The Supreme Administrative Court (“SAC”) in its judgment No. 8 Ads 65/2024-53 of 25 February 2025 reconfirmed that the contractual relationship between an entrepreneur and an individual performing a work activity must correspond to the actual nature of the work performed. HENNLICH, s.r.o., which entered into contracts with two individuals on invoicing basis, thus committed an offence under Section 140(1)(c) of the Employment Act. The SAC upheld the decision of the administrative authorities and the Regional Court to impose a fine of CZK 445,000.

Illegal work under the guise of invoicing

According to the findings of the regional labour inspectorate, HENNLICH cooperated with the head of the transport and administration department and the transport dispatcher outside an employment relationship. The Inspectorate concluded that the work of both persons met the definition of dependent work under Section 2(1) of the Labour Code. According to this provision, dependent work is work that is performed in a relationship of superiority of the employer and subordination of the employee, on behalf of the employer, under the instructions of the employer and is performed by the employee personally for the employer.

The SAC examined the individual situations of the two workers in detail. The dispatcher herself testified that she viewed her position as subordinate. Her remuneration for her work for HENNLICH represented a substantial income (more than 50 %) and was paid in regular monthly payments. The work was long-term, in the company office, with company email and business cards.

As regards the head of the transport and administration organisation, the court pointed out that his only income was payments from HENNLICH. He has worked for the company for 26 years, indicating a long-term relationship, not a haphazard and short-term activity. He was perceived by the company’s employees as a superior employee and performed the same activity in an employment relationship after the termination of his cooperation in the invoicing scheme.

According to the SAC, these facts indicate economic dependence and full integration into the employer’s organizational structure.

Defence of the company: activity of ambivalent nature and outsourcing

HENNLICH defended itself by arguing that both activities can be carried out in an employment relationship and in an invoicing relationship and are therefore activities of ambivalent nature. Although the SAC acknowledged that the concept of activity of ambivalent nature is relevant in the tax area, that does not in itself mean that it is not dependent work. Activity of ambivalent nature is an activity that is neither purely independent nor purely dependent, but the term does not include the pretence of independence and the concealment of the actual situation. An individual assessment of the specific conditions of work performance is always necessary.

Another argument was that the company could have outsourced this activity. However, the court emphasized that external cooperation is possible mainly for specialized activities, not for routine organizational and dispatching work that is directly related to the company’s core business.

The court rejected the company’s other arguments

HENNLICH defended itself with other arguments, which the court rejected:

• The supervisors did not exercise intensive supervision over the workers and therefore there was no relationship of superiority and subordination – however, the SAC stated that physical control is not a necessary condition of dependent work. Other factors such as economic dependence, employer’s instructions or personal performance are decisive.
• The workers did not record their working hours – the court said even salaried employees can have flexible working arrangements, which is not in itself evidence of independence.
• Will of workers to be independent persons – the SAC clearly stated that if all the features of dependent work under the Labour Code are fulfilled, the subjective preferences of the worker are not decisive.
• The Court also commented on the constitutional aspect of the case – according to Article 26(1) of the Charter of Fundamental Rights and Freedoms, the freedom of enterprise is protected, but not absolute. Restricting the Schwarz System is a legitimate labour market regulation. Freedom can be limited by law, subject to a certain relationship of reasonableness.

Conclusion: Important confirmation of the rules against Schwarz System

This judgment confirms the previous practice of the Supreme Administrative Court and emphasizes that the contractual relationship must not be formally set up as invoicing cooperation if it actually corresponds to dependent work. The decision thus strengthens the protection of employees and prevents circumvention of labour and tax obligations.

Companies should therefore carefully assess their contractual relationships with their associates to avoid the risk of large fines and legal complications.