3rd August 2018

Dismissing employees in the Czech Republic is one of the most difficult in Europe

In Europe, higher costs related to a dismissal for organisational reasons than in the Czech Republic are for example in Italy, Belgium, France or in Slovakia. On the other hand, lower costs are borne by employers in Austria or Germany.

“However, the calculations do not reflect cases when employers dismiss employees without legal grounds (ie illegally) and these employees subsequently take legal action against the dismissal at court. In such case, the employer’s costs increase significantly, among other things also by wage compensation,” says Anna Szabová, attorney-at-law at Deloitte Legal, who participated in the preparation of the study.

The study compares legislation in the given countries and operates with six cost comparisons, in which it reflects three sample cases of employee dismissals at various seniority levels and different severance indemnity as well as differences between a reasoned and unreasoned dismissal. In the study, solely dismissals on the part of the employer are reflected, not dismissals based on a decision of an employee. Also, the study comprises a part of costs attributable in the individual countries to tax payments or social insurance levies, ie amounts that are not paid out to a dismissed employee.

The six most costly countries include Italy, Sweden and France, regardless of whether the reasons for a dismissal are organisational or not. These countries are joined by Brazil, Thailand and Belgium in terms of a dismissal for organisational reasons, and Slovakia, Luxembourg and Ireland in terms of a dismissal lacking objective reasoning either on the part of the employer or on the part of the employee.

“For Czech employers, only half of the examples are relevant, as Czech legislation does not allow for dismissing an employee without any reasons stipulated by the Labour Code,” adds Anna Szabová.

A similar situation to that of the Czech Republic is in the Netherlands, Latvia, Croatia or Slovenia. On the other hand, in Italy, Germany and a number of other European and non-European countries, a dismissal lacking objective reasons is admissible. However, in many countries, related costs differ significantly in comparison to a dismissal based on objective reasons.

Solely in the Netherlands and in the United Kingdom, a maximum amount of severance indemnity was set for a dismissal for organisational reasons. In other countries and in the Czech Republic, severance indemnity may exceed the legal minimum at the employer’s discretion or based on its agreement with the employee.

Almost in all countries, in terms of costs for a dismissed employee, his or her seniority (ie the length of his or her employment at the given company) plays a key role. In the Czech Republic, severance indemnity is measured according to seniority in the case of a dismissal for organisational reasons. In many countries, seniority also influences the length of the notice period. For example in Belgium, depending on seniority, the notice period may even exceed one year.

In about a half of the tested countries, statutory representatives of a company are not protected against dismissal. This also goes for Czech statutory executives or Board members. According to law, these employees neither have a notice period nor can they seek a severance payment, unless they arranged for it in the contract of holding an office.

In most of the countries including the Czech Republic, an employee who was served notice unlawfully (usually without qualified reasoning), may be reinstated by the courts in case he or she contests the dismissal.

Only in few European countries (Belgium, Finland, Hungary, Denmark, Luxembourg), an invalidly dismissed employee is entitled to monetary compensation only.

There are only two exceptional countries, where prior to giving notice, an upfront approval of a state body or a court is necessary (the Netherlands, Ecuador).

The Deloitte International Dismissal Survey can be found here.


Members of the American Chamber of Commerce in the Czech Republic