Norwegian Companies and Debt Collection in the Czech Republic:

Norwegian companies expanding into the Czech Republic must navigate profound differences between the employee-friendly Norwegian Working Environment Act and the highly protective Czech Labour Code. This critical article provides immediate, specific answers and practical legal insights to mitigate the financial and regulatory risks you face.

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.

What is the applicable law for your czech employees?

The central challenge for foreign employers entering the Czech market concerns the principle of prevailing local law. Although Norway is a critical partner within the European Economic Area (EEA), which facilitates cooperation with the European Union (EU) member state Czech Republic, the employment relationship is overwhelmingly governed by the rules of the place where work is habitually performed.

This means that if an employee resides and conducts their work in the Czech Republic, they fall under Czech jurisdiction.

Even if a Norwegian company’s standard employment contract attempts to dictate Norwegian law as the governing legal choice, the protective, mandatory provisions of the Czech Labour Code will prevail if the employee works locally.

This core legal principle, often affirmed by the Czech courts, ensures that the employee is never deprived of the protection afforded by Czech law, particularly when that law offers a more beneficial position than the foreign jurisdiction's statutes. The Czech legal system reflects a particularly protective stance toward employees, acknowledging their relatively vulnerable position in the employment relationship.

This dynamic ensures that Norwegian standard contract templates, which assume full compliance with the domestic Working Environment Act (WEA), often contain fatal legal gaps or conflicts when applied locally in the Czech Republic.

Recognizing that Czech law sets a high statutory floor—a baseline of rights regarding working hours, compensation, and termination that cannot be waived or overridden by agreement—is crucial for foreign businesses. This necessary shift in approach demands comprehensive contract review.

ARROWS lawyers combine deep knowledge of both the local Czech environment and foreign markets like Norway, understanding the specific legal differences that can trap international clients. We leverage the strength of our ARROWS International network, built over 10 years, to handle complex cross-border employment and litigation matters efficiently, operating as a leading Czech law firm in Prague, EU.

FAQ – Legal tips about jurisdiction and compliance

1. Does specifying Norwegian law in our employment contract protect us?

No. If the employee habitually works in the Czech Republic, the Czech Labour Code’s mandatory protective provisions automatically apply, regardless of your choice of law. You must comply with the local minimums regarding termination, compensation, and working time. Need legal help? Contact us at office@arws.cz.

2. How do cross-border disputes with Czech employees get resolved?

Disputes between a Norwegian company and a Czech employee fall under the predictable judicial framework of the 2007 Lugano Convention, which governs jurisdiction and judgment enforcement between Norway (EFTA) and the Czech Republic (EU). This predictability de-risks litigation. Our lawyers are ready to assist you – email us at office@arws.cz.

Mandatory elements: Avoiding invalid employment contracts

To establish a valid labor-law relationship, an employment contract in the Czech Republic must be concluded in writing and requires three essential statutory elements, as mandated by the Labour Code: the specific type of work the employee will perform, the place or places of work, and the day of commencement of employment. If these fundamental elements are missing, the contract may be ruled invalid.

It is important to contrast this with the highly descriptive nature of Norwegian contracts, where the WEA requires very detailed specifications regarding shift changes, variable working hours, all separate salary components, and payment arrangements for overtime work.

While the Czech law is structurally less demanding regarding these three core elements, foreign employers frequently overlook the secondary statutory requirement to inform employees in writing about crucial statutory benefits. These must be communicated, including vacation entitlement, the specific notice period, and the weekly working hour schedule.

Foreign companies must avoid vague or overly generalized contractual definitions, particularly regarding the job role and work location. Ambiguous definitions, such as a general job title without a detailed job description, increase the risk of future disputes. Precise definition of the type of work is necessary to manage the relationship correctly, confirming the need for localized Contract drafting or review services.

Why localizing intellectual property clauses is essential

A significant legal risk for technology-driven Norwegian businesses lies in the area of Intellectual Property (IP) ownership. The Czech Republic does not recognize the US concept of "work for hire". Consequently, IP created by an employee—including software, patents, and research publications—is typically owned by the creator (the employee) unless the employment contract or a separate legal agreement explicitly assigns those rights to the employer. 

Without an explicit, localized IP assignment clause in the contract, a company could inadvertently lose the rights to critical software or research developed by its Czech employees, leading to substantial financial loss.

To secure proprietary information and creations, foreign employers must ensure confidentiality obligations are correctly structured. Confidentiality obligations (Non-Disclosure Agreements or NDA clauses) are enforceable. However, a critical legal error is including a contractual penalty for breach of confidentiality against an employee, which is explicitly not an option under Czech law. Attempting to enforce such an unauthorized penalty can jeopardize the enforceability of the entire clause.

Initial contracting risks and penalties

This table summarizes the primary risks inherent in non-compliant initial contracting, particularly focusing on the classification of work and IP rights.

