Spanish vs. Czech Employment Contracts:

Expanding your business into the Czech Republic offers significant opportunities, but it also presents complex legal challenges. For Spanish companies, assuming that European employment laws are uniform is a costly mistake. As a leading Czech law firm in Prague, EU, with extensive experience assisting foreign clients, ARROWS is your ideal partner to navigate this landscape. If you need an English-speaking lawyer in Prague to secure your operations, you are in the right place.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

The Foundational Mistake: Why Your Spanish Contract Is Invalid in the Czech Republic

The first and most fundamental error a Spanish company can make is underestimating the Czech legal system's emphasis on formalism. While Spanish law is often flexible, allowing for verbal or implied agreements, Czech labour law is rigid and unforgiving on this point. This difference is not a minor detail; it is the source of significant legal and financial risk from day one.

Mandatory Written Form: A Non-Negotiable Rule

In Spain, an employment contract can often be valid even if it is not in writing, as long as the core elements are present. The Czech Republic operates on a completely opposite principle. The Czech Labour Code mandates that every standard employment contract, or pracovní smlouva, must be in writing before the employee starts working. An oral agreement is legally void if challenged before work commences.

This creates a dangerous "validity trap." An employer might believe that if an employee starts working without a written contract, the relationship is simply informal. In fact, Czech law holds that once work begins, a valid employment relationship is established. However, this does not absolve the employer of the initial failure. The company is now bound by all the protective obligations of a formal employment relationship while simultaneously being exposed to a fine of up to CZK 10,000,000 (approximately €400,000) from the Labour Inspection Authority for the procedural violation.

The Three Essential Elements of a Pracovní Smlouva

To be valid, a written Czech employment contract must contain three non-negotiable elements, known as podstatné náležitosti:

1. The Type of Work (druh práce): A clear description of the job title and primary duties.
2. The Place of Work (místo výkonu práce): The specific location(s) where work will be performed.
3. The Commencement Date (den nástupu do práce): The official start date of the employment.

Omitting any of these core components can render the contract invalid, creating legal uncertainty and exposing your company to disputes over an employee's role and responsibilities. Furthermore, the contract must be provided in a language the employee fully understands. To prevent future conflicts over interpretation, a bilingual Czech-Spanish or Czech-English contract is the recommended best practice.

Risks and penalties	How ARROWS helps
Concluding a verbal employment agreement. The contract may be deemed invalid, and you face a fine of up to CZK 10,000,000 (€400,000) for failing to provide a written contract.	Drafting compliant, bilingual employment contracts. Ensure your contracts are legally valid from the start. Email us at office@arws.cz.
Omitting one of the three essential elements (work type, place, start date). Risk of contract invalidity and employee disputes over duties, location, and transferability.	Legal review of existing contract templates. We ensure full compliance with the Czech Labour Code. Need a contract review? Contact us at office@arws.cz.
Failing to provide the contract in a language the employee understands. Disputes over contract terms and potential unenforceability of key clauses like confidentiality or non-compete agreements.	Preparation of professional bilingual legal documents. Avoid costly misunderstandings. Write to office@arws.cz for assistance.

The First 120 Days: Navigating Probationary Periods (Zkušební Doba)

The probationary period is a critical tool for assessing a new hire. However, in the Czech Republic, it is not a default right but a negotiated privilege that can be easily forfeited through procedural error. A Spanish employer accustomed to the standard inclusion of a período de prueba must adapt to the stricter Czech approach to avoid losing this flexibility.

How do Czech probationary periods work?

A probationary period, or zkušební doba, is not automatic. It must be explicitly agreed upon in writing and included in the employment contract no later than the employee's first day of work. An oral agreement or a clause added after employment has begun is legally invalid. This means an employer who overlooks this detail is immediately bound by the Czech Republic’s highly protective termination laws, losing the ability to dismiss an unsuitable employee without cause during the crucial initial months.

The maximum duration of a probationary period was recently extended and is now four months for standard employees and eight months for managerial employees. This differs from the Spanish system, where periods are typically two to six months depending on the role. Crucially, for fixed-term contracts, the Czech probationary period cannot exceed half of the agreed employment duration—a specific calculation that foreign employers often miss.

