How Swedish Employers Can Avoid Mistakes in Czech Employment Contracts:

Expanding your business into the Czech Republic offers significant opportunities, but for Swedish companies, the new territory comes with a distinct set of employment laws that can be a minefield for the unprepared. If you are planning on hiring in the Czech Republic, this guide provides clear, practical answers on navigating Czech employment contracts and the Labour Code, helping you avoid common and costly legal mistakes that could jeopardize your expansion from day one.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

 

The First Handshake: Critical Differences in Contract Formation

The most fundamental and high-risk divergence between Swedish and Czech employment law lies in the very creation of the employment relationship. An approach that is standard practice in Stockholm could render your entire employment agreement void in Prague, exposing your company to immediate and significant legal risk.

Why Your Swedish Approach to Contracts Won't Work in Prague

In Sweden, the legal framework is built on a high-trust model where an employment contract can be legally formed through an oral agreement. While employers are obligated to provide written confirmation of the essential terms within a set timeframe, the verbal handshake itself is binding and establishes the employment relationship.

This practice is completely invalid in the Czech Republic. The Czech Labour Code is prescriptive and prioritizes absolute legal certainty from the outset. It unequivocally mandates that an employment contract must always be in writing to be valid. Each party—the employer and the employee—must receive a signed copy of the document. This is not a minor procedural formality; it is a foundational legal requirement.

The Czech Mandate: Three Essential Pillars of a Valid Contract

According to Section 34(1) of the Czech Labour Code, for an employment contract to be legally valid, it must contain three specific, non-negotiable elements. The absence of even one of these pillars renders the entire contract invalid.

1. The Type of Work: The contract must clearly define the scope of work tasks the employee is expected to perform. This cannot be so broad as to be meaningless, as it sets the boundaries of the employee's obligations.
2. The Place(s) of Work: The agreement must specify the location where the work will be performed. This can be a specific office or a broader territory, but it is crucial as it defines the geographical limit of the employer's right to assign work. Any work assigned outside this area is considered a business trip, triggering different rules and allowances.
3. The Date of Commencement: The contract must state the exact date on which the employment relationship begins. This is the day the employer becomes obliged to assign work and the employee to perform it.

This level of prescribed detail is a significant departure from the more flexible Swedish system, where such terms are often confirmed in writing after a verbal agreement has already been reached.

The Hidden Dangers of an Invalid Contract

The consequences of failing to meet the Czech written contract requirement extend far beyond a simple compliance issue. A Swedish manager, acting in good faith based on their home-country norms, might onboard a Czech employee with a verbal offer and a promise of paperwork to follow. Legally, that employee is working without a valid contract.

This foundational error can invalidate the entire legal basis of the employment relationship. It can render critical clauses—such as confidentiality, intellectual property rights, non-compete agreements, and specific termination terms—completely unenforceable. In the event of a dispute, from an employee leaving with sensitive client data to an accident in the workplace, the employer is left in a severely weakened legal position.

The lawyers at ARROWS routinely draft and review employment contracts for foreign companies, ensuring they are fully compliant with the Czech Labour Code from day one. Need to secure your new hires with valid, enforceable contracts? Contact us at office@arws.cz.

FAQ – Legal Tips on Contract Essentials

• Can I use my standard Swedish employment contract template in the Czech Republic?
• No, this is highly risky. It almost certainly lacks the mandatory written elements for Czech validity and will not reflect crucial Czech-specific regulations. ARROWS can adapt your templates or prepare fully compliant Czech contracts for you. For a contract review, email us at office@arws.cz.
• What happens if we only have a verbal agreement with our Czech employee?
• From a Czech legal perspective, you do not have a valid employment relationship. This exposes you to significant fines and legal challenges, including for "undeclared work." To rectify this situation immediately, contact our legal team at office@arws.cz.

Choosing the Right Agreement: Beyond the Standard Permanent Contract

The Czech legal system offers different types of employment agreements, including unique instruments that can be powerful strategic tools for a Swedish company. Understanding these options is key to building a flexible and compliant local workforce.

Fixed-Term Contracts: Navigating the Czech "3 Times and Enough" Rule

Both countries use fixed-term contracts, but the rules governing their renewal are starkly different. In Sweden, employers often use a "special fixed-term employment" (särskild visstidsanställning, or SÄVA), which automatically converts to an indefinite contract if the employee works for more than 12 months within a five-year period.

