The risk of the so-called švarc system even in the case of a work contract between legal persons

The Supreme Administrative Court (the SAC) has issued a judgment concerning the švarc system and a disguised (de facto) employment service (i.e. job agency/headhunting service). According to the court, what is crucial for the assessment of the actual situation is how the employee himself understands his position - even if the services are invoiced on the basis of a work contract between companies.

In the examined case, the execution of work at the client's workplace was carried out by several workers (women) of foreign nationality with whom the client had no contract. The foreign women worked at the same workplace with the client's employees; the work, training, supervision, tasks and remuneration from the client were the same as that which applied to the client's employees. They performed the same or similar work and were trained, supervised, tasked and paid by the client's employees. The majority of the foreign women concerned were not contracted by the contractor; on the contrary - all the foreign women considered the client to be their employer. Thus, the internal position of the foreign women at the workplace did not differ in any way from that of the client's employees. The SAC thus concluded that the foreign women's work fulfilled all the characteristics of a dependent activity in relation to the client, and thus that it constituted an instance of the švarc system, despite the fact that a work contract had been concluded between the companies, and invoicing took place. A fine of CZK 1 million was imposed. If it had been proved that the client had disguised the fact that it was a de facto employment agency, the financial penalty would have been even greater.

Inspections of illegal employment are still frequent and the penalties are very severe for both parties. Last year, 677 fines were imposed in the field of illegal employment, totalling to CZK 165 million. In respect of disguised employment, 134 fines were issued amounting to a total of almost CZK 67 million. We therefore recommend that you carefully examine your current and future contractual relationships with your suppliers.