Temporary Agency Employment and Its Limits

Agency Employment: Flexibility at a High Legal Price 

The only legal way to use external workers in this manner is through the institute of Temporary Assignment (Section 308 of the Labour Code). It is absolutely crucial for an employment agency to hold a valid employment mediation permit issued by the Ministry of Labour and Social Affairs (MPSV). Conducting this activity without a valid license constitutes an illegal practice with serious consequences.

Legitimate agency employment is based on a tripartite relationship where competencies are divided between the agency and the user. The employment agency is the legal employer, handling administration and payroll matters. In contrast, the user is the entity that actually manages the performance of the work. 

The user assigns work tasks to the temporarily assigned employee, organizes, manages, and controls their work, gives instructions, and creates favorable working conditions and ensures occupational health and safety.

This duality of authority is the biggest risk factor. If the division of powers is not strictly adhered to in practice, the tripartite relationship is breached. Although the user manages the work, they must not take legal actions on behalf of the employment agency towards the agency's employee. If the user's managers exceed their authority, they expose the corporation to the risk of penalties for illegal labor leasing. It is therefore essential that the convenience and speed of management do not lead to legal carelessness.

Why the Legal Issues Are More Complex in Practice Than They Seem

For managers, managing temporary assignments may seem like a routine HR matter. However, the legal issues involved are far more complex in practice than they first appear, hiding dozens of procedural details and connections to other regulations.

The risks lie in the invisible details: in inappropriate wording in the contract, in a poorly set up OHS management process for external workers, or in unintentionally exceeding the temporariness limit. Individual steps that seem simple have hidden exceptions, procedural details, links to other regulations, and risks in the real world that a layperson often does not see.

Any such mistake can trigger fines in the hundreds of thousands to millions of crowns. The goal is to show that this area is so complex and lengthy that it is safer to entrust it to experts.

The lawyers at ARROWS handle this agenda practically every day, which allows them to significantly shorten the time clients need for analysis and compliance implementation and to minimize the risk of errors. Our experience ensures that your company will be protected from legal pitfalls. As part of our guarantee of your security, the ARROWS law firm is insured for damages up to CZK 500,000,000. It is therefore safer and more secure for the client to have the entire matter professionally handled. Do not hesitate to contact our Prague-based office – consultation@arws.cz.

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The Biggest Financial Risk: Disguised Employment Mediation

The biggest financial and legal threat for corporations is the practice of attempting to circumvent the strict regulations of agency employment by concluding contracts for work or other subcontracting agreements with companies that do not have an employment agency license. This illegal activity is defined in the Employment Act as Disguised Employment Mediation.

The risk is extremely high because the law penalizes not only the pseudo-agency but also the client (user) who enables the performance of disguised employment mediation. This means that clients must not use labor leasing without complying with the prescribed conditions for employment mediation.

The State Labour Inspection Office (SÚIP) does not base its inspections solely on the name of the contract, but on the actual situation. The following signs, which SÚIP monitors, are key to detecting disguised mediation:

1. Lack of contractor independence: The client (user) assigns, organizes, and controls the work of employees formally belonging to the contractor (subcontractor).

2. Absence of responsibility for the result: The contractor does not perform the work at their own cost and risk and does not act from the position of an expert in the given field.

SÚIP is very active in detecting illegal work and disguised mediation. In the past year, the labor inspection authorities conducted almost 20,000 inspections. Out of a total of 5,595 fines imposed, the total amount of penalties in 2022 was almost CZK 470 million. SÚIP's inspection priorities continue to focus on detecting illegal employment.

From a mergers and acquisitions (M&A) perspective, the use of disguised mediation represents a huge hidden liability. During legal due diligence, all potential financial and legal impacts arising from this grey area must be identified. ARROWS can conduct specialized legal due diligence focusing on HR compliance, thereby protecting investors and companies from inherited liabilities. Our Prague-based legal team is ready to help you with an audit of your supplier contracts – write to consultation@arws.cz.

Financial and Legal Penalties for Illegal Employment (Disguised Mediation)

The Obligation to Ensure Comparable Conditions (Comparable Employee): What Does It Mean for You?

The principle of equal treatment is a key limitation of agency employment, stemming directly from Directive 2008/104/EC of the European Parliament and of the Council. The aim is to ensure that employees of employment agencies are not discriminated against in comparison with the user's core employees.

The key requirement is the obligation of the employment agency and the user to ensure that the working and wage conditions of a temporarily assigned employee are no worse than those of a Comparable Employee. An agency employee has the right to claim satisfaction of their rights to comparable remuneration directly from the employment agency.

The principle of equal treatment applies to all basic working and employment conditions, including working hours, overtime, breaks, holidays, public holidays, and fundamentally to remuneration. It also includes protection against discrimination based on gender, age, or ethnic origin.

Determining who is a Comparable Employee is highly legally demanding in practice. If no core employee exists in that position within the company, a comprehensive legal analysis must be conducted to establish a reference standard. Our Prague-based legal team has extensive experience with this and will be happy to help you set up the processes.

Corporations that employ hundreds of agency workers face a cumulative financial threat. Although the fine from the labor inspectorate for violating comparable conditions is high (up to CZK 1 million), the real financial danger lies in the agency employee's claim for back pay and compensation for damages incurred for the entire duration of the assignment. Such disputes can lead to claims in the tens of millions of crowns for large companies.

Why a Remuneration Review is Crucial and How to Avoid Back Payments of Hundreds of Thousands

CFOs and HR departments must focus on internal control of wage tariffs. It is crucial to realize that your company's internal wage tariffs and benefits automatically become the legal reference for external workers.

