Do employees in Czechia have third-party liability for damage?

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27th April 2022

The decision by the Supreme Court of 26 October 2021 (25 Cdo 1029/2021) on the direct liability of employees for damage caused to a third person has important implications especially in the area of tort liability pursuant to the Czech Civil Code (Act No. 89/2012 Coll., as amended – the “Civil Code”).

The case before the Supreme Court had to do with the correct interpretation of Sec. 2914 of the Civil Code which stipulates that persons who make use of an authorized agent, an employee, or another vicarious agent are obliged to render compensation for damages. Until then, it had been unclear, however, whether the obligation to render compensation directly affects also the vicarious agent – and in particular employees.

The general liability of employees for damages is set out in the Labor Code (Act No. 262/2006 Coll., as amended – the “Labor Code”), whose purview is however strictly limited to labor-law relations, and thus not to relations between an employee and third persons with whom the employee may come into contact in the course of their work performance. With respect to damages, Sec. 250 of the Labor Code prescribes that the employee must compensate the employer for the damage which they caused to the employer as a consequence of a culpable breach of their obligations during (or in direct connection with) their performance of work tasks. According to Sec. 257 (1) of the Labor Code, employees must compensate the actual damage in monies, unless they undo the damage by restoring the original state of affairs. However, Sec. 257 (2) stipulates a statutory cap: the maximum amount of compensation which may be claimed for damage caused by negligence is four and a half times the average monthly earnings of the employee (at the time preceding the breach of obligations which resulted in the damage). This cap does not apply if the damage was caused intentionally, or when drunk, or under the influence of other addictive substances.

We’ve already alluded to the fact that these rules provide no answer to the question whether the employee is directly obliged to provide compensation vis-a-vis the person to whom they caused damage. The previous legal arrangement (laid out in an earlier Civil Code: Act No. Nr. 40/1964 Coll.) did not recognize or permit a liability of employees vis-a-vis third parties. The liability for damages thus fully hit the employer, from whom alone the injured party could recover their claim. The new 2012 Civil Code, however, did not transpose this limitation, and thus triggered a debate on the potential direct liability of employees for damage caused to a third party.

The above-referenced Supreme Court decision provides a clear answer: employees cannot be held responsible for the damage which they cause to a third person in the course of performing their dependent work. The Supreme Court took into account the degree of autonomy (or, conversely, dependency) of the employee towards the employer. In determining whether the employer’s separate liability prevails, the key aspect, said the Supreme Court, is the specific character of labor-law relations which is protected by the Labor Code and moreover represents a public good under the ordre public doctrine; as such, employees must be relieved from their third-party liabilities. This is because the employee strictly carries out the instructions of their employer who oversees their activities, so that the conclusion has no merit whereby the employee should be liable alongside the employer for the damage which they caused in the pursuit of their work duties.

What we find problematic about the above-described decision is the fact that the legal standing of the injured party is actually being worsened: They have zero recourse to the employee, and the circle of persons from which they may claim compensation has become narrower. The Supreme Court does mention in its decision that employers will as a rule be better positioned to compensate for damage, but this need not necessarily always be the case. The Supreme Court does send a clear signal as far as the status of employees is concerned: they are protected from third persons by the virtue of their very status as employees, and are relieved from direct liability. But the decision by the Supreme Court muddies the waters as to what set of rules should be applied to vicarious agents who are not employees. It remains to be seen where the decision-making practice of the lower-instance court is headed. In the future, they ought to take into account, when assessing the direct liability of vicarious agents for damage caused to a third party, to what degree such agent is dependent upon their principal.