FAQ – Legal tips about Czech Probationary Periods

• Q: Can I add a probationary period after the employee has started?
  A: No, it must be agreed in writing on or before the first day of work to be valid. For assistance with compliant contract clauses, email us at office@arws.cz.
• Q: What is the maximum probation for a 6-month fixed-term contract?
  A: The maximum is 3 months (half the contract's duration). Getting this wrong can invalidate the entire period. Let our lawyers draft it correctly for you – contact us at office@arws.cz.
• Q: Do I need to give a reason to terminate during probation?
  A: No reason is required from either party. However, the termination notice must be in writing. For immediate assistance with termination documents, write to us at office@arws.cz.

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Temporary or Permanent? Understanding Czech Rules on Fixed-Term Contracts

Spanish companies operate in a labour market that has historically used a high volume of temporary contracts. The Czech legal framework, in contrast, is deliberately designed to promote long-term, stable employment. This reflects a different socio-economic philosophy, and the rules governing fixed-term contracts are a direct expression of this policy, creating another trap for uninformed foreign employers.

What is the "Rule of Three" for fixed-term contracts?

Czech law strictly limits the use of consecutive fixed-term contracts with the same employee. This is often called the "Rule of Three":

• A single fixed-term contract cannot exceed a duration of 3 years.
• It can only be renewed or extended a maximum of 2 times.

This creates a maximum total duration of nine years of fixed-term employment with the same employer. After this limit is reached, the relationship must either end or become permanent. This formulaic approach is much more rigid than the regulations in Spain and is designed to prevent the indefinite use of temporary employment status.

What happens if you get it wrong?

The consequences of mismanaging fixed-term contracts are severe. Under Czech law, an employment relationship is presumed to be for an indefinite period unless a fixed term is explicitly and correctly stated in the written contract. If you violate the "Rule of Three" or improperly draft the fixed-term clause, the contract can be automatically reclassified by a court as a permanent one. This means your company would unexpectedly become subject to the strict termination rules and mandatory severance pay obligations you were likely trying to avoid.

The Most Dangerous Trap: Termination, Dismissal, and Severance Pay (Odstupné)

Terminating an employment contract is the single most litigious and financially risky area of Czech labour law. The system is fundamentally pro-employee, and Czech courts scrutinize every step of the dismissal process. A legally valid reason for dismissal can be completely invalidated by a minor procedural mistake, transforming a straightforward HR decision into a massive, open-ended financial liability.

Why is terminating an employee so difficult in the Czech Republic?

Unlike Spain, which categorizes dismissals into objective and disciplinary grounds, the Czech Republic does not have broad categories like "poor performance" or "economic reasons" that can be easily invoked. An employer can only dismiss an employee for a limited number of specific statutory reasons explicitly listed in the Labour Code.

These reasons primarily fall into three categories:

1. Organizational Changes: Redundancy, company relocation, or dissolution.

2. Health Reasons: The employee is medically unfit to perform the work.

3. Employee Misconduct or Poor Performance: This is the most challenging category. For minor breaches or poor performance, an employer must first issue a formal written warning and give the employee a reasonable period to improve. Dismissal is only possible if the misconduct is repeated within a specified timeframe.

A failure to follow this mandatory warning procedure will render any subsequent dismissal invalid, even if the employee's performance was genuinely substandard.

Understanding Odstupné: Non-Negotiable Severance Pay

In cases of termination for organizational reasons, the employer is legally obligated to pay statutory severance, known as odstupné. This is not a matter for negotiation; it is a right guaranteed by law. The amount is calculated based on a simple, predictable formula tied to the employee's length of service:

• Less than 1 year of employment: 1 month's average salary.
• 1 to 2 years of employment: 2 months' average salary.
• More than 2 years of employment: 3 months' average salary.

If termination is due to a work-related accident or occupational disease, the severance pay jumps to a minimum of 12 times the employee's average monthly earnings. This contrasts sharply with the Spanish system, where severance depends on the type of dismissal (e.g., 20 days' salary per year of service for objective dismissal, 33 days for unfair dismissal) and is subject to different caps.

Risks and penalties	How ARROWS helps
Dismissing an employee without a valid statutory reason. High risk of a wrongful dismissal lawsuit, leading to potential reinstatement and an order to pay back wages for the entire dispute period, which can last years.	Legal opinion on termination grounds. We assess the validity of your reasons for dismissal before you act. Assess your legal position by emailing us at office@arws.cz.
Failing to issue a mandatory written warning before dismissal for poor performance. The dismissal will be ruled invalid by the courts, resulting in significant financial liability for back pay and legal costs.	Drafting legally sound warning letters and managing the termination process. We ensure every procedural step is perfect. Manage termination correctly by contacting us at office@arws.cz.
Miscalculating or refusing to pay statutory severance pay (odstupné). Guaranteed litigation, penalty interest on the unpaid amount, and significant damage to your company's reputation as an employer in the Czech market.	Calculation of severance entitlements and drafting of termination agreements. We ensure your severance packages are fully compliant.

The "Švarc System": The Perils of Misclassifying Employees as Contractors

Many international companies are accustomed to using freelancers or independent contractors for flexibility. In the Czech Republic, this practice is heavily scrutinized and can lead to accusations of operating a "Švarc system"—the illegal practice of misclassifying employees as contractors to avoid employment obligations.

What is illegal dependent work?

The "Švarc system" occurs when an individual is hired on a self-employed basis (with a trade license, or živnostenský list) but the nature of their work constitutes "dependent work" (závislá práce), which legally requires an employment contract. The key indicators of dependent work include:

• A relationship of superiority (employer) and subordination (worker).
• Work performed personally by the individual according to the employer's instructions.
• Work performed in the employer's name and on the employer's behalf.
• A set working time and place of work determined by the employer.
• Remuneration in the form of a regular wage or salary.

If these characteristics are present, a B2B contract is illegal. The penalties are among the most severe in Czech labour law, with fines of up to CZK 10,000,000 for the company and potential criminal liability for management in serious cases. The misclassified worker can also be fined up to CZK 100,000.

FAQ – Legal tips about Identifying and Avoiding Illegal Dependent Work

• Q: Can I hire a freelancer to work full-time in my office using their own laptop?
  A: This is a major red flag for dependent work. The regular hours and place of work strongly suggest an employment relationship, not a contractor agreement. Get a legal assessment by writing to office@arws.cz.
• Q: My contractor only has one client – my company. Is this a problem?
  A: Yes, economic dependence is a key indicator of the Švarc system. This arrangement carries a very high risk of being reclassified by the authorities. For help structuring compliant contracts, email us at office@arws.cz.
• Q: What is the difference between a contractor and an employee in the Czech Republic?
  A: A true contractor (nezávislý dodavatel) operates independently, bears their own business risk, and is not subordinate to the client. An employee (zaměstnanec) works under instruction. Our lawyers can help you classify workers correctly. Contact us at office@arws.cz.

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The Financial Reality: Comparing Employer Social Security and Tax Burdens

Accurate budgeting for new hires requires a clear understanding of mandatory employer contributions. While the headline social security rates in the Czech Republic and Spain may seem comparable, differences in the contribution caps can lead to significant variations in total labour costs, especially for higher-paid employees.

How do employer contributions compare?

• Czech Republic: Employers must contribute a total of 33.8% of an employee's gross salary. This is broken down into 24.8% for social security and 9% for health insurance. A crucial detail is the annual cap on the assessment base for social security, which is CZK 2,234,736 for 2025. There is no cap for health insurance contributions.
• Spain: The general employer contribution rate is approximately 32%, consisting of around 30.57% for social security plus a variable rate for occupational accidents (e.g., 1.50%). Spain uses a monthly contribution base with both a minimum (€1,381.20 in 2025) and a maximum (€4,909.50 in 2025).

The different cap structures mean that for high-earning employees, the total annual contribution in the Czech Republic could be higher than in Spain once the Spanish monthly cap is consistently exceeded. Foreign companies must also adhere to a strict and time-sensitive process for registering new employees with the Czech Social Security Administration (ČSSZ) and the relevant health insurance company within eight days of their start date.

Risks and penalties	How ARROWS helps
Failure to register an employee with social security and health insurance authorities within 8 days. Fines of up to CZK 100,000 for non-compliance with mandatory notification obligations.	Guidance through the employee registration process. We ensure all administrative steps are completed correctly and on time. Onboard employees without risk by emailing us at office@arws.cz.
Incorrectly calculating and remitting monthly social security and health insurance contributions. Risk of back-payment demands from authorities, penalty interest, and time-consuming audits.	Legal consultations on payroll obligations. We can connect you with trusted local payroll providers to ensure accuracy. Manage payroll correctly by contacting us at office@arws.cz.
Allowing a non-EU employee to start work before all permits and registrations are complete. This is considered "undeclared work" and can result in fines up to CZK 3 million, a ban on hiring foreigners, and reputational damage.	Legal support with work permit applications. We assist with Employee Cards and Blue Cards to ensure full compliance before day one.

Your Strategic Partner in Prague: How ARROWS Protects Your Czech Operations

Navigating the complexities of Czech employment law requires more than just a template contract; it demands a strategic legal partner who understands both the local regulations and the perspective of a foreign investor. The risks are substantial: invalid contracts, multi-million crown fines for procedural errors, wrongful dismissal liability, and severe penalties for employee misclassification.

As an international law firm operating from Prague, European Union, ARROWS provides the comprehensive support Spanish companies need to operate with confidence. ARROWS provides end-to-end support, from drafting legally required documentation like bilingual employment contracts and internal company policies, to providing strategic legal consultations to prevent inspections or penalties from the Labour Inspection Office. 

Our team offers expert contract review, and should a dispute arise, we provide robust representation in court or before public authorities. We also empower your local management by offering professional training for employees or management, complete with certificates.

With a network built over 10 years and experience in 90 countries, ARROWS International is uniquely positioned to bridge the legal and cultural gap between Spanish and Czech business practices. We support over 150 joint-stock companies and 250 limited liability companies, demonstrating our capacity to handle the needs of businesses of all sizes. Do not let preventable legal mistakes undermine your investment in the Czech Republic.

Get the expert cross-border support you need. Contact our team today at office@arws.cz.

FAQ – Most common legal questions about Czech employment law for Spanish companies

1. Q: What is the minimum wage and annual leave in the Czech Republic?
A: The statutory minimum annual leave is 4 weeks, though 5 weeks is a very common employee benefit. The minimum wage is set by the government and is tiered based on job complexity ("guaranteed wage"), meaning it is higher for more skilled roles. To ensure your remuneration packages are compliant, get tailored legal solutions by writing to office@arws.cz.

2. Q: Do I need a Czech legal entity to hire an employee?
A: Not necessarily. You can register as a "foreign employer," but this requires a separate registration process with the Czech tax, social security, and health authorities. ARROWS can advise on the most efficient corporate structure for your specific business needs. For immediate assistance, write to us at office@arws.cz.

3. Q: What are the main differences in working hours and overtime?
A: The standard Czech work week is 40 hours. Overtime is strictly regulated, with a statutory limit of 150 hours per year (which can be extended by agreement) and a mandatory minimum pay premium of 25% of the employee's average earnings. Need help drafting compliant internal policies on working time? Contact us at office@arws.cz.

4. Q: Can I include a non-compete clause in a Czech employment contract?
A: Yes, but it is strictly regulated. It can last for a maximum of one year after employment ends, and you must pay the former employee financial compensation of at least 50% of their average monthly salary for every month the clause is in effect.

5. Q: What happens if an employee sues for wrongful dismissal?
A: Czech courts are generally considered employee-friendly. If a dismissal is ruled invalid, you could be liable for wage compensation for the entire duration of the legal dispute, which can last for years. It is critical to obtain expert legal advice before any termination. Do not hesitate to contact our firm – office@arws.cz.

6. Q: How does ARROWS help Spanish companies specifically?
A: Our lawyers combine deep knowledge of Czech law with a practical understanding of the Spanish business mindset. We help you navigate the crucial differences, from contract drafting to termination procedures, all through our leading Czech law firm in Prague, EU. Get the expert cross-border support you need by writing to office@arws.cz.

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