This year again the Supreme Court of the Czech Republic heard several cases of a concurrence where one person holds posts of both a member of the statutory body/of a deputy chairman of the board of directors and of the head of the company, more specifically the post of the sales director. In one of its verdicts the Court has after a few years decided in favor of the possibility of such concurrence.

As an introduction

The case of concurrences is again and again repeated issue of the expert public. It involves the situation when a member of the statutory body also concludes a labour contract with the company according to which it performs work of the managing employee – for instance of the director general, of the sales manager etc. The original judicature (for instance 3 Ads 119/2010 – 58) prohibited such concurrence with the argument that the activities of the managing employee and the member of the statutory body overlap and that it is not possible to conclude two contracts on the same kind of activities, namely up to the amendment of the Commercial Code from the year 2011 (hereinafter referred to as „ObZ“) which included into ObZ a fully new provision – § 66d. This provision enabled to the statutory body to entrust a third party or some of its members with the performance of the business management when the entrusted member could be at the same time the company´s employee. The Act on Business Corporations (hereinafter referred as „ZOK“) which replaced ObZ from the year 2014, however it did not take over this provision. The absence of the express adjustment has opened again the discussions not only of the expert public. On one side there are ones standing who brandish with conclusions of the original judicature, on the other side those who argue with the constitutional principle that what is not prohibited, it is allowed. And the concurrence is not explicitly prohibited.

In July 2014 the Ministry of Justice issued an interpretation that the concurrence of functions whose activities overlap is from 1.1. 2014 no more permissible. The court hasn’t solved the issue of the prohibition of the concurrence of functions under the legal regulation being effective from 1. 1. 2014 yet.

Breakthrough verdict

However this year the Supreme Court of Czech republic in its verdict file no. 21 Cdo 496/2014 from 24. 2. 2015 admitted after a few years the possibility of the concurrent performance of the function of a member of the statutory body (in this case of the vice-chairman of the board of directors) and of the employment relationship on the position of the sales manager. The conclusions are of course valid also for the executive heads of a Ltd.

The vice-chairman of the board of directors of the joint-stock company performed for this company a work of the „sales manager“ based on the managerial agreement. According to this agreement the sum of 1.188.000 CZK was paid out to him as variable part of the wage. The joint-stock company asked the issue of this sum as baseless enrichment, namely due to the fact that the conditions for the pay-out of this sum agreed in the managerial agreement were not fulfilled and it objected also the fact that the managerial agreement is invalid due to the concurrence of the function of the defendant side as vice-chairman of the board of directors and the managing employee in the position of the sales manager.

However, the Supreme Court of the Czech Republic tried, compared to the previous decisions, from the detailed list of duties which the sales manager had in his content of work, to choose those which can’t be included into the representation of the company externally and under the sales management. It thus stated that it is evident from the specific list of duties of the sales manager that the content of the function of the sales manager was not the same activity which the accused party (sales manager) performed at the plaintiff (joint-stock company) as vice-chairman of the board of directors as it is not possible to include the majority of the activities of the sales manager stipulated in the organization order of the accuser (for instance managing the activity of a „contractual transport“, securing the activity of warehouses, ensuring the market research and logistics activity, proper keeping the ordering system and documentation on handover and takeover of products and goods, stipulating the price for products, services and material after discussing with the finance director, performing the system of the price support of the product sale, securing the protective equipment and work clothings for employees and other activities) into the external representation  of the company or under its sales management.

By this verdict the definition of the fact what does not fall under the term sales management, was fully extended for sure. However, it is necessary to watch the case furthermore because the Supreme Court of Czech republic returned the cause to the court of appeal for the next proceedings.

Conclusion

The boundary between the execution of the function of a member of the statutory body and activities which is not execution of a function, is very thin. Therefore, despite of this breakthrough verdict, we recommend, in order to avoid any doubts and to strengthen the certainty on both sides, to solve the situation by concluding an agreement on discharge of office and to agree the fee for the discharge of office in this agreement. The labour contracts on activities which clearly overlap with the discharge of office, can be naturally furthermore concluded. However, it has to concern a dependent work defined by the Labour Code and the conditions stipulated by ZOK have to be fulfilled. Should you be interested in this issue, we are at your disposal for eventual consultations.