The new Labor Code, which came into effect Jan. 1, is a comprehensive and flawed piece of legislation, lawyers say, riddled with oversights, loopholes and fuzzy language. But it is also a massive improvement on the 61 ad hoc laws that previously governed employment, liberalizing Czech labor law and bringing it in line with European Union standards.

The left-of-center Social Democrats pushed the new code through despite a veto by President Václav Klaus in May, prior to the general elections When the right-of-center Civic Democratic Party came into power, many businesses expected the code to be delayed by a year and revised, but labor unions forced left-leaning deputies to block a delay in Parliament, and the code slipped into law.

"Don't panic," said Arthur Braun, partner at the law firm Braun Haškovcová. "American employers in particular think European labor laws are terrible, but, in practice, they work quite well, especially for small businesses."

The principle behind the code was to give businesses and employees more freedom in their contractual relationships, said Tatiana Mrvová, a lawyer for Weinhold Legal. By and large, it has achieved this goal while maintaining protections for employees.

Siding with employees

Critics of the code feel it goes too far in protecting employees, leaving businesses at a disadvantage.

Overtime hours may no longer be included as a lump sum in the base salary of any position, including professionals. Employers must provide compensation for overtime with extra payments or additional time off.

Employees forced to work night shifts or on the weekend will earn an additional 10 percent of their hourly wage.

Additionally, employees must receive two months of notice before being laid off, and then severance pay for three months.

Firing employees, a sometimes arduous process, will become easier for employers if they take care in drafting new labor contracts, said Alena Čechtická, a lawyer with Nörr Stiefenhofer Lutz who helped write the code. Previously, employees could be fired for a lack of "work discipline." In the new code, termination can result from a breach of duties defined in an employee's contract.

"This change provides employers with an opportunity to make their lives easier by defining the duties of individual employees in detail and then referring to a breach of such duties when the employer wishes to give notice," Čechtická said.

However, this opportunity comes with an immediate cost: Employees can no longer be fired for lack of work discipline, and so it will be difficult to terminate employees with existing employment contracts that have not been amended with defined duties. Without such amendments, "you risk having employees in their positions forever," said Braun.

Also eliminated from law are protections that were given to specific categories of employees, like single parents with children under the age of 15, said Braun. Previously, these employees were difficult to fire, as it was the employer's legal obligation to offer the employee a new job. This is no longer so.

The simplified hiring and firing processes that will eventually result from the Labor Code will be a necessity, and employers will need to be more careful about how they use the popular "Švarc system," hiring workers as self-employed contractors, Čechtická said.

Though the practice has been prohibited for a number of years, she said, the new code spells out for the first time precisely what types of work constitute employment. "This will make it much more difficult for employers to argue with the tax, social security and health insurance authorities, making it easier for such authorities to impose significant fines on employers."

Another important change in the code is its equality: Professional staff and industrial workers are treated the same, which poses problems for employers that typically demand large amounts of unregulated overtime from their professional staff, like hospitals and law firms. By law, this overtime will now have to be tracked closely and compensated for.

Managers will also be required to have employment contracts.

Closing loopholes

The Labor Code also introduces a system called work period accounts, which will allow businesses, particularly small businesses in the service sector, to vary the hours of their employees week by week, with the hours averaging out over the year to a weekly figure agreed upon in the contract. These accounts will also require close tracking of hours, a burden the code places on the employer.

The tracking exposes a loophole, Braun said. Varied time worked means varied wages. Employees have the right to terminate their employment contracts if their employer is 15 days late in paying their wages in full. So if the employer is short even 50 Kč ($2.40), the employee can immediately quit — and receive three months of severance pay.

Since efforts to delay the code failed, Braun said he expects many of the code's flaws to be fixed by an amendment currently being drafted by the government and expected to pass this year. Other cases of soft language will ultimately be clarified by the courts, Mrvová said.

The most important thing for businesses is to bring existing employment contracts, new managers' contracts and internal regulations into compliance with the new code, said Čechtická. Written amendments to existing contracts are fine, but all new contracts should be freshly drafted to completely align with the code.

What else can a business do?