The Czech Republic employs a different logic known as the "3 times and enough" rule. A fixed-term contract can be set for a maximum of three years and can be renewed a maximum of twice. This means a total of three consecutive fixed-term contracts are possible, with a cumulative duration not exceeding nine years.

 A Swedish manager accustomed to a time-based conversion rule might not see an issue with offering a fourth consecutive one-year contract, but in the Czech Republic, this would automatically transform the relationship into a permanent one.

Our lawyers at ARROWS can structure fixed-term employment strategies that provide flexibility while ensuring full compliance with the "3 times and enough" rule. Plan your staffing needs without risk by writing to office@arws.cz.

Probationary Periods: A New Landscape in 2025

Probationary periods offer a crucial window to assess a new hire's suitability. In Sweden, the standard maximum is six months. The Czech Republic has recently become more employer-friendly in this regard.

Previously, the Czech standard was three months (six for managers). However, the significant 2025 "Flexi-Amendment" to the Labour Code has extended these limits. The maximum probationary period is now four months for regular employees and eight months for managerial employees. This recent legislative change provides a longer, more secure evaluation period for companies hiring in the Czech market.

A Uniquely Czech Tool: Understanding DPP and DPČ Agreements

The Czech Republic offers two types of flexible work agreements that have no direct Swedish equivalent: the Agreement to Complete a Job (Dohoda o provedení práce - DPP) and the Agreement to Perform Work (Dohoda o pracovní činnosti - DPČ). While Czech law is rigid on standard contracts, these agreements offer a degree of flexibility that can be a strategic advantage.

• DPP (Agreement to Complete a Job): This is ideal for short-term, project-based work. It is limited to 300 hours per calendar year with a single employer. Its main advantage is that if the monthly remuneration does not exceed a set threshold (CZK 11,500 for 2025), neither the employer nor the employee pays social security and health insurance contributions.
• DPČ (Agreement to Perform Work): This agreement is for more regular, part-time work, but the hours cannot exceed an average of 20 per week. The threshold for mandatory insurance contributions is much lower (CZK 4,500 for 2025).

For a Swedish company testing the Czech market, using these agreements for initial, limited-scope roles—such as local market research, translation services, or part-time administrative support—can be a highly effective, low-overhead entry strategy. It allows you to build a presence and access local expertise without immediately committing to the full administrative and financial obligations of a standard employment contract.

Risks in Employee Classification

Risks & Penalties	How ARROWS Helps
Invalid Contract Formation: Relying on a Swedish-style oral agreement, leading to an unenforceable contract and potential fines for illegal employment.	Drafting Compliant Contracts: We prepare legally sound, written employment contracts that meet all Czech statutory requirements. Need a valid contract drafted? Contact us at office@arws.cz.
Automatic Permanent Employment: Unknowingly exceeding the "3 times and enough" limit for fixed-term contracts, creating an unintended indefinite employment relationship.	Strategic Contract Management: We provide legal analysis and planning to manage your fixed-term workforce effectively without triggering unwanted permanent status. Want to assess your contract strategy? Write to us at office@arws.cz.
Employee Misclassification: Using a standard employment contract for a short-term project where a more efficient DPP or DPČ would be appropriate, leading to unnecessary administrative costs.	Advising on Flexible Agreements: We identify opportunities to use DPP/DPČ agreements to reduce costs and administrative burdens for your specific business needs. Need advice on the best contract type? Email us at office@arws.cz.
Penalties for Misclassification: Incorrectly classifying a de facto employee as a contractor, resulting in fines up to CZK 10,000,000 and liability for back taxes and social contributions.	Legal Risk Assessment: We conduct thorough assessments to ensure your worker classifications are defensible against inspection by Czech authorities. Protect your business from misclassification fines by contacting office@arws.cz.

 

The Employment Relationship: Key Obligations and Cultural Shifts

Once the contract is signed, the day-to-day management of the employment relationship reveals further deep-seated differences between the two countries. Swedish employers must adapt from a system heavily influenced by social partner negotiations to one governed by a comprehensive legal code.

