How Maltese companies can navigate Czech employment contracts: Key hiring pitfalls to avoid

When Maltese companies establish operations in the Czech Republic, they face a fundamentally different employment legal framework than at home. The Czech Labour Code contains mandatory requirements that seem straightforward on the surface but hide numerous exceptions and strict procedural rules. This guide reveals the critical hiring pitfalls that Maltese employers encounter and explains how to avoid costly mistakes regarding fines and contract invalidations.

Understanding the mandatory nature of Czech employment contracts

The first rule that catches many Maltese employers off guard is this: every employment relationship in the Czech Republic must be documented in a written contract without exception. This is not a suggestion or best practice—it is a legal requirement with no flexibility.

Many companies arriving from Malta attempt to use brief employment letters or adapt contracts from their home jurisdiction. However, Czech law specifies precisely what must be included in every contract, and deviation carries real consequences.

According to the Czech Labour Code, every employment contract must contain three essential elements: the type of work the employee will perform, the place of work, and the day of commencement of employment. If any of these three elements is missing, the contract is legally invalid, and you face a situation where the employment relationship exists in a legally uncertain state.

Beyond these three essentials, Czech law requires you to provide written information about additional matters, either in the contract or in a separate written notification. This includes the employee's full name and address, the employer's details, the job title, annual leave entitlement, and applicable notice periods.

It must also cover weekly working hours and schedule, salary or wage details and payment method, and any collective bargaining agreements that apply. What appears simple—providing this information—becomes complex when you realize that each of these elements connects to other regulatory requirements.

The lawyers at ARROWS Law Firm regularly work with Maltese and other foreign companies establishing Czech operations to prevent problems during Labour Office inspections. ARROWS Law Firm can help you prepare employment contracts that satisfy all Czech legal requirements and serve your business objectives.

microFAQ – Legal tips on employment contract essentials

1. Can I use an English-language contract, or must it be in Czech?
Czech law does not strictly mandate that contracts be in Czech, but the Labour Code requires that the employee understands the content. Practically, using English only is risky. If a labour inspector or court later needs to interpret the contract, a Czech version is essential. ARROWS Law Firm strongly recommends preparing a bilingual version to protect your legal position.

2. What happens if my contract is missing one of the three mandatory elements?
The contract is legally invalid. Although the employment may be deemed to exist factually, you and the employee are in a legally uncertain position. If a dispute arises, a court may not enforce specific contract terms (like non-competes or wage structures), and you may face liability.

3. Can the same contract template work for all employee types?
Not entirely. While the three essential elements apply to all employment relationships, fixed-term, part-time, and temporary arrangements (DPP/DPČ) have additional requirements. This is one reason why individual contract review is essential—what looks like a single template can create different compliance challenges depending on how it is applied.

The three essential elements: Defining work, location, and start date

Getting the type of work right sounds straightforward until you apply it in practice. The Labour Code requires that the type of work "defines the range of work tasks the worker undertakes to perform." This means you cannot write something so vague that you could assign almost any task to the employee.

The type of work should reasonably describe what the employee will actually do. However, you can specify multiple types of work in the employment contract, which provides flexibility for employees who handle diverse responsibilities.

The practical challenge arises when Maltese employers want flexibility to reassign employees as business needs change. Czech law does not permit you to transfer a worker to a different type of work without their consent unless the Labour Code specifically allows it. ARROWS Law Firm's lawyers regularly work with foreign employers to strike the right balance between flexibility and legal compliance when drafting the type of work specification.

The place of work similarly requires precision. You can determine it very narrowly—specifying a particular office address—or broadly, such as "the territory of the Czech Republic" or a specific municipality. However, the law requires that the place of work be proportionate to the nature of the work.

Once you agree on a place of work, you cannot unilaterally move an employee to a different location without their consent. Work conducted outside the agreed place often constitutes a business trip, which triggers additional legal obligations regarding travel allowances and working time calculations.

The commencement date is the third essential element. The date can be a specific calendar day or determined by an event. The employment relationship arises on the day agreed as the commencement day, regardless of whether the employee actually starts working on that day.

Fixed-term contracts: Understanding the renewal limits that trap employers

One of the most significant pitfalls for Maltese companies is misunderstanding the rules governing fixed-term employment contracts. Unlike in some jurisdictions, Czech law allows fixed-term contracts, but strict limitations apply to how long those contracts can last.

