Who acts on behalf of the company in relation to its employees?

23. 2. 2016

We would like to draw your attention to a provision in the new Civil Code which provides for a special form of acting of the collective statutory body in relation to the company's employees and the mandatory registration of this form of acting in the Commercial Register.

Outwards, companies act through and by their statutory bodies (executives, members of the board of directors). The manner of acting can be subject to different forms of regulation in the memorandum of association. In relation to employees, however, this may not be sufficient – which particularly applies to joint stock companies.

Generally, each member of the statutory body has unlimited authority to represent the company – however, exceptions may be implied by the law (or, as the case may be, by the memorandum of association). In this regard, the new Civil Code contains a special regulation applying to acts on behalf of the company in relation to its employees if the company has a collective statutory body – in the joint stock company typically the board of directors (however, this regulation can also apply to limited liability companies if they have voluntarily decided that executives will form a collective body). The law provides that if a legal entity with a collective statutory body has employees, it authorizes one member of the statutory body to perform legal acts in relation to the company's employees. If no explicit authorization has been granted, this duty is exercised by the chairperson of the statutory body.

The Supreme Court has confirmed that the specific form of acting in relation to employees must also be recorded in the Commercial Register, even in the event that this duty is exercised by the chairperson of the board of directors.

Therefore, if it is only recorded in the Commercial Register that each member of the board of directors acts outwards independently, then this record is not sufficient, and the Commercial Register thus does not contain complete and accurate information. Conversely, if two members of the board of directors are to act together, this is not correct information in relation to employees. An authorized member of the board of directors may in fact act independently in relation to the employees.

The wording of the Civil Code has raised another question – whether this regulation also applies to conclusion of employment contracts, because the persons concerned are in fact not employees before such contracts are concluded. The law provides that these are legal acts in relation to employees. The Supreme Court has concluded that the purpose of the law is not to distinguish between existing and future employees, but to strengthen security in terms of who is authorized to act in labour matters. Therefore, its interpretation is the following: the authorized member (or chairman) of the board of directors may represent the company both in concluding employment contracts or, as the case may be, in entering into agreements outside employment, and in executing their amendments and termination.

Since this is a special regulation concerning legal acts in relation to employees, i.e. undoubtedly in relation to the weaker party, we recommend that the record in the Commercial Register be adapted to the requirements of the law to avoid inconveniences in the future.

Beyond the authorization of the member of the board of directors which is mandatory, it is certainly possible (and often useful) for the board of directors to delegate the power in labour matters to other persons (e.g. personnel department staff, HR manager, etc.).

It remains to be added that the special manner of acting by a specific member of a collective body must be determined not only for acts in labour relations with employees, but also for other areas – technical, financial, legal, regional, etc. This division can be especially useful for large companies that are characterized by the division of powers among different employees or for companies forming regional branches. However, in these cases it is necessary to remember the correct and, above all, specific definition of the given way of acting.

Sandra Králíková

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