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The Power of the Collective Agreement vs. Statutory Law

The Swedish labor market is uniquely defined by the power of Collective Bargaining Agreements (CBAs). These agreements, negotiated between trade unions and employer federations, are the primary source of rules on everything from minimum wages and notice periods to overtime compensation and severance pay. A Swedish HR manager instinctively turns to the relevant CBA for guidance.

In the Czech Republic, the landscape is different. While CBAs exist, they are supplementary. The primary and overriding source of employment rights and obligations is the Labour Code (Zákoník práce). This comprehensive statute provides a mandatory floor for all employee rights, creating a more uniform but less flexible system. For a Swedish company, this means the rules are less about negotiation and more about meticulous adherence to a detailed legal code.

Mandatory Benefits: What You Must Provide in the Czech Republic

The Czech Labour Code and related laws prescribe a clear set of mandatory benefits and contributions that every employer must provide. Assuming "standard market practice" will suffice is a dangerous approach; the letter of the law is paramount.

• Social Security and Health Insurance: Employers are legally required to make significant contributions on behalf of their employees. This includes a 24.8% contribution to social security (covering pensions, sickness, and unemployment) and a 9% contribution to health insurance, calculated from the employee's gross salary.
• Annual Leave: The statutory minimum paid annual leave is four weeks (20 working days). However, offering five weeks (25 days) has become the common market standard and is essential for attracting and retaining talent.
• Sick Leave: The system for sick pay is highly specific. The employer is responsible for paying wage compensation (at 60% of average earnings) for the first 14 days of an employee's illness. From the 15th day onwards, the state social security system takes over. This is a critical mechanical difference from systems where state benefits might apply from day one.
• Parental and Family Leave: The law provides for 28 weeks of maternity leave for mothers and 2 weeks of paternity leave for fathers, alongside extensive parental leave rights.

ARROWS provides comprehensive legal support in setting up compliant payroll and benefits systems for our international clients, ensuring all statutory obligations are met. For a consultation on establishing your Czech HR infrastructure, write to office@arws.cz.

FAQ – Legal Tips on Daily Operations

• Do I need to negotiate with trade unions in the Czech Republic?
• For most new market entrants, especially SMEs, it is less common than in Sweden. While unions exist, your primary obligation is to comply with the Labour Code, which sets the rules for all employees. ARROWS can advise on any specific union obligations that may apply to your industry. Find out more at office@arws.cz.
• Are meal vouchers a mandatory benefit in the Czech Republic?
• They are not legally mandatory, but they are an extremely common and tax-advantaged benefit that is a deeply ingrained market standard. Failing to offer them can put you at a significant competitive disadvantage in hiring. We can guide you on structuring a competitive and tax-efficient benefits package. Contact us at office@arws.cz.

Navigating the End of Employment: Termination Rules and Financial Liabilities

Terminating an employment contract is one of the most legally sensitive actions an employer can take. The differences between the Swedish and Czech systems are stark, and missteps in the Czech Republic can lead to costly legal disputes and significant financial penalties.

Grounds for Dismissal: Strict Czech Rules vs. Swedish "Objective Reasons"

In Sweden, an employer can terminate an employee for "objective reasons" (sakliga skäl), a broad concept that falls into two main categories: redundancy (arbetsbrist) or personal reasons (personliga skäl) related to the employee's conduct or performance.

The Czech system is far more rigid and unforgiving. An employer can only terminate an employee for a limited set of reasons explicitly enumerated in the Labour Code. At-will termination does not exist. These statutory grounds include:

• Organizational reasons: Company dissolution, relocation, or redundancy.
• Health reasons: The employee is no longer medically fit to perform the work.
• Employee fault: Unsatisfactory performance or a breach of work duties.

Crucially, for performance-related issues, the law requires that the employer first issue a formal written warning detailing the shortcomings and giving the employee a reasonable period to improve. Failure to follow this procedure makes any subsequent dismissal automatically invalid. A Swedish manager's more informal approach to performance management would not withstand legal scrutiny in a Czech court.

Notice Periods: A Key Change in 2025

Swedish notice periods are tiered by law based on length of service (from one to six months) but are frequently extended by CBAs. The Czech Republic has a statutory two-month notice period for most terminations.

However, the 2025 Flexi-Amendment introduces a critical change. Previously, the notice period began on the first day of the calendar month following the delivery of the notice. Under the new rules, the notice period begins on the day the notice is served. Furthermore, the notice period is shortened to one month for certain dismissals related to performance or breach of duties. This accelerates the termination process but requires employers to be prepared for an immediate start to the notice period.