A fixed-term contract cannot be for more than three years in duration. More restrictively, it cannot be renewed more than twice. This means the absolute maximum you can engage an employee on successive fixed-term contracts is three separate terms, never exceeding three years in total for each individual term.

Consequently, the maximum total duration of a continuous fixed-term relationship is generally nine years (3x3), provided the renewals happen correctly. If you employ someone on a fixed-term contract in violation of these rules, they are automatically deemed to be permanently employed if they insist on it.

The complication deepens when you understand that each renewal or extension of a fixed-term contract counts as a repetition. If you have employed someone on a series of fixed-term contracts and three years pass since the end of the last one, the previous contracts are no longer taken into account.

Exceptions to these strict limits exist but are narrow. For example, if serious operational reasons exist on the employer's side or due to the special nature of the work, different rules may apply. However, relying on this exception without proper documentation is a frequent compliance failure.

The lawyers at ARROWS Law Firm handle cross-border employment issues regularly and understand how these fixed-term contract rules interact with foreign companies' business planning. They can help you structure your workforce deployment to remain compliant while maintaining the flexibility your business requires.

microFAQ – Legal tips on fixed-term contracts

1. Can I use fixed-term contracts to avoid giving permanent employees notice periods during termination?
No. Fixed-term contracts expire automatically at the end of the term. However, if you terminate the contract before the agreed term expires, you must still follow valid termination grounds and notice periods. Misusing fixed-term contracts to bypass employment protection can lead to invalidity claims.

2. If I employ someone on three fixed-term contracts back-to-back, what happens after the third contract ends?
If you wish to continue the employment relationship immediately, the fourth contract must be for an indefinite period (permanent). If you want to use a fixed-term contract again, you must generally wait for a break of three years.

3. Are there exceptions for replacement of absent employees?
Yes, the limitations on duration and renewal count typically apply, but for temporary replacements (e.g., during maternity or parental leave), the "operational reasons" exception is often utilized if properly codified in internal regulations. Always consult legal counsel to ensure the specific replacement qualifies for an exception under current rules.

Probationary periods: Strict rules and documentation

The Czech Labour Code allows for a probationary period, but it is not automatic. It must be agreed upon in writing no later than the day the employment commences. If it is not written and signed by the start date, no probationary period exists, and the employee enjoys full protection against termination immediately.

The standard maximum length of a probationary period is three months for regular employees and six months for managerial employees. It cannot be longer than half of the agreed duration of the employment relationship. Crucially, the probationary period cannot be extended by agreement of the parties, only by statutory operation for obstacles to work.

During the probationary period, either the employer or the employee can terminate the employment relationship for any reason or without stating a reason. The termination notice must be in writing and delivered to the other party, ideally at least three days before the employment is to end.

ARROWS Law Firm regularly assists clients with probationary period structuring to ensure both compliance and practical effectiveness. The firm's experts understand how probationary period agreements interact with other contract terms and how to draft them to withstand inspection scrutiny.

Misclassifying workers: The costly "Švarc system" trap

One of the most dangerous mistakes Maltese companies make when entering the Czech market is misclassifying employees as independent contractors. This practice, known as the "Švarc system" in Czech, involves treating a worker who should be an employee as a self-employed contractor to avoid employer obligations.

Czech law distinguishes clearly between dependent work (employment) and independent commercial activity. Dependent work is performed in a relationship of superiority of the employer and subordination of the employee, in the employer's name, and according to the employer's instructions.

The issue becomes particularly acute for Maltese companies because Czech authorities have intensified enforcement against false self-employment. The State Labour Inspection Office can impose fines up to CZK 10,000,000 (approx. EUR 400,000) for enabling illegal work.

Even accidentally misclassifying a worker creates compliance risk. Determining the correct classification is more nuanced than it appears. Some workers are genuinely independent contractors, but if you dictate their working hours and tools, a labour inspector will likely classify them as employees.

ARROWS Law Firm's lawyers regularly audit client workforces to identify misclassification risks and can help you restructure relationships that are defensible under Czech law. Contact office@arws.cz for a confidential assessment.

microFAQ – Legal tips on worker classification

1. If I hire someone as a contractor but they only work for my company, does that automatically make them an employee?
Not automatically, but exclusivity is a strong indicator of dependent work. If the "contractor" is economically dependent on you and cannot realistically work for others due to your demands, the risk of reclassification is high.

2. Can I require an independent contractor to work set hours and follow my company procedures?
Setting fixed working hours and requiring compliance with internal employee directives are hallmarks of an employment relationship. Independent contractors should be paid for the result, not the time, and should generally have autonomy over when and how they work.