Risks and penalties	How ARROWS Helps
Failure to include mandatory Czech elements (Type of work, Place of work, Commencement date) leading to contract invalidity and potential administrative fines (up to CZK 400,000).	Drafting legally required documentation — need a compliant contract prepared? Contact us at office@arws.cz.
Using standard foreign IP clauses, resulting in the loss of ownership over critical employee-created intellectual property (e.g., software or research).	Contract drafting or review focused on specific IP assignment and protection – get tailored legal solutions by writing to office@arws.cz.
Misclassifying Dependent Work (work performed under employer direction and expense) as a freelance contractor agreement, risking labor inspection fines up to CZK 2 million.	Legal consultations to prevent inspections or penalties – need legal help? Contact us at office@arws.cz.

How do Czech and Norwegian severance rules differ?

One of the largest financial traps for foreign companies lies in termination provisions, specifically the right to a Severance Payment. In Norway, there is no legal entitlement to severance pay; such arrangements are voluntary and must be negotiated between the parties. This model allows for flexibility in managing termination expenses.

The Czech system offers no such flexibility. Czech law mandates severance pay when employment is terminated due to organizational reasons (e.g., redundancy) or specific health reasons.

This payment is fixed and tied directly to the employee's continuous tenure with the company: one month's average earnings if the employment did not last more than one year, two times the employee's average monthly earnings if employment lasted between one and two years, and three times the employee's average monthly earnings if employment lasted more than two years. 

ARROWS offers legal opinions and consultations to model these costs correctly. For more information - contact us at office@arws.cz.

What are the strict rules for overtime and compensation?

Czech labor law imposes stringent limits on working hours and overtime compensation, protecting against excessive workloads. Authorized overtime work must not exceed 8 hours per week or 150 hours annually for standard employees. This is the standard expectation for overtime work.

While higher limits can be agreed upon through collective agreements, the absolute maximum overtime permissible, even with mutual agreement, is capped at 416 hours per year (or per consecutive 52 weeks). Management must maintain accurate records of all overtime hours worked to properly compensate employees and comply with labor inspections.

Violations of these limits pose a significant financial risk: the high penalty associated with breaches—fines up to CZK 2 million (€73,000) from labor inspection authorities—underscores the state's seriousness in enforcing these limits. Furthermore, the Labour Code strictly voids any agreement to waive the right to overtime pay, ensuring that employees cannot be coerced into relinquishing their entitlement to receive a premium of at least 25% above their normal wage for authorized overtime.

How is sick leave managed by the employer?

Employers based in Norway must recognize their immediate and direct financial responsibility for short-term illness among their Czech employees. The employer is legally obligated to compensate employees for the initial 14 days of illness. This employer-paid sick compensation is fixed at 60% of the employee's average pay.

It is only from the 15th day onward that the state social security system takes over the payment obligation, continuing to compensate the employee at increased rates based on duration. This mandatory employer responsibility period must be accurately integrated into payroll and financial planning to maintain compliance.

FAQ – Legal tips about compensation and working time

1. Can we agree with an employee that their salary covers all overtime?

Only within strict limits. For ordinary employees, a maximum of 150 hours of annual overtime can potentially be reflected in the agreed wage, provided there is mutual consent. Any attempt to structure a salary to waive compensation entirely is void under law. Do not hesitate to contact our firm – office@arws.cz.

2. What is the statutory minimum paid annual leave in the Czech Republic?

The minimum statutory annual leave entitlement is four weeks (20 days). While Norway mandates 25 paid vacation days (which includes counting Saturdays, typically resulting in just over four weeks), five weeks (25 days) is widely regarded as the competitive market standard in the Czech Republic. For immediate assistance, write to us at office@arws.cz.

Financial risks and mandatory entitlements

Following table details the financial and statutory risks associated with non-compliance in these core areas.

Risks and penalties	How ARROWS Helps
Failure to pay mandatory Severance Payment (up to 3x monthly average earnings) upon termination due to organizational change.	Legal opinions on termination procedures and risk assessment — for immediate assistance, write to us at office@arws.cz.
Non-compliance with overtime rules, risking labor inspection fines up to CZK 2 million (approx. €73,000) and retroactive compensation claims.	Preparation of internal company policies regarding working hours and compensation – get tailored legal solutions by writing to office@arws.cz.
Improper deduction or calculation of the 14-day employer responsibility for sick pay compensation (at 60% of average earnings).	Legal consultations to ensure payroll compliance and calculation accuracy – need legal help? Contact us at office@arws.cz.

Do you need to register as a foreign employer in the Czech Republic?

Yes. Even though Norway and the Czech Republic are fellow members of the EEA/EU/EFTA structure, employers of all foreign workers, including EU/EEA/Swiss nationals, are required to notify the Labour Office of the entry and termination dates of the employee. This updated notification requirement ensures regulatory oversight.

For third-country nationals (non-EU/EEA), the process is significantly more complex, generally requiring the foreign company to ensure the employee obtains an employment permit from the Labour Office. This permit is non-transferrable and is issued specifically for a particular working position with a particular employer.

Failure to comply with these notification and permitting requirements exposes the foreign company to administrative fines and penalties from the Labour Inspection authorities. ARROWS can assist with obtaining licenses or regulatory approvals.

How can management face personal liability?

