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10 Questions

with Arthur Braun
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February 13th, 2008 issue

VLADIMÍR WEISS/THE PRAGUE POST
Braun says the amendment to the Labor Code fixes many technical flaws, while still favoring employees.
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THE BRAUN FILE


Job title: Partner, bpv Braun Haškovcová
Age: 41
Nationality: German
Previous position: Partner, Haarmann Hemmelrath Prague
Education: University of Passau, Germany; Faculty of Law, Charles University

The public finance reforms may have been the highest profile legal changes beginning Jan. 1, but they weren’t the only ones. Also quietly coming into effect was an amendment to the Labor Code, offering corrections to last year’s revamped Labor Code, which passed into law despite a multitude of flaws. Arthur Braun, a labor lawyer, talks to The Prague Post about the code’s “nonsense,” the Czech baby boom and how immediate terminations can now go on permanent records.
➊ We last spoke a year ago, just prior to the Labor Code coming into effect. Then you recommended that businesses prepare for a time of labor insecurity. With the amendment, is this time of insecurity over?
The biggest insecurity facing businesses is now related to the tax code and social security changes. Most companies have dealt with the Labor Code and the amendment has removed some mistakes. Still, everybody is waiting for more big changes to come in the next two years. At least that’s what the current government has promised.
➋ What issues have popped up stemming from the tax reform?
Nobody thought much about how to implement the cap on social security payments, which was needed. Basically, you don’t have to pay social security on yearly wages over 1.034 million Kč [$59,085]. But this isn’t partially paid by the employer and employee each month. What happens is you have to pay social security right away until you reach this cap, and then the rest of the year you’re free. For example, a managing director earns 2 million Kč during the year. For the first million, you would pay all of your social security, and by the second half of the year you’re free.
This is really going to affect banks and places where people get a lot of bonuses. And it creates a problem when employees move. Say a manager earns a million in the first six months and leaves July 1. Then the second half should be free of social security payments. But it is not. The new employer again has to pay 35 percent for the new employee, and the employee his 12.5 percent. And only the employee has the right to reclaim his overpayment at the end of the year.
Basically, if you move from a well-paid position now, you should really move Jan. 1 and not in the middle of the year. You’ll really be hurt on your income tax. It’s a funny problem. Maybe it will lead to higher employee loyalty.
➌ Back to the Labor Code amendment, why was it needed?
The code had so many technical flaws — a lot of stupid things. If the employer failed to pay just a small amount of a salary, the employee had the right to terminate and get severance payments. It could even be interpreted in a way that they’d get 12 months of severance, rather than three months.
So these technical flaws are fixed, and some nonsense was removed. For instance, people under 18 years of age could not work more than 30 hours a week. That’s back to 40 hours. Or, you couldn’t work overtime if you were caring for a child under 1 year of age, even if you wanted to. And now managers can agree to work 150 hours of unpaid overtime a year. The Labor Code wanted everyone, even managers making 10-times the average employee, to claim overtime.
➍ The Labor Code introduced flexible working-hour accounts. In your experience, did anyone begin using these?
This is the most important change to the Labor Code this year: Working-hour accounts are finally practical. You can now have more flexibility in making working-hour accounts, which in the past were completely nonsensical. I remember speaking to the British Chamber of Commerce about the Labor Code. There were some 70 people there, including people from a large retail chain, and I asked, “Who is using working-hour accounts?” Because, of course, retailers would need it — they have busy periods and not-so busy periods. But nobody used it, because it wasn’t practical. Now they are.
➎ Are there any other ways the labor market could be made more flexible?
Personally, I’d change the probation period. Three months is too short to find out whether someone is a good worker or not. You need at least six months. In practice - and this is a good thing about the Czech Republic - one always finds a solution. So people get contracts that last for half a year, then one year, etc. But that can hurt employees, if they’re always thinking, “My contract is going to expire in three weeks or three months. I have to find another job.” Instead, we should have a longer probation period. It works in other countries.
➏ I know hospital doctors were concerned about the strict overtime limits that came with the Labor Code. Has it had much impact there?
The biggest problem with doctors is that there are simply not enough. They’re going to Germany or Norway or England. Hospitals manage somehow. There were some lobbying attempts with this amendment to force doctors to work longer, but this was not included. It might be that labor inspectors are not probing hospitals as hard as they could be.
➐ In general, how tight are labor inspections?
Generally, one can deal with it. The fines they hand out are much smaller than in other countries. The problem is how often they come. It depends where you are located as an employer. In Prague 1, you have a much smaller chance of somebody visiting you, be it social security or whatever. But many businesses working outside of Prague have inspections from labor, social security, sickness insurance. If you’re in the unfortunate position of being alone in a smaller city as the major employer, the rate of inspection is way too high.
➑ With the amendment, would you say the country’s labor law favors employees or employers?
It still favors employees, as it does in most of Central Europe. What one always forgets is that communist labor law was the toughest on employees, compared with Western countries.
It could be balanced. If you could fire people for bad performance, that would help. It’s hard to terminate people who didn’t do any particularly bad thing but who are bad, lazy or uncooperative workers. That’s a practical problem that is still not solved.
One other thing about the latest reform: You always have certain employees who you have to terminate with immediate effect. With the amendment, this is now entered into an employee’s social security records. Employees should have more fear of new employers seeing this. Typically people don’t check references, but now if you see if someone was fired with immediate effect, it could be a problem.
➒ Speaking of problems, what’s the single biggest problem facing labor in the country?
It’s the labor market. The market is so tight, whether you need white-collar, blue-collar or unskilled workers. It’s also an issue of quality. I just spoke with someone recently who said, “We tried to work in Slovakia, we tried to work in Poland, we work in the Czech Republic. The quality is really getting worse and worse.” They’re using temporary workers, not their own workers — because they simply can’t find enough of their own workers.
It cannot be the future of the Czech Republic to try and import cheap labor from Mongolia or North Korea. The future should be to get more qualified workers. For this reason, they should try to get the results within the country. Even though unemployment is low, the public sector is completely overstaffed.
The first half of the 1970s was the Czech baby boom. These people are not newly available on the market anymore. Many of the young people are going abroad. We can’t keep our scientists. Fortunately for the Czech Republic, Germany insists on keeping its labor market closed. The Austrians will open in some sectors and people in south Bohemia and Moravia will go work in Vienna to earn more.
➓ Any issues upcoming this year you’re anticipating?
This year will be about detecting and solving problems with the tax reform. There are still a lot of unclear issues. For instance, now as a supervisory board member you have to pay sickness insurance but not social security. Is this the beginning, and eventually you’ll have to pay social security on all your capital income, like in Switzerland?
And to what degree will average people be hit by the reform and inflation? It is, of course, true the rich profited most from the reforms. But will they trust the state enough to declare a lot of the income they’ve hidden? Some might, with the change. I’ve had a few managers who said they were shifting their tax residence to the Czech Republic. But they’re the first cases.
Want your manager to answer our 10 Questions? Contact Paul Voosen at pvoosen@praguepost.com


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