Supplier's liability for subcontractor's wage claims in the construction industry - questions and answers

Author of the article: JUDr. Lukáš Dořičák, LL.M., MBA, ARROWS (office@arws.cz, +420 245 007 740)

In the Czech construction industry, the rule is that a contractor who hires a subcontractor for a project is liable for the wage claims of the subcontractor's employees. However, this liability applies only to wages, salaries and remuneration under agreements to which employees are entitled for work performed under the contract for the contractor.

As of 1 January 2024, an amendment to the Labour Code came into force, which brought about a major change in the construction industry. It introduced the institution of contractor's liability for wage claims of subcontractor's employees. This amendment responded to the growing problem of unpaid wages in this sector. The aim of the amendment is to strengthen the protection of subcontractors' employees and to motivate contractors to select subcontractors more carefully.

The basic principle of this liability is that a contractor who uses a subcontractor for a construction project is liable for the wage claims of the subcontractor's employees.

Who is covered by the Construction Wage Claims Liability?

A contractor who uses a subcontractor to perform construction work is liable for the wages, salaries and remuneration of the subcontractor's employees. The liability covers only the wages, salaries and remuneration due to the employees for work performed under the contract for the contractor.

To what extent is the contractor liable?

The contractor shall be liable up to a maximum of the monthly minimum wage (for 2024, i.e. up to CZK 18,900). The amount of the liability depends on the extent to which the employee has participated in the contractual performance for the supplier.

Who is the supplier and subcontractor?

The contractor is a construction entrepreneur according to the Construction Act who carries out construction work through a subcontractor. The subcontractor may also be an employment agency that temporarily assigns its employees to the contractor.

How does liability work in the case of multiple subcontractors?

If there are multiple subcontractors in the contract chain, not only the contractor directly above the subcontractor in the contract chain but also the contractor at the top of the contract chain is liable for wage claims. These guarantors are jointly and severally liable . If one of them satisfies a wage claim, it has recourse against the non-paying employer.

How can the employee claim?

The employee may claim against the guarantor if the employer has not paid the wages by the due date (at the latest by the end of the calendar month following the month in which the right to wages arose under section 141(1) of the Labour Code). The employee must give written notice to the guarantor to pay within 3 months of the due date. If he fails to do so, his entitlement is extinguished.

What must the demand for payment contain?

The demand for payment must include:

• the name of the employee,
• the name of the employer,
• the type of work performed,
• the period for which the wage claim is made,
• the extent of the work for the contractor,
• documents proving the existence of an employment relationship and the amount of the wage claims,
• information on the expiry of the due date,
• the method of payment requested (including the details necessary to make it); and
• the information necessary for the calculation of the advance payment of income tax and the name of the health insurance company in whose favour the payment is made.

The guarantor shall then be obliged to satisfy the wage claims within 10 days of receipt of the notice and inform the employer of the amount due.

What information obligations does the employer have?

The employer is obliged to inform its employees about the possibility of liability, the persons of the guarantors and the conditions for exercising the right against the guarantor. This information must be provided no later than when work on the contract commences for the contractor.

What are the penalties for breach of this information obligation and for non-payment of wage claims by the guarantor?

The employer's failure to comply with the information obligation and the guarantor's failure to pay wage claims is subject to a fine of up to CZK 2,000,000.

When is the contractor not liable for wage claims?

The Supplier is not liable if the subcontractor presents a certificate of debt-free status (stating that the subcontractor is not in arrears with social security and public health insurance contributions and penalties), which is not older than 3 months from the date of conclusion of the contract for the performance of the contract and has not been fined for breach of labour law (more than CZK 100,000) in the last 12 months .

What happens if the guarantor fulfils the guarantee obligation?

If the guarantor fulfils its obligation as guarantor, it is entitled to reimburse the subcontractor for the performance it has provided on its behalf.

Recommendations for contractors

In view of this new legislation, contractors should therefore carefully select reliable subcontractors and require them to provide proof of debt-free status in order to avoid the risks and penalties associated with being liable for the wage claims of subcontractors in the construction industry.