Severance Pay: A Statutory Right vs. a Contractual Norm

This is one of the most significant financial differences. In Sweden, there is no statutory right to severance pay. Entitlement to severance is almost entirely governed by CBAs or is negotiated in individual separation agreements, typically for executives.

In the Czech Republic, severance pay is a statutory right for any employee terminated for organizational reasons (e.g., redundancy). The amount is mandated by law and tiered based on length of service :

• Less than 1 year of service: 1 month's average salary.
• 1 to 2 years of service: 2 months' average salary.
• More than 2 years of service: 3 months' average salary.

This is a non-negotiable financial obligation that Swedish employers must factor into any restructuring or downsizing plans in the Czech Republic.

Navigating a termination in the Czech Republic is a procedural minefield. ARROWS provides end-to-end support, from drafting legally compliant warning letters and termination notices to representing clients in any potential disputes. Ensure your terminations are legally sound by contacting us at office@arws.cz.

Risks in Employment Termination

Risks & Penalties	How ARROWS Helps
Wrongful Dismissal Lawsuit: Terminating an employee without one of the strict statutory grounds, leading to a court invalidating the termination and ordering reinstatement with back pay.	Representation in Court (Zastupování u soudů): We defend your decision or, preferably, guide you through a legally unassailable termination process from the start. Need representation or advice? Write to office@arws.cz.
Procedural Errors: Failing to issue a formal written warning before a performance-based dismissal, making the termination automatically invalid.	Document Preparation (Příprava dokumentace): We draft all necessary legal documents, including performance warnings and termination notices, to build a robust and defensible case file. Need help with documentation? Contact us at office@arws.cz.
Unexpected Severance Costs: Misunderstanding that severance pay for redundancy is a statutory obligation in the Czech Republic, leading to unplanned financial liabilities.	Legal Opinions (Právní stanoviska): We provide clear legal opinions on your obligations, including calculating severance pay, to ensure financial predictability in restructuring. Want to know your legal options? Write to office@arws.cz.
Disputes with Union Members: Failing to consult with the relevant trade union before terminating a union member, where required, leading to legal challenges.	Legal Consultations: We advise on all procedural steps, including mandatory consultations with employee representatives, to prevent disputes before they arise. Need a legal consultation? Connect with us at office@arws.cz.

 

Critical Compliance for Swedish Companies: The High-Stakes Traps

Beyond the core employment lifecycle, several specific compliance issues pose a particularly high risk to foreign companies. Recent legislative changes have created new traps for the unwary, with severe financial and reputational consequences.

The "Undeclared Work" Trap: A New and Severe Risk

This is arguably the single most critical, time-sensitive warning for any foreign company hiring in the Czech Republic. A major amendment to the Employment Act, effective from 1 October 2025, introduces the concept of "undeclared work" (neohlášená práce).

This offense occurs if an employer fails to register a foreign employee—and this explicitly includes EU citizens—with the competent Labour Office before the employee commences work. The common past practice of handling paperwork shortly after an employee's start date is now a high-stakes violation. The penalties are severe: fines for the employer can reach up to CZK 3,000,000 (approx. EUR 120,000), with potential bans on hiring foreigners in the future. This new zero-tolerance regime requires a complete overhaul of onboarding procedures to ensure all administrative reporting is completed and confirmed before an employee's first day.

Post-Employment Restrictions: Enforcing Non-Compete Clauses

Protecting business interests after an employee leaves is crucial. While both countries use non-compete clauses, the Czech rules come with a significant, mandatory cost.

In the Czech Republic, a non-compete clause is valid for a maximum of one year post-termination. Crucially, the employer must pay the former employee monthly financial compensation of at least 50% of their average monthly earnings for the entire duration of the restriction. This is a non-negotiable condition; failure to pay renders the clause unenforceable.

While non-competes are also used in Sweden, compensation levels (often around 60% of former salary) and duration are typically governed by a "reasonableness" test based on case law, rather than a strict statutory minimum payment obligation.1 The mandatory 50% payment in the Czech Republic is a significant financial commitment that must be factored into offboarding calculations.