3. What should I do if I realize I have misclassified workers?
Contact ARROWS Law Firm immediately. Proactively correcting misclassification by converting workers to proper employee status reduces the risk of future penalties.

Hiring foreign workers: The layered compliance puzzle

For Maltese companies, hiring foreign employees in the Czech Republic triggers an additional layer of compliance obligations related to immigration and work authorization. Citizens of EU/EEA countries and Switzerland have free access to the Czech labour market.

However, you still have obligations. You must inform the relevant Labour Office regional branch no later than the day of commencement of employment about hiring an EU citizen. Failure to fulfill this information duty is an administrative offense punishable by fines.

For non-EU foreign workers (third-country nationals), the requirements are substantially more complex. They typically require an Employee Card, a Blue Card, or a specific Work Permit combined with a residence title. The process involves a labour market test and can take several months.

Crucially, a non-EU foreigner cannot start working before the valid work authorization is granted and effective. Allowing a foreigner to work while their application is merely "pending" constitutes illegal employment, punishable by fines up to CZK 10,000,000.

The reporting deadlines are strict. For all foreign employees (EU and non-EU), you must notify the Labour Office of the start of employment via the Information Card no later than the day they start work. You must also notify the Labour Office of the termination of employment within 10 days.

ARROWS Law Firm regularly handles the complex procedural aspects of foreign worker hiring for Maltese and other international companies. The firm can guide you through the labour market test process, prepare work permit applications, and help you avoid penalties.

Working conditions and mandatory benefits

Once a worker is hired, Czech law imposes numerous mandatory working conditions. The standard workweek is 40 hours, and any time beyond the scheduled shift is considered overtime.

Overtime work can only be ordered in serious operational reasons and is limited. Overtime must be compensated with a surcharge of at least 25% of average earnings or compensatory time off. Night work and weekend work also attract minimum surcharges.

Employees are entitled to a break of at least 30 minutes after 6 hours of continuous work. There must be a continuous rest period between shifts of at least 11 hours and a continuous weekly rest period of at least 35 hours. The statutory minimum annual leave is 4 weeks per calendar year.

During the first 14 calendar days of temporary incapacity for work (illness), the employer pays wage compensation for working days. From the 15th day, the state pays sickness benefits.

Compliance with these working conditions is not optional. Employers who violate working time restrictions or fail to pay mandatory surcharges face inspections and fines.

Risks and sanctions table

Risks and Sanctions	How ARROWS (office@arws.cz) helps
Incomplete employment contracts: Invalid contract provisions can lead to disputes and fines up to CZK 2,000,000 for breaches of obligation to inform employees.	Contract preparation and review: ARROWS drafts compliant employment contracts containing all mandatory Czech Labour Code elements.
Misuse of fixed-term contracts: Exceeding limits results in automatic transformation to permanent status.	Fixed-term contract structuring: ARROWS advises on lawful fixed-term contract strategies and tracks renewal limits.
Worker misclassification (Švarc system): Fines up to CZK 10,000,000 for enabling illegal work, plus back-payment of taxes and insurance.	Worker classification audit: ARROWS conducts audits to identify risks and advises on proper contract structures.
Foreign worker employment without authorization: Fines up to CZK 10,000,000 for illegal employment; strict liability.	Immigration support: ARROWS manages the complete work permit and Employee Card process.
Failure to notify Labour Office: Fines up to CZK 100,000 for failure to report entry/exit of foreign employees (EU or non-EU).	Notification procedures: ARROWS ensures timely submission of Information Cards and required documentation.
Invalid probationary period: Oral agreements are void; employer loses right to immediate termination.	Probationary period documentation: ARROWS drafts legally compliant written probationary period clauses.

Foreign employers: Permanent establishment and tax exposure

A critical issue is that hiring employees in the Czech Republic may create a "permanent establishment" for your Maltese company for corporate income tax purposes. If your employees in Czechia have the authority to conclude contracts in the name of the Maltese company, you may be subject to Czech corporate tax.

This determination depends on the specific double tax treaty between the Czech Republic and Malta and the nature of the employees' activities. ARROWS Law Firm can analyze your specific operational model to assess permanent establishment risks.

Notice periods and termination: The "two-month" rule

Terminating employment in the Czech Republic is difficult for employers. You can generally only terminate an employee for specific statutory reasons, such as organizational changes, redundancy, health reasons, or breach of duty.