Prevention is based on careful and regular review of contracts and transparent communication with the agency. We recommend preparing or revising contracts that clearly define how comparability is ensured and what monitoring mechanisms are used, thereby protecting your corporation from litigation and back payments of hundreds of thousands.

The ARROWS law firm provides legal consultations that protect against fines and inspections, and helps with setting up wage policies and comprehensive documentation. Do not hesitate to contact our Prague-based office – consultation@arws.cz.

Essentials of the Temporary Assignment Agreement: A Checklist for Users

In addition to choosing the right, licensed agency, flawless formal documentation is key. The Labour Code strictly requires that the Temporary Assignment Agreement between the agency and the user must always be in writing, otherwise it is automatically invalid.

The invalidity of the Agreement due to the lack of written form or mandatory essentials can be interpreted by SÚIP as illegal labor leasing, which leads to the activation of the highest penalties. This activates the risk of legal uncertainty and the possibility of a fictitious employment relationship arising.

The Agreement must contain the essentials stipulated in Section 308(1) of the Labour Code. What to watch out for:

• Type of work and place of work.

• The period for which the employee is assigned, with an emphasis on its temporary nature.

• Information on the wage and working conditions of a comparable employee.

• Clear definition of the user's managing employee who is authorized to assign and control the work.

Duration Limit and Fictitious Employment: When Must You Act?

Under Czech legislation, agency employment is defined as a temporary assignment. Although Czech law does not have a fixed uniform maximum duration for all cases, adherence to the condition of temporariness is key. A breach of this condition can lead to a fictitious employment relationship with the user.

Judicial practice often suggests that for long-term assignments (e.g., 18 months or longer, unless otherwise stipulated by a collective agreement), there is a risk that courts will find an evasion of the law and the creation of an indefinite-term employment relationship directly with the user. This creates claims for the employee that you, as the user, must then address.

However, there are clear legal exceptions that allow for the extension of the assignment without a time limit:

• It is a replacement for a user's employee who is on maternity or parental leave (similarly for paternity leave).

• The temporarily assigned employee themselves requests the extension.

If you use agency employees long-term, a legal analysis is necessary to assess whether your situation falls under the legal exceptions. Our Prague-based legal team is ready to help you set up processes to ensure the condition of temporariness is met – write to consultation@arws.cz.

Risks Arising from Documentation Errors and How ARROWS Can Help

The Complexity of Posting Workers to the EU and Third Countries

For owners and top managers of corporations operating abroad, it is crucial to understand the complexity of cross-border agency employment, known as the Posting of Workers. This situation occurs when an employment agency employee performs work as part of the transnational provision of services in the territory of another EU member state.

This area is regulated by European directives on the posting of workers. The user has specific obligations to inform the posting employment agency about the place, tasks, start date, and expected duration of the posting. Failure to comply with these notification obligations is a serious risk and leads to penalties in the host country.

The time limit of 12 months (or 18 months after proper notification to the Labour Office) is critical. If the posting period exceeds this limit, all legal regulations of the host state, with the exception of rules on the creation and termination of the employment relationship, will apply to the posted worker. Corporations therefore face a multiple risk: penalties in the Czech Republic for poor documentation and fines from foreign regulatory authorities for non-compliance with local posting rules.

In addition, there are often specific requirements abroad; for example, in Germany, a "Stammhausbindungsvertrag" agreement is necessary to ensure the employee's return to the home employer after the local contract ends. In specific sectors, such as construction, there may be obligations to make payments to so-called holiday funds. You can obtain an expert legal opinion on international posting at consultation@arws.cz.

Your Secure Solution for International Cases: ARROWS International

The ARROWS law firm provides legal services outside the Czech Republic thanks to the ARROWS International network, built over ten years, and we handle cases with an international element on a practically daily basis.

We provide comprehensive legal advice on obtaining permits and licenses, including their amendments, and representation before registers, regulators, and supervisory authorities, both domestically and abroad. Our services cover the preparation of documents required by law in the context of cross-border provision of services.

As a partner to capital groups and owners of large assets, we can connect our clients with each other if they have interesting investment or business opportunities. If a client is looking for financing or a business partner for a purchase or sale (e.g., foreign branches) in a particular area, our network is a valuable resource. We are also happy to listen to interesting entrepreneurial or business ideas – consultation@arws.cz.

Summary: Why Entrust Your Agenda to ARROWS – Your Secure Compliance Partner

The risks arising from agency employment – from million-crown fines for disguised mediation to cumulative claims for back pay – are real and can fundamentally threaten a corporation's financial stability.

Our experience in providing long-term services to our clients is your guarantee of expertise and reliability. Our portfolio includes more than 150 joint-stock companies, 250 limited liability companies (s.r.o.), and 50 municipalities and regions. We pride ourselves on the speed and high quality of our legal services.

ARROWS handles this agenda daily, which allows us to significantly shorten the time clients need for analysis and compliance implementation and to minimize the risk of errors. We commonly partner with in-house corporate lawyers to resolve special matters where external expertise is required, such as representation in litigation and administrative proceedings.

The Security of Your Capital: Insurance and Partnership

The ARROWS law firm is insured for damages up to CZK 350,000,000. It is therefore safer for the client to have the entire matter professionally handled and thus protect their own capital.

If you do not want to risk mistakes, damages, or fines in the tens of millions, the safest and most effective solution is to entrust the entire agenda to the experts at ARROWS. We will ensure the preparation of all documentation, policies, and expert legal opinions. Simply contact the office at consultation@arws.cz and secure a tailor-made legal solution.