Representation of the company towards its employees

We would like to inform you about recent developments in interpretation of the relevant provision of the Civil Code regarding the representation of the company while acting towards its employees (for example during the concluding of employment contact, agreements on termination of employment, serving of notice of termination of employment, etc.). This novelty applies primarily to join stock companies, and to those limited liability companies, where executive directors form a collective governing body. Hence, the new interpretation does not concern limited liability companies with one executive director acting as a sole governing body of the company.

The general rule is embodied in § 164 paragraph 3 of the Civil Code:
“If a legal person with a collective governing body has employees, it shall authorise one member of the governing body to make juridical acts with respect to the employees; otherwise, this competence is exercised by the chairman of the governing body.”

According to judgement of the Supreme Court of the Czech Republic, published under No. R 20/2016, only one member of the governing body shall be authorized to make juridical acts towards the employees and if such authorization is not granted, it is the chairman of the governing body who shall administer said competence. Authorized member of the governing body has to be registered in the Commercial Register. The registration of the authorized person in the Commercial Register is necessary also in the situation, when the said competence is administered by the chairman of the governing body by virtue of his or her function (thus without the special authorization). The reason behind this rule is to improve the legal certainty of employees and future employees of the company. If authorized member of the governing body (different than the chairman of the governing body) would not be registered in the Commercial Register, the employee would be in a good faith that the only person authorized to make juridical acts toward him/her is the chairman of the governing body. However, even more complicated would be a situation, if according to the Memorandum of Association (the Letter of Incorporation) the collective governing body consists of executive directors without the elected chairman of this collective governing body. In such situation, the unnecessary disputes may arise regarding the effects of the respective juridical acts made by authorized members of the governing body, but not registered in the Commercial Register.

The important fact is that in case of juridical acts towards the employees, the general rule of representation of the company embodied in the Articles of Association (or in the Memorandum of Association or the Letter of Incorporation) and recorded in the Commercial Register shall not be used. Said rule applies even instead of the common two-man rule. The problem will not occur if the authorized member of the governing body signs the respective juridical act in accordance with the two-man rule, thus with another member of the governing body. However, the countersignature will not have any impact on the effect of such juridical act.

The abovementioned legal provision concerning the representation of the company towards its employees by one authorised member of the governing body does not exclude the possibility of other person to make juridical acts towards the employees (e.g. HR Directors accordingly authorised pursuant to the Signature Rules).

If the juridical act towards the employees is made by an unauthorised person (e.g. two members of governing body signing in accordance with the two man rule, when none of them is actually an authorised member of the governing body), than such juridical act may be found void.

 
If you are interested in further information on the subject or our services related to the authorisation of member of the governing body and registration of said authorisation in the Commercial Register, please do not hesitate to contact us.

 

Mgr. Veronika Bočanová