The Schwarz System Under Scrutiny by the Courts: Recent Ruling by the Municipal Court in Prague

In the last issue of our newsletter, we discussed the Supreme Administrative Court's ruling in the Hennlich case, which clearly stated that simply "wrapping" an employment relationship in a commercial contract is not sufficient if the characteristics of dependent work are fulfilled. The latest decision of the Municipal Court in Prague confirms this line of case law and additionally shows how strictly the courts will assess the actual arrangements for cooperation with self-employed persons in practice.

In July, the Municipal Court in Prague confirmed a fine of CZK 2.5 million imposed by the State Labour Inspection Office (hereinafter "labour inspectorate") on Velká Pecka s.r.o. (hereinafter the "Company"), the operator of the online supermarket Rohlík.cz (hereinafter "Rohlík"). The reason was cooperation with couriers through framework business agreements, even though their activities fulfilled the characteristics of dependent work. According to the court, this was illegal employment, the so-called schwarz system.

This was the court's second ruling on the matter – its ruling last year was overturned by the Supreme Administrative Court and the case was returned for reconsideration with the reasoning that the court had not adequately addressed all of the Company's objections. Now, the municipal court has again concluded that the couriers, although formally self-employed, actually behaved as employees – they followed the instructions of dispatchers, used company vehicles and applications, and were economically dependent on a single client.

The Company's Defence and the Court's Conclusions

The Company defended itself in court by arguing that its couriers had considerable freedom under their contracts. It claimed, for example, that couriers were free to schedule their own working hours, refuse orders, use their own vehicles and phones, cooperate with competitors, and even pass on orders to subcontractors. According to the Company, this was a standard business relationship between self-employed persons, not dependent work.

However, the court rejected these claims. It found that the couriers were in fact part of the company's operations: they received orders through a company application, had to adhere to set time slots, used vehicles and equipment marked the Rohlík logo, and acted exclusively on behalf of the Company. According to the court, the options referred to by the Company were only of a formal nature – for example, the option of using their own car or subcontractors was "hypothetical" and almost never used in practice.

As the presiding judge emphasised, "all the characteristics of dependent work were fulfilled" – personal performance, continuity, a relationship of superiority and subordination, and the economic dependence of the couriers on a single source of income.

Impact beyond the Rohlík case

The decision is important not only for the Company itself, but also for the entire delivery services sector and other industries where companies often use self-employed persons for activities that are similar to a classic employment relationship (e.g. couriers, drivers, sales representatives or IT specialists). It can be expected that the labour inspectorate will use this case as a precedent and focus on other companies as well.

Risks for companies

As this ruling shows, a contractual agreement alone is not enough – what matters is how the cooperation works in practice. If the relationship has the characteristics of dependent work, an employment relationship must be established. Otherwise, companies face not only fines of up to CZK 10 million from the labour inspectorate, but also additional social security and health insurance contributions and income tax, including penalties. Significant risks also include court disputes with workers over recognition of employment relationships and reputational damage in case of media coverage.

Conclusion and recommendations

The decision of the Municipal Court in Prague clearly confirms the trend: labour inspectorates and courts are monitoring the reality of relationships, not their formal designation. We therefore recommend that companies regularly review their arrangements with self-employed persons, especially for activities that are similar in nature to dependent work.

If you are unsure whether your contracts and processes are set up correctly, our experts will be happy to help you with their review and recommend an appropriate solution.

Authors:

Gabriela Ivanco, Tax Department Manager

Anna Klímová, Newsletter Editor