What does codetermination of members of the Supervisory Board by employees mean

Author of the article: ARROWS (JUDr. Martin Bareš, office@arws.cz, +420 245 007 740)

This article was written in 2020. If you are looking for up-to-date information on this topic, please do not hesitate to contact us at office@arws.cz or by phone at +420 245 007 740. We will be happy to advise you.

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On 1 January 2021, a major amendment to Act No. 90/2012 Coll., on Commercial Corporations, as amended (the "CCC"), No. 33/2020 Coll. came into force. This is a major amendment that has brought significant changes to the existing legislation, including, for example, a change to the monistic structure of a joint stock company. The aim of this article is to ensure that smaller but no less important changes, such as the codetermination of the members of the supervisory board of a joint stock company by employees, do not fall in the shadow of the major changes and become known to the wider public.

What is employee codetermination?

Employee codetermination allows employees to participate in the management and decision-making processes in the company. It is a system whereby employees can elect representatives to the company's supervisory board, thus having a direct influence on the direction and management of the company. This practice strengthens cooperation between management and employees, increases transparency and promotes shared responsibility for the success of the company.

What are the main responsibilities of the supervisory board of a joint stock company after the amendment?

According to Section 446 of the Companies Act, the supervisory board, the controlling body of a joint-stock company with a dual system of bodies, is tasked with overseeing the performance of the powers of the board of directors and the company's activities, guided by the principles approved by the general meeting of shareholders, unless they conflict with the Companies Act or the articles of association. The Supervisory Board is not authorised to give instructions to anyone concerning its statutory duty to supervise the activities of the Board of Management.

The Supervisory Board's control activities are exercised through the instruments granted to it by law pursuant to Section 447 of the CCC. The Supervisory Board has the right to inspect all documents and records relating to the company's activities, to control the keeping of accounting records and to review the financial statements and proposals for the distribution of profits, and whether the company's activities are conducted in accordance with the law and the Articles of Association.

How many members and who elects them?

According to Section 448 of the CCC, unless the Articles of Association provide otherwise, the Supervisory Board has three members. If the employees elect one third of the members of the supervisory board, the number of members must be divisible by three. Employees of a public limited company with more than 500 employees on the record date shall elect one third of the members of the supervisory board. The amended law stipulates that the record date for the election is the first day of the financial year. The other members of the Supervisory Board are elected and dismissed by the General Meeting or by the shareholders with broadcasting rights. The term of office of these members is set at 3 years, unless the articles of association or the service contract provide otherwise.

Member elected by the employees and the election process according to the amendment

The amendment introduced a new provision of Section 448a of the CCC, which regulates the employee codetermination in more detail. It responds to the shortcomings and ambiguities of the previous regulation and returns to the earlier model contained in the Commercial Code. The key changes include the establishment of a record date for the election of a supervisory board member by employees and the possibility for employees to elect supervisory board members through electors if the election rules so provide. Only an employee in relation to the company may be an employee-elected member of the Supervisory Board, except in the case of retirement. The election and dismissal of a member of the Supervisory Board shall be by secret ballot with the participation of at least one third of the eligible voters.

Practical consequences of the amendment

The amendment reacted to the fact that the regulation of the codetermination of supervisory board members by employees was completely inadequate and forced frequent filling of gaps through interpretation, where the conclusions on certain sub-issues were not uniform. Joint stock companies with mandatory codetermination often interpreted the law, for example, as meaning that the members of the supervisory board were elected by the general meeting on the basis of a vote of the employees. A more detailed regulation of this institute brought increased legal certainty for all the addressees of the norm and increased the possibility for employees to participate in the proper functioning of the joint stock company and a clearly defined way of asserting their rights if they were deprived of them. Also important is the fact that the members of the supervisory board elected by the employees can only be removed by the employees and not by the general meeting.

Read also:

• Summary of the most important changes in the major amendment to the ZOK
• New concept of the monistic joint stock company system
• Changes in the distribution of company profits after the amendment
• General meeting instructions, business management, strategic and conceptual management
• Per rollam decision-making at general meetings after the amendment to the ZOK 2021
• What innovations did the amendment to the ZOK bring in terms of types of shares and stock?
• How do the conditions of office of members of (not only) statutory bodies change?
• New obligations of entrepreneurs - mandatory reports and collection of documents
• New risks for managing directors according to the amendment to the ZOK
• Liens (and other rights in rem) on shares in a business corporation after the amendment to the ZOK