Mandatory employee participation in supervisory boards of Czech joint-stock companies

The first proposed amendment on the Act No. 90/2012 Coll. (the “Amendment”) on Commercial Companies and Cooperatives (the “Act”) has passed through both Czech Chambers of Parliament. It requires that Czech joint-stock companies with over 500 employees must have a certain number of employees on the company’s supervisory board. It also reintroduces the requirement that such companies have an obligatory minimum of three supervisory board members, and that the number of members shall be divisible by three. This is in contrast to the current Act, which only requires at least one supervisory board member.

The Amendment came into effect on 14 January 2017. There will be a two-year transition period for companies to comply with the changes. If a company fails to do so, the commercial court shall grant an additional reasonable period of time for the fulfilment of this obligation. Following the expiry of the additional period, the court shall dissolve the company and order its liquidation.

The draft bill was proposed over a year ago by the Czech Social Democrats. They argued that employee participation in companies’ management bodies is an essential European right, guaranteed by the EU Charter of the Fundamental Social Rights of Workers as well as by the Lisbon Treaty and that such participation is common for many of the most developed EU countries. However, the original draft bill proposed mandatory employee participation for joint-stock companies with over 50 employees.

The Amendment is similar to the regulation which was in force until the end of 2013, although it also contains certain drawbacks resulting from the different regulations of the organizational structure of joint-stock companies under the Act, which allows joint-stock companies to choose between a one-tier or two-tier organizational structure. Companies with a one-tier system create an administrative board instead of a supervisory board, therefore the Amendment doesn’t require similar employee participation in an administrative board in companies with a one-tier system. Thus, the companies may change corporate governance and adopt one-tier organizational system in order to avoid the proposed obligation.

It is likely that the adoption of the Amendment will result in additional legal and personnel expenses for many joint-stock companies.

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