Czechia: Under what circumstances may a fixed salary arrangement take into account potential overtime work?

In its judgment 21 Cdo 1033/2019-209 of 26 February 2021, the Supreme Court had to deal with a case that concerned the conditions under which an employer and an employee may agree on a salary which reflects (i.e., includes) any overtime work of the latter.

In the dispute heard before the Supreme Court, an employee had sued their employer (in actual fact, the employer’s legal successor) for payment of CZK 90,510 and default interest representing 196 hours of overtime work performed during the period from 1 July 2015 through 14 February 2016. Based on an employment agreement of 4 February 2002, the employee (and plaintiff) had worked as store manager for the defendant.

At the first-instance court, the employer defended itself by noting that the salary of the plaintiff had been agreed taking already into account any potential overtime work, with reference to the wording of Art. 3.1 of the collective bargaining agreement for 2015. According to the (amended) language of that collective agreement, the salary of employees was newly deemed to be agreed (or stipulated) such that it already reflects overtime work (at a maximum of 150 hours per calendar year for rank and file or 416 hours for executive staff).

The court of first instance agreed with the employee and accommodated their request for judicial relief, pointing to the fact that the defendant had stipulated the plaintiff’s salary unilaterally in a salary letter so that it was not even possible for the parties to have mutually agreed on a clause whereby the salary reflected potential overtime work.

The defendant turned to the competent court of appeals, which took a different view than the first-instance court and thus rejected the first-instance judgment. The appellate court did concur that the salary letter of 30 December 2011 had been no agreement on the amount of compensation but a strictly unilateral legal act. However, it pointed out that on 1 May 2015, the collective agreement had taken effect pursuant to which the salary of executive staff was always understood to reflect any future overtime work. The appellate court did agree with the plaintiff that the collective agreement, made on 1 May 2015, could not apply to terms of compensation which applied to the period before that date.

However, said the appellate court, the relevant time period at the heart of this litigation was only after 1 July 2015. The court further argued that, as a part of their freedom to contract, both the employee and the employer could at any time during the employment relationship have initiated a change to the previously agreed (or, as the case may be, unilaterally determined) terms of compensation and have agreed that the salary (though in its unchanged amount) should for the future be considered inclusive of any overtime work.

The plaintiff sought the review of this decision on a point of law, as they believed that the appellate court was wrong when it found that the employee’s salary had been agreed as being inclusive of potential overtime work on the basis of the new collective agreement, effective as of 1 May 2015. The Supreme Court (as the competent court for hearing second-order appeals on a point of law) noted that the challenged judgment of the appellate court crucially depended (among other things) on the answer to a question of substantive law not previously exhausted by the courts in every respect – namely, under what circumstances one could agree on a salary that already reflects potential overtime work. As such, the Supreme Court found that the plaintiff’s request for relief was admissible. As to the case itself, the Supreme Court primarily noted that it is possible to agree on a salary which takes into account potential future overtime work if the agreement at the same time stipulates the number of overtime hours thus reflected. The court stressed that the Labor Code does not provide for any specific manner in which to reflect overtime work in the salary agreement, which is why the parties are entirely at liberty, as part of their freedom of contract, to decide how the likely performance of overtime work will manifest itself in the salary to be paid. It is thus impossible to stipulate a salary in which overtime work is “included” in the form of an internal policy or a unilateral salary letter. Any such salary can only be agreed in a (mutual) contract, be it a collective bargaining agreement, an employment agreement, or other type of agreement.

The Supreme Court went on to note that that contract must include – aside from an arrangement concerning the terms of compensation of the employee (and, in the case of a collective bargaining agreement, a provision which defines the various categories of employees, if any) – a clause to the specific effect that the salary was agreed in consideration of any overtime work, including the scope of overtime work already included in the agreed salary. If the intention is for the employee to continue to receive their salary in the original amount even after the terms of compensation have thus changed, then this fact must be made clear in the agreement, i.e., it is not enough to simply add a clause to the effect that the salary is (newly) inclusive of overtime work.

Finally, the Supreme Court pointed out that, as per Sec. 113 (3) of the Labor Code, the salary must be agreed (or stipulated, or otherwise determined) before the performance of work commences. For this reason, a salary which already reflects overtime work can only effectively be agreed for the future. The Supreme Court resolved that, in the case at hand, the employee is entitled to the salary earned for their overtime work, including the overtime surcharge (or time off in lieu).

The Supreme Court concluded that, in and by itself, the collective agreement of 1 May 2015 whose language was under scrutiny in this case could not have changed anything about the plaintiff’s terms of compensation when it comes to overtime work. Consequently, it quashed the judgment by the appellate court and ordered a retrial.

Supreme Court judgment 21 Cdo 1033/2019-209 of 26 February 2021

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