Czech Republic: no sick pay for executive directors

Czech Republic

Executive directors are not entitled to sick pay under the state insurance system, according to the Supreme Administrative Court.

The ruling has parked controversy, even though it follows previous similar rulings, and has led to speculation that companies could try to recover benefits paid to executive directors under their invalid agreements.

Companies can still provide executive directors with sick pay but must do so at their own expense and not under the state insurance system.

Executive directors perform their duties under ‘performance’ or ‘service’ agreements regulated by the Commercial Code, with unlimited liability and no entitlement to benefits such as health insurance.

However, it is standard practice for them to have a dual relationship as ‘executive director’ under a service agreement and ‘general director’ under a employment agreement, in the hope of getting employment benefits under the Labour Code. These include rights to holiday, participation in state insurance schemes, restrictions on working hours and limited liability.

Since the 1990s, the courts have disapproved of dual agreements and ruled that the employment agreement is void. The only exception is where the executive director performs additional work under the employment agreement that is not part of his role as executive director.