attempt to simplify its payroll and accounting administration and, above all, an attempt to reduce its costs (it is not necessary to pay statutory contributions as for employees). The motivation is also given by the effort to exclude the application of the Labour Code, which protects employees much more than the above-mentioned contracts concluded between “entrepreneurs”. Nor has the amendment to the Employment Act in question changed the situation that the švarcsystém remains illegal (it constitutes circumvention of the law) and there is no exception to this. Nor can a change in the regulation be expected in the future, as this would deform the concept of business activity and employment.

Outsourcing

By outsourcing we mean the entrusting of tasks and activities of an entrepreneur, which the entrepreneur does not wish to perform himself (or through his employees), to other subjects. Pursuant to the provisions of Section 13 of the Employment Act (in the wording both before and after the amendment in question), a legal or natural person is obliged to ensure the performance of routine tasks arising from the subject of its activity by its employees, whom it employs for that purpose in employment relationships pursuant to the Labour Code.

There are exceptions provided by law from this general obligation to ensure the performance of tasks by one’s own employees. The obligation does not apply in cases where the performance of routine tasks is ensured by a natural person alone or with the assistance of his spouse or children, or by a legal person through its partners or members, or where this performance is ensured by a legal or natural person by temporarily assigned employees of an employment agency. Nor does the amendment bring any change here.

Until the amendment entered into force, the obligation to ensure the performance of tasks by one’s own employees also did not apply in the case where tasks were entrusted to another employer. This employer had to have the activities (tasks) which were to be entrusted to it included in the subject of its activity and had to ensure them by its employees, whom it employed for that purpose in employment relationships pursuant to the Labour Code. It was therefore possible, for example, for a construction company building a family house to entrust by subcontract the installation of a roof to another subject. This subject had to have construction work in the subject of its activity and, above all, could not perform the activity alone, but had to perform the activity only through its employees, whom it employed in employment relationships. The said construction company could not therefore entrust the installation of a roof to a natural person – an entrepreneur, if he did not have his own employees.

The said regulation, which was considered discriminatory by some subjects, was amended by the amendment. It remains possible to entrust tasks to a person who has the entrusted tasks in the subject of its activity and will ensure them by its employees. However, it will also be possible to entrust tasks – to outsource – to a natural person who has the entrusted tasks in the subject of its activity. This natural person may perform the entrusted activity personally and not only through its employees.

Conclusion

The fundamental change which the amendment brings is therefore the possibility of personal performance of outsourced activity by a natural person who has these entrusted tasks in the subject of its activity. However, it remains in force that it must not be a so-called disguised employment relationship and that the activity performed by the subject to whom it has been entrusted must display the characteristics of business activity (see above). If this condition is not fulfilled, then even if a commercial law relationship is formally concluded, this disguised relationship will be considered an employment relationship.

This text was translated from Czech to English using an AI translator.