Easier layoffs good for business

The Czech Republic may finally be able to get an amended Labor Code, reform that's been a long time coming but hasn't had enough support in recent years to actually pass. With a coalition government holding a strong majority, a new Labor Code is expected early next year. The path there isn't quite so clear-cut, however, as both the current labor minister and prime minister have differing ideas on what the amendment should look like. Prime Minister Petr Nečas, a former labor minister himself, would like to see an updated version of a draft he created two years ago. Labor and Social Affairs Minister Jaromír Drábek (TOP 09) has presented his own version, but his has significantly less teeth to it than Nečas', Michal Smejkal, a labor lawyer at Giese & Partner, told The Prague Post. But whatever compromise is reached, the results promise to bring greater flexibility to the labor market, he added.

The Prague Post: Which version of the Labor Code amendment would you like to see passed, Nečas' or Drábek's?

Michal Smejkal: I must say I prefer the prime minister's ideas. Drábek has proposed some good changes, but I don't think they're sufficient. The prime minister's proposal is about two years old; it just never got passed because the government was too weak. His goes much deeper into its changes, and I think it really makes the labor market much more flexible.

TPP: Did Nečas come up with his proposal as labor minister before or after the financial crisis hit in late 2008?

MS: It was a bit before the crisis. They were motivated to change it because the big problem with the current Labor Code is that it has some anachronisms that are still there from the communist era. They approved an entirely new Labor Code in 2006, but it really didn't change all that much.

TPP: If the Labor Code still has these anachronisms, as you mentioned, why has it taken so long for the government to update it?

MS: Right now we have a political situation that for the first time allows it. We have a really strong government, even though it's a coalition of three parties. Before, it was difficult because the majority in the government only had 101 or 102 MPs and really strong labor unions. But now we've got 118 MPs in the coalition government, so there's a chance to pass it.

TPP: Nečas has also said he'd like to limit the influence labor unions have. How does he propose to do this?

MS: Within the private sector I don't think they are too strong. According to labor codes, you have to only inform them what you are going to do and provide them with updated numbers on how your company is, but apart from that, they don't have so much power in private companies. In the public sphere, like government ministries, though, they are really strong, and if you want to form a new agreement with the trade unions, they of course want to have more money for employees. With the financial crisis, though, the state is in debt, and they can no longer offer them an additional 5 percent in wages or anything like that.

In Western Europe, it's normal to also have trade unions, and they're also trying to protect employees, but they also take into consideration the economic situation.

TPP: In your opinion, which of the proposed changes will make the biggest difference?

MS: Prolonging the probationary period from three months to four or six months, in the case of managers. I'm not sure you can really assess your employee in three months, and one additional month can help a lot. With managers especially, it takes a lot of time before they are fully ready to work and manage at full strength. This probationary period allows the employer to dismiss employees immediately and without reason, and I think this could be a big help. Nečas also wants to limit the notice period. The notice period is now two months; the proposals would shorten it to one month.

TPP: Are these measures beneficial strictly for the employers?

MS: I know employees are afraid of these measures, but it really makes the labor market more flexible, and that is to their benefit. With longer notice periods and shorter probationary periods, employers might be hesitant to fill positions or make new hires, especially if there is the threat of continued financial crisis or if the company's standing is a bit unsure. But if you know it's quite easy to dismiss somebody, if needed, employers are more likely to make the hires in the first place. So if you do in fact get dismissed, you have a better chance of finding a new job because employers are more comfortable filling positions.

TPP: Nečas initially wanted to extend the ability to dismiss without reason beyond the probationary period, but reversed his stance after significant uproar. What do you think of such a proposal?

MS: It depends on how they will provide for this in the Labor Code. I would agree with a provision that said if you do dismiss without reason, you must pay the employee in question a severance payment of between six and 12 months' [salary]. It's quite hard to dismiss someone without an official reason. Let's say you have someone in your company who always gossips and upsets the work environment. If they do their work perfectly, you can't always find a way to fire them. It'd be nice to have the possibility to fire someone without reason in this case - but, as I said, with at least six months of severance pay. I don't agree that employers should be able to simply dismiss employees without reason and send them home with little severance. We must also protect the employees.

TPP: Will business change for you significantly once a new Labor Code goes into effect?

MS: I consider the Labor Code still quite flexible as it is now. But you must know how to work with it. We have many clients who ask us to make their employment contracts more flexible. It's possible even now; you just have to know how to create the right contract. For example, a lot of employers set down working hours and wages within the contract. We advise them to keep those agreements outside of the employment contracts; that allows you to change them more easily if you need to. Honestly, I don't really need this amendment. If you know how to work with it, you can create favorable contracts. The problem is that most employers are still using work contract templates that are 20 years old.

Claire Compton can be reached at
ccompton@praguepost.com