Senior Norwegian managers (CEOs, CFOs, and Legal Heads) involved in Czech operations must be acutely aware of the precedent established by the Czech Supreme Court in the landmark case 21 Cdo 2057/2023. 

This ruling established that management, including both the Head of Legal Department and the General Director, can be held personally liable for damages the company incurs due to systemic legal non-compliance, particularly illegal practices such as misclassifying employees as freelancers when they were performing Dependent Work.

The Supreme Court found that liability extended even to the General Director, who was not a legal expert, noting he "should have exercised greater caution" in approving and perpetuating an illegal system that bypassed labour protections.

This determination fundamentally transforms corporate legal risk into a severe personal liability risk for foreign executives. This necessitates that foreign managers demonstrate due diligence in seeking expert legal advice and implementing correct systems.

This managerial accountability is further amplified by the low threshold for establishing a trade union (more than three employees), which grants union representatives special protection from termination. Where no union exists, establishing comprehensive internal regulations (policies) is the most effective tool for managing entitlements, setting out rules, and implementing methods like a Working Hours Account, thereby ensuring proactive compliance with the Labour Code.

ARROWS offers Professional training for employees or management (with certificates) to address these nuanced compliance challenges.

Regulatory and IP compliance risks

This table details the advanced regulatory and compliance risks, particularly concerning management responsibility and internal regulatory compliance.

Risks and penalties	How ARROWS Helps
Foreign managers facing personal financial liability for the firm’s systemic failure to classify Dependent Work correctly.	Legal consultations and comprehensive audits to prevent managerial liability – do not hesitate to contact our firm – office@arws.cz.
Failing to notify the Labour Office of the hire of EU/EEA nationals, risking administrative penalties.	Help with obtaining licenses or regulatory approvals and ensuring registration compliance – get tailored legal solutions by writing to office@arws.cz.
Drafted confidentiality clauses including invalid contractual penalties, making the entire clause unenforceable and leading to information leakage.	Drafting legally required documentation and NDA/IP assignment agreements – our lawyers are ready to assist you – email us at office@arws.cz.

Conclusion and call to action

Navigating the transition from the relatively flexible Norwegian Working Environment Act (WEA) framework to the mandatory and protective Czech Labour Code is the defining challenge for successful cross-border hiring.

The statutory requirements—from explicit rules on Severance Payment to strict limits on overtime and the necessity of localized IP assignment — create financial and regulatory pitfalls that demand expert guidance.

The potential for administrative fines (up to CZK 2 million) and even personal managerial liability demands proactive legal engagement.

ARROWS, an international law firm operating from Prague, is expertly positioned to guide Norwegian companies through this transition.

We understand that standardized foreign contracts are a significant liability, and we specialize in preparing legally required documentation and ensuring full adherence to local labor and social security obligations. We support over 150 joint-stock companies and 250 limited liability companies, operating successfully across 90 countries through our ARROWS International network, built over the last 10 years. We are known for speed and high quality in delivering tailored legal solutions.

We provide comprehensive services, including Preparation of internal company policies, professional training for management (with certificates), and representation in court or before public authorities. We also welcome innovative business ideas and can connect clients with each other in case of mutual business or investment interests.

Ensure your expansion into the Czech Republic is legally watertight from day one. Get tailored legal solutions by writing to office@arws.cz.

FAQ – Most common legal questions about Norwegian vs. Czech Employment Contracts

1. Is a trial period mandatory in the Czech Republic?

No, a trial period is not mandatory, but if included, it must be agreed upon in writing before the employment begins. It is legally capped at a maximum duration of three months for standard employees and eight months for managerial employees. Need legal help? Contact us at office@arws.cz.

2. What is the required notice period for termination in the Czech Republic?

The statutory minimum notice period is two months. This period is mandatory when notice is given, and the employment relationship officially ends upon its expiry. Longer periods may be mutually agreed upon by the parties. Our lawyers are ready to assist you – email us at office@arws.cz.

3. If we choose to pay an employee's salary in Norwegian Krone (NOK), is this compliant?

Recent amendments have expanded options for paying salaries in foreign currency under certain strict conditions. However, the payment must always comply with the minimum wage requirements and remuneration rules set forth in the Labour Code. For immediate assistance, write to us at office@arws.cz.

4. Can an employer unilaterally change the terms of employment after the contract is signed?

No. Terms that have been formally agreed upon and stipulated in the employment contract cannot generally be changed unilaterally by the employer. Any material alteration requires the express, mutual consent of the employee. Get tailored legal solutions by writing to office@arws.cz.

5. What is the maximum fine for a serious breach of the Labour Code?

A serious breach of labor regulations, such as ordering excessive overtime or engaging in illegal Dependent Work, can result in fines up to CZK 2,000,000 (approximately €80,000) imposed by the Labour Inspection authorities. Do not hesitate to contact our firm – office@arws.cz.

6. Does Czech law restrict discussing salary amounts?

No. Recent changes have established a prohibition on confidentiality clauses that prevent employees from discussing the amount and structure of their pay. This means employers cannot forbid salary discussions, and violations of this rule can result in specific administrative fines. Need legal assistance with new remuneration policies? Contact us at office@arws.cz.