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Leveraging Global Expertise: How ARROWS International Bridges the Gap

For Swedish companies, navigating these cross-border complexities is our specialty. Being fined for "undeclared work" is not just a financial hit; it is a significant reputational blow that can damage your employer brand and make it harder to attract top talent. Proactive compliance is a strategic imperative.

With our extensive ARROWS International network, built over a decade, we handle issues with international elements on a daily basis. Whether it's enforcing a non-compete clause against a former employee who has returned to Sweden or coordinating multi-jurisdictional employment matters, our integrated team provides seamless, expert support. Connect with our international team at office@arws.cz.

Your Next Step to a Secure Czech Expansion

The Czech employment landscape, while complex, is entirely navigable with the right expert partner. The key differences—from the mandatory written contract and the primacy of the Labour Code to the strict termination grounds and the new "undeclared work" trap—all underscore one critical point: you cannot simply import your Swedish HR practices.

ARROWS is more than just a law firm; we are a strategic partner for Swedish businesses entering the Czech Republic. Our experience advising a portfolio of over 150 joint-stock companies and 250 limited liability companies is built on a foundation of speed, quality, and a deep understanding of our clients' commercial goals.

Don't let legal complexities derail your Czech expansion. Secure your investment and your reputation by partnering with experts who understand both the law and your business needs. For a preliminary consultation to discuss your hiring plans, contact our team today at office@arws.cz. We also take pride in connecting our clients with interesting investment or business opportunities and are always open to hearing innovative business ideas.

FAQ – The Most Common Legal Questions for Swedish Employers in the Czech Republic

1. What are the main differences in working hours and overtime rules?
   The standard working week is 40 hours in both countries. However, in the Czech Republic, the rules are strictly defined by the Labour Code, with a general limit of 150 hours of employer-ordered overtime per year. In Sweden, while a 40-hour week is standard, overtime rules and compensation are heavily influenced by Collective Bargaining Agreements, which can vary significantly. If you need to structure shift patterns or overtime policies in the Czech Republic, contact us at office@arws.cz.
2. Can I pay my Czech employees in EUR or SEK?
   The default currency for salary payments is the Czech Koruna (CZK). However, the 2025 Flexi-Amendment to the Labour Code expands the possibilities for paying in a foreign currency, particularly for employees with a "foreign element" (e.g., foreigners, those living or working abroad), provided the employee consents. All tax and social security contributions must still be calculated and paid to the authorities in CZK. For guidance on setting up foreign currency payroll, please consult our experts at office@arws.cz.
3. Do I have to provide a written reason for not hiring a candidate?
   There is no general obligation to provide a reason. However, all hiring decisions must be based on objective, non-discriminatory criteria. The Czech Anti-Discrimination Act provides extensive protections, and any decision that could be perceived as discriminatory can lead to legal challenges. ARROWS can provide expert training (odborná školení) for your HR staff on compliant and defensible hiring practices. Learn more by emailing office@arws.cz.
4. What are my obligations if I acquire a Czech company with existing employees?
   This situation is governed by the principles of Transfer of Undertakings (TUPE) under the Czech Labour Code. Employees of the acquired company transfer automatically to the new employer with all their existing rights, obligations, and seniority intact. The transfer itself is not a valid legal reason for dismissal. If you are planning an M&A transaction in the Czech Republic, our corporate law team provides comprehensive due diligence and integration support. Contact us at office@arws.cz.
5. How does the 2025 "Flexi-Amendment" affect parental leave and my obligation to returning employees?
   The amendment introduces two key improvements for parents. First, it guarantees that an employee returning from parental leave before their child's second birthday has the right to be reinstated to their exact same position and workplace. Second, it allows employees on parental leave to work for their existing employer in the same role under a flexible DPP or DPČ agreement. To update your internal HR policies in line with this new legislation, contact us at office@arws.cz.

My business is based in Stockholm, but I will have a remote team in the Czech Republic. Do I create a "permanent establishment"?
This is a significant tax and legal risk. Depending on the roles and authority of your Czech-based employees (e.g., sales staff with authority to conclude contracts), their activities can trigger the creation of a permanent establishment. This would subject your company's profits attributable to the Czech operations to Czech corporate income tax. This requires careful legal and tax structuring from the outset. ARROWS, in cooperation with expert tax advisors, provides comprehensive structuring advice for international companies. To assess your permanent establishment risk, write to us at office@arws.cz.

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