Undergoing an insolvency procedure is stressful not only for the individual thus affected, but also for their employer. What are the obligations of the latter, and the consequences for failing to observe them?
Of course, the main obligation of the employer of an insolvent employee is to collect garnishments in the proper amount from the employee’s wage or salary and to transfer these amounts to the account of the insolvency trustee. The employer will learn of the fact that their employee is undergoing a personal insolvency procedure no later than upon being served the decision wherein a court approved debt relief for the insolvent individual by way of an instalment plan. The employer receives this decision in their capacity as a payer of income of the insolvency debtor. The decision includes a court order addressed to the current employer and any future employer to collect garnishments, and specifies the payment date for the first instalment.
In other words, during the period between the commencement of the insolvency procedure and the stipulation of a payment date by the court, the employer continues to pay the employee their wage in the full, uncurtailed amount. The situation is different in the case of debtors from whose salaries or wages the employer was already withholding amounts because of an on-going debt enforcement procedure (“execution”). In such a case, the employer shall continue to withhold money in the same amounts, but no longer transfers the money to the debt enforcement officer (bailiff), retaining them instead in their safekeeping. If the court eventually declares the debtor bankrupt, the employer shall transfer the entire amount to the insolvency trustee. If the court, by contrast, approves debt relief for the debtor on an instalment plan, the employer shall release the amounts withheld to the debtor.
In the wake of the latest amendment to the Insolvency Act, the ensuing “routine period” during which the employer regularly performs garnishments and transfers the amounts withheld to the insolvency trustee may be upset by a new legal institution known as a moratorium, or suspension of debt relief, which may last up to one year.
The employer faces additional duties if and when the debtor decides to quit working for them. Above all, the employer must notify the court within one week of the fact that the debtor no longer works for them, and submit a final billing of the amounts which they withheld and collected from the departed employee’s income.
The employer has another important obligation towards the next employer of the debtor: it must issue a confirmation letter which states whether garnishment was ordered, and by what court, and for whose benefit.
Failure to comply with any of these duties exposes the employer of the insolvent debtor to the possibility of an administrative fine in an amount of up to CZK 50 000.
Act No. 182/2006 Coll., Insolvency Act Act No. 99/1963 Coll., Code of Civil Procedure