The statutory notice period is at least two months. Crucially, under the current Labour Code, the notice period starts on the first day of the calendar month following the delivery of the notice. For example, if you deliver a termination notice on May 15, the two-month notice period begins on June 1 and ends on July 31.

Immediate termination is possible only for particularly gross breaches of duty or criminal convictions. Termination for poor performance requires a prior written "notice to remedy" within the last 12 months.

ARROWS Law Firm advises on lawful termination procedures to prevent invalidity claims, which are common and expensive. Contact office@arws.cz to ensure your termination procedures are legally sound.

microFAQ – Legal tips on termination

1. Can I terminate an employee for poor performance immediately?
No. You typically need to give a written warning first, allow a reasonable time for improvement, and if they fail to improve, you can terminate with a notice period.

2. What if the employee refuses to sign the termination notice?
Termination is a unilateral legal act. It is effective upon delivery to the employee. If they refuse to sign receipt, you must prove delivery (e.g., via witnesses or registered mail with specific procedural rules).

3. Can I pay the employee in lieu of notice (Garden Leave)?
Czech law does not have a formal "pay in lieu of notice" concept where the employment ends immediately upon payment. The employment continues until the notice period expires. However, you can place the employee on "obstacles to work on the employer's side" (Garden Leave), where they do not work but receive 100% of their average earnings.

Remote work arrangements: Written agreements mandatory

Since late 2023, the Czech Labour Code has strictly regulated remote work (Home Office). Remote work is possible only based on a written agreement between the employer and employee, unless ordered exceptionally by public authority.

Employers must cover the costs associated with remote work. This can be done by reimbursing proven actual costs or by paying a flat-rate lump sum if agreed or set by internal regulation. The lump sum amount is determined by a Ministry of Labour decree (regularly indexed).

Employees caring for children under 9 (or those caring for dependent persons) have a right to request remote work. If the employer denies it, they must provide a written justification.

Occupational health services

Every employer in the Czech Republic, regardless of size or risk category, must ensure occupational health services (workplace doctor). You must have a contract with a provider or, for low-risk work, you can sometimes substitute this with a visit to the employee's general practitioner.

Employees must generally undergo an initial medical examination before commencing work. Periodic exams are also required depending on the risk category and age of the employee. Failure to have a "fit for work" assessment can render the employment contract invalid or lead to fines.

Social security and tax compliance

Employers must withhold income tax, social security, and health insurance from employees' wages and pay the employer's portion of social security and health insurance. The total employer cost is approximately 33.8% on top of the gross salary.

The minimum wage is adjusted annually by government decree. For 2026, employers must verify the currently effective rate (in 2024 it was CZK 18,900, with expected annual increases).

Employers must submit monthly reports to the Social Security Administration and Health Insurance companies electronically. Failure to submit these reports on time results in penalties and interest on late payments.

Executive summary for management

Strategic complexity: The Czech framework is rigid. Written contracts, strict notice periods (starting the 1st of the next month), and mandatory medical exams are non-negotiable.

Financial risks: Fines for illegal work (including misclassification) reach CZK 10 million.

Time factors: Hiring non-EU nationals takes months. Termination takes months due to notice period rules.

Professional support: Attempting to navigate this with "common sense" or home-country templates usually leads to non-compliance.

Conclusion

Maltese companies establishing operations in the Czech Republic face a prescriptive employment environment. The mandatory nature of written contracts, strict termination rules, and foreign worker procedures create a compliance framework that demands attention. However, with proper legal structuring, these risks are manageable.

ARROWS Law Firm, based in Prague, has extensive experience representing foreign companies. We combine in-depth knowledge of Czech employment law with an understanding of international business needs.

To discuss your Czech hiring plans, contact us at office@arws.cz.

FAQ – Frequently asked legal questions

1. Can I use my Malta employment contract template?
No. It will likely miss mandatory Czech elements (e.g., specific notice periods, references to the Czech Labour Code) and contain unenforceable clauses.

2. Is it safe to hire a non-EU foreign worker before their work permit is approved?
No. This is illegal employment with fines up to CZK 10 million.

3. Do I need to register with Czech authorities if I hire only one employee?
Yes. You must register as an employer with the Social Security Administration, Health Insurance companies, and the Tax Office within strict deadlines (usually 8 days).

4. When does the notice period start?
It starts on the first day of the calendar month following the delivery of the notice.

5. Can I terminate an employee during probation without reason?
Yes, if the probationary period is validly agreed in writing.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly (office@arws.cz). We accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailor-made solution, so please do not hesitate to contact us.