How Suspicious are Foreigners from "Third Countries"? An Analysis of Selected Aspects of the New Czech Act on Employment

How Suspicious Are Foreigners from the „Third Countries“?

An Analysis of Selected Aspects of the New Act on Employment

By Marek Čaněk

The new Act on Employment (No. 435/2004), which entered into force on 1 October 2004, institutes a number of changes in the area of employment of foreigners in the Czech Republic. In short, the act provides a clearer framework for the employment of foreigners. The act introduces an instrument enabling the extension of a work permit, stipulates that citizens of EU member states should no longer be considered foreigners and gives government labor offices more power to exercise checks. This article deals with one specific and problematic issue, namely the new act's impact on the situation of partners in business partnerships (“obchodní společnost”), members of cooperatives and members of statutory bodies of partnerships and cooperatives (hereinafter “partners” and “statutory representatives”). Such individuals are required to apply at a labor office for a work permit if they carry out day-to-day activities apart from partaking in the management of their organization. This includes partners and statutory representatives who work for example as salesