How Czech employment rules affect Icelandic employers: Employment contract pitfalls

12.3.2026 | ARROWS law firm

Employment contracts in the Czech Republic operate under fundamentally different principles than those in Iceland, creating significant risks for employers unfamiliar with local regulations. Whether you are an Icelandic company establishing operations in Prague or expanding your workforce to Czech employees, understanding the mandatory requirements of Czech labour law is essential to avoiding costly penalties, administrative sanctions, and legal disputes.

Photograph captures a lawyer consulting about Czech employment law compliance.

Article contents

Understanding the Czech Labour Code: a foundation for Icelandic employers
The three essential elements of a valid employment contract
Beyond the three essentials: additional mandatory contract information
International and cross-border employment issues
Recent changes to Czech employment law: the "Flexinovela" amendment
Risk analysis: potential violations and administrative penalties

Understanding the Czech Labour Code: a foundation for Icelandic employers

The Czech labour law system is built on protective principles that prioritize employee security and statutory compliance in ways that differ markedly from Iceland's approach. The primary legislation governing all employment relationships in the Czech Republic is the Labour Code (Act No. 262/2006 Coll.), supplemented by the Employment Act (Act No. 435/2004 Coll.).

These laws establish mandatory minimum standards that cannot be waived, modified, or circumvented through contract language, regardless of whether you operate through a local subsidiary or employ workers directly as a foreign legal entity.

For Icelandic employers accustomed to collective bargaining frameworks and voluntary wage agreements, the Czech system presents a distinctly different regulatory landscape. Czech labour law operates on the principle that certain protections are non-negotiable (cogent provisions).

Even if both you and your Czech employee agree to terms that are less favourable than those mandated by law, those contractual terms will be disregarded as invalid. The Labour Code supersedes any contrary agreement between the parties.

Unlike Iceland, where the legal minimum wage does not exist and wages are primarily governed by collective bargaining agreements, the Czech Republic enforces a statutory minimum wage that applies to all employees. For the year 2026, the minimum wage in the Czech Republic is set by government regulation, currently amounting to 22,400 Czech crowns (approximately 900 euros) per month.

It is important to note that the system of "guaranteed wages" (tiered minimums for more complex jobs) was abolished for the private sector in 2025, leaving the single minimum wage as the only statutory floor, unless a collective agreement stipulates otherwise.

ARROWS Law Firm regularly advises Icelandic and other foreign employers on navigating these differences and adapting their employment practices to comply with Czech regulations. The complexity lies not merely in knowing these rules exist, but in understanding how they interact with Iceland's legal framework.

Many foreign employers underestimate how detailed and prescriptive Czech labour law can be, which is why professional guidance at the outset of hiring is far less expensive than defending compliance violations after inspection or litigation.

The three essential elements of a valid employment contract

The Czech Labour Code (Section 34) prescribes three essential elements that must be included in every employment contract without exception. These mandatory essentials are not merely formalities—they are the legal foundation upon which the entire employment relationship rests. If any of these three elements is missing or improperly stated, the contract may be held invalid.

Type of work: the foundation of employee obligations

The first essential element is the type of work (job title or job description) that the employee will perform. In Czech legal terminology, this defines the range of work tasks the employee undertakes to perform for the employer. This requirement sounds straightforward, but in practice it creates significant complexity.

For example, stating in a contract that the employee will perform "general work" or leaving the job title vague exposes you to the risk that a labour inspector or court will deem the definition inadequate.

The Czech Labour Code does not permit the type of work to be defined so broadly that it allows the employer to assign any work to the employee. The employee has the right to refuse work assignments that fall outside the agreed type of work, with limited exceptions (such as averting a disaster).

If you attempt to assign work that differs from what was contractually agreed, you may be violating the employee's statutory rights and exposing yourself to claims of illegal reallocation of duties. The type of work must be specific enough to guide the employee regarding what they are obligated to perform.

The practical solution involves specifying the primary job title while also including a scope of work (in Czech, "náplň práce"), which is a more detailed document describing the individual tasks within that job category.

Icelandic employers sometimes attempt to draft employment contracts using language common in Iceland, where employment relationships tend to be more flexible. However, the Czech system requires written precision to ensure enforceability and compliance.

ARROWS Law Firm has extensive experience preparing employment contracts for Icelandic and other foreign employers that satisfy both Czech Labour Code requirements and immigration authority standards.

Place of work: determining work location and travel obligations

The second essential element is the agreed place or places of work. This requirement establishes where the employee must perform their duties and determines the scope of the employer's right to direct the employee to different locations. The place of work can be determined very narrowly or broadly.

Any work performed outside the agreed place of work is treated as a business trip under Czech law, triggering separate compensation and daily allowance (per diem) obligations that many employers overlook.

What makes this requirement particularly important for foreign employers is that you cannot unilaterally change the agreed place of work without the employee's written consent. If your employment contract specifies that the employee works in Prague, you cannot require them to work in Brno without amending the contract.

For Icelandic companies with headquarters in Reykjavik but operations in Prague, this creates practical challenges when employees are expected to divide their time between locations. The place of work must be clearly defined so that it accommodates your operational model.

If you plan to implement remote work arrangements, a written agreement on remote work (teleworking) is mandatory under the Labour Code, and the contract must explicitly state the cost reimbursement arrangements.

1. Can I require an employee to work in multiple locations if the contract specifies only one place of work?
No, without written amendment to the contract. Any work outside the agreed place of work is treated as business travel, triggering statutory travel allowances. You must either broadly define the place of work in the original contract (e.g., "Prague and Central Bohemia Region") or obtain written consent from the employee for each trip.

2. What happens if I do not clearly specify the place of work in the employment contract?
A Czech labour inspector or court may view the contract as incomplete or deficient, creating legal uncertainty. In disputes, ambiguous place-of-work clauses are interpreted in favour of the employee.

3. If my Icelandic company wants employees to work part of the week in Prague and part remotely, how should I structure this in the contract?
You must have a written "Agreement on Remote Work" (dohoda o práci na dálku) separate from or appended to the employment contract. The place of work in the contract should be the office, while the remote work agreement specifies the home office conditions and cost reimbursements.

Commencement date: when the employment relationship legally begins

The third essential element is the day of entry to work (commencement date). This date is crucial because it triggers the beginning of all statutory rights and obligations. From the day specified in the employment contract, the employee is obliged to perform the work and the employer is obliged to assign work.

However, the date must be clearly specified in the contract—vague language such as "to be determined" does not satisfy the statutory requirement.

The commencement date can be arranged for any day, including a weekend or public holiday, if the parties agree. One practical issue that foreign employers sometimes encounter is the timing of contract signature relative to the start date.

Czech law allows the contract to be signed before the start date, but some employers make the mistake of allowing employees to begin work without a signed contract in place. This creates significant administrative liability.

Under Czech law, if an employee begins work without a valid written employment contract, the employer faces an administrative fine of up to 10 million CZK for enabling illegal work.

Beyond the three essentials: additional mandatory contract information

While the Labour Code specifies only three essential elements for the contract itself, Czech law (Section 37) requires that employers provide employees with written information about several additional critical matters. This information must be provided within 7 days of the commencement of employment.

The mandatory additional information includes:

Detailed job description (if not in the contract).
Annual vacation entitlements and the method of determining its length.
Notice periods for termination.
Weekly working hours and the schedule of shifts (including breaks).
Details about salary or wages including payment method, term of payment, and frequency.
Information about any collective bargaining agreements.
The procedure for overtime work and its compensation.

If any of these elements is missing from the contract, you are obligated to provide it separately in writing to the employee within the strict 7-day deadline.

The language of the contract deserves particular attention. If a labour inspector reviews your documentation, they will require a Czech version of all essential documents.

While Czech law does not strictly require the contract to be drafted in Czech (unless the employee does not understand another language), ARROWS Law Firm strongly recommends preparing a bilingual version (Czech and English).

Common pitfalls in employment contracts: what foreign employers frequently overlook

ARROWS Law Firm lawyers regularly encounter employment contract issues created by foreign employers who have adapted templates from their home jurisdiction without adequate understanding of Czech legal requirements.

Pitfall one: using home-country contract templates without adaptation

Many Icelandic employers make the critical mistake of attempting to use employment contracts that worked in Iceland without substantial modification for Czech conditions. This approach fails because Icelandic employment law and the Czech Labour Code operate on fundamentally different principles.

Iceland relies heavily on collective bargaining agreements, whereas the Czech Republic enforces statutory minimums.

An Icelandic employment contract typically includes less detailed specification of certain terms because Icelandic law presumes that collective agreements will govern many aspects. In contrast, Czech law requires explicit contractual specification or a specific reference to internal regulations.

When a foreign employer submits a poorly adapted contract to Czech labour authorities as part of a work permit application (Employee Card), the contract is reviewed for compliance with the Labour Code and a non-compliant contract will result in the rejection.

Pitfall two: failing to comply with minimum wage requirements

The statutory minimum wage in the Czech Republic creates a baseline below which no employee can be paid. For 2026, the minimum wage is 22,400 crowns per month (subject to the specific government regulation applicable for the calendar year).

However, attempting to circumvent the minimum wage requirement by classifying workers as independent contractors (the "Švarcsystém") is illegal and exposes the employer to substantial penalties.

Additionally, if you employ workers under agreements to perform work (DPP or DPČ), minimum wage thresholds still apply per hour. For an Agreement on Working Activity (DPČ), social and health insurance contributions become mandatory if the monthly remuneration reaches the participation threshold (currently 4,500 CZK per month).

For the Agreement on Work Performance (DPP), the regime has tightened significantly as of 2025, with insurance contributions triggered at approximately 25% of the average wage for the primary employer.

Pitfall three: inadequate specification of working hours and schedule

The Czech Labour Code imposes strict requirements regarding working hours and rest periods. Employees in the Czech Republic are entitled to a maximum of 40 hours per week in standard arrangements. Many foreign employers draft contracts that are vague about working hours.

The contract (or the mandatory information notice) must specify the weekly working hours and the schedule.

If you wish to use flexible working hours, this must be specifically agreed upon or set in internal regulations with clear "core hours" and "flexible hours." Presuming that employees will work "as needed" without defined schedules violates Czech law.

Pitfall four: overlooking probationary period limitations and procedures

The Czech Labour Code permits employers to agree on probationary periods, but with strict limitations. Following the "Flexinovela" amendment, the maximum probationary period is 4 months for regular employees and 8 months for managerial employees.

A critical recent development is that probationary periods can now be extended by written agreement between the employer and employee during the term of the probationary period, provided the total extended period does not exceed the statutory maximums.

For fixed-term contracts, the probationary period cannot exceed half the total contract duration. It is crucial to ensure these terms are finalized before work begins.

Many foreign employers overlook that the probationary period must be agreed in writing and no later than the day the employee starts work.

1. Can I use the same employment contract template for Icelandic employees and Czech employees?
No. The Czech Labour Code imposes specific mandatory requirements. Using a direct translation of an Icelandic contract will result in a non-compliant contract.

2. What happens if I hire a Czech employee without a written employment contract?
You are committing an administrative offence punishable by a fine of up to 10 million CZK. While a "factual employment relationship" creates rights for the employee, it creates liability for the employer.

3. If both the employee and I agree to pay less than the minimum wage, is that permissible?
No. The statutory minimum wage is non-negotiable. Any contractual provision setting wages below the minimum is void.

Hiring foreign workers: work permits, registration, and compliance requirements

Icelandic citizens, as members of the European Economic Area (EEA), have free access to the Czech labour market. They do not require work permits, employment cards, or special authorization. However, free access does not eliminate employer obligations.

For Icelandic citizens (and other EU/EEA nationals), employers must register the employment with the Labour Office no later than the day the employee begins work.

As of July 1, 2024, this notification must be submitted electronically (via XML data box or the Labour Office portal). Failure to report electronically and on time is a finable offence.

Non-EU foreign nationals: work permits and employee cards

If your Icelandic company is hiring employees from outside the EU/EEA (third-country nationals), the requirements are complex. The most common work authorization is the Employee Card (Zaměstnanecká karta), which serves as both a residence permit and work authorization.

For highly qualified workers, the Blue Card (Modrá karta) is available. The requirements for these permits have evolved with recent legislation to address labour market needs.

Recent legislative changes have relaxed the salary threshold: applicants must now have an employment contract with a gross monthly or annual salary amounting to at least the average gross monthly salary in the Czech Republic.

Before applying for an Employee Card, the vacancy must generally be reported to the Labour Office and pass a "labour market test" (posted for 10-30 days), though this requirement has been relaxed for certain countries and professions.

Termination of employment: notice periods, grounds, and severance obligations

The statutory minimum notice period is two months. This period applies to both employer and employee terminations, providing a buffer for both parties.

Under the "Flexinovela" amendment, the notice period now begins on the date the notice is delivered to the other party, and the employment ends upon the expiration of the two months.

This represents a significant change, as previously the notice period only began on the first day of the following calendar month. The notice period can be shortened to one month in specific cases defined by the amendment.

Grounds for termination by notice: limited statutory reasons

Employers cannot terminate an employee without cause (except during the probationary period). The valid statutory grounds (Section 52 of the Labour Code) include:

Organizational reasons (dissolution, relocation, redundancy).
Health reasons (loss of medical fitness based on a medical report).
Failure to meet prerequisites or performance requirements.
Breach of duties (misconduct).

Terminating for "personality conflict" or vague "poor fit" is invalid and can lead to court-ordered reinstatement with back pay.

Severance pay: mandatory in specific termination scenarios

Severance pay ("odstupné") is mandatory when termination is due to organizational reasons (redundancy). The minimum amounts are:

< 1 year service: 1 month's average earnings.
1 – 2 years service: 2 months' average earnings.

If termination is due to a work-related injury or occupational disease, the severance is 12 times the average monthly earnings.

Leave entitlements: annual vacation, sick leave, and maternity leave

Employees in the private sector are entitled to a minimum of 4 weeks (20 days) of paid annual leave per calendar year. The employer determines the schedule, but must grant the leave within the calendar year if possible.

Sick leave: employer and state responsibilities

Days 1–14: The employer pays wage compensation (replacement for wages) for working days designated for shifts.
Day 15 onwards: The state (Social Security Administration) pays sickness benefits.

Employees are entitled to paid care leave (ošetřovné) generally for up to 9 days to care for a sick child (<10 years) or family member. This is paid by the state.

Maternity leave is 28 weeks (37 for multiples). Parental leave follows until the child is 3 (or potentially 4) years old, with the employer obligated to hold the position (or a comparable one) open.

International and cross-border employment issues

If sending an Icelandic employee to work temporarily in the Czech Republic, they are a "posted worker." You must ensure they receive at least the Czech minimum wage and statutory vacation, obtain a Portable Document A1 from Iceland, and notify the Czech Labour Office.

Under EU Regulation 883/2004, an employee is generally insured in the country where they physically work.

A "cross-border worker" living in CZ but working in Iceland is insured in Iceland. However, if they perform substantial activity (25%+) in their country of residence (CZ), they may fall under the Czech system. This requires careful assessment to avoid double payment or non-payment of contributions.

Recent changes to Czech employment law: the "Flexinovela" amendment

Effective largely from 2025/2026, the "Flexinovela" introduced:

Probationary Period: Extended limits (4 months regular / 8 months managers) and possibility of extension.
Notice Period: Calculation starts from the day of delivery, not the first of the next month.
Wage Confidentiality: Clauses prohibiting employees from discussing wages are now banned.
Medical Exams: Initial medical examinations for non-risk work (Category 1) are no longer mandatory, reducing administrative burden.

Risk analysis: potential violations and administrative penalties

Risks and Penalties	How ARROWS Law Firm Helps (office@arws.cz)
Illegal employment / Misclassification: Fines up to 10,000,000 CZK. This includes "Švarcsystém" (disguised employment).	Employment classification audit: We review contracts to ensure proper distinction between employment and independent contracting.
Non-compliant contracts: Fines up to 2,000,000 CZK (Section 25 of Labour Inspection Act) for failing to provide written contracts or mandatory info.	Contract review: Drafting bilingual contracts that meet all Section 34 and 37 requirements.
Failure to register employees: Fine up to 100,000 CZK for late or non-electronic reporting to Labour Office.	Registration services: We handle electronic notifications to the Labour Office and Social Security Administration.
Invalid Termination: Risk of paying wage compensation for the entire duration of the dispute (often years) + reinstatement.	Termination management: Drafting notice documents and advising on statutory grounds and evidence.

Executive summary for management

Non-Negotiable Minimums: Czech law sets hard floors for wages (22,400 CZK in 2026), vacation (4 weeks), and safety. These cannot be waived by contract.
Written Contracts are Critical: Three essential elements (Type, Place, Date) + mandatory info must be precise. Bilingual drafts are highly recommended.
Termination is Restricted: "At-will" employment does not exist. You need specific statutory grounds and must follow strict notice period rules (now starting from delivery).
Electronic Compliance: Reporting of foreign workers and managing remote work agreements requires adherence to strict digital protocols.
Professional Setup Saves Costs: Correcting a botched entry into the market is significantly more expensive than initial compliance.

FAQ – frequently asked legal questions

1. Can I employ Czech residents without establishing a Czech subsidiary?
Yes. A foreign entity can register as an "employer" with the Czech Social Security Administration and Health Insurance companies without a local branch. You will be assigned a Czech Employer ID. However, you must comply with all Czech payroll and labour laws.

2. What documents must I maintain at the workplace?
Copies of employment contracts, proof of identity (passport), and for non-EU citizens, copies of work permits/residence cards. These must be available for inspection at the place of work.

3. Are electronic signatures on contracts valid?
Yes, but with caveats. The Labour Code permits concluding contracts electronically. However, delivery of documents (especially terminations) via email requires strict consent protocols (separate written consent from employee). Using a qualified electronic signature (QES) or recognized electronic signature is recommended for the employer.

4. What is the difference between DPP and DPČ?
DPP (Agreement on Work Performance) is limited to 300 hours/year. Social security applies only if earnings exceed the threshold. DPČ (Agreement on Working Activity) allows up to 20 hours/week on average, with social security applying if earnings are 4,500 CZK+ per month.

5. Is the "Information on Entry" mandatory even for Icelandic citizens?
Yes. You must submit the "Information on entry into employment" (Informace o nástupu) to the Labour Office electronically on the day of commencement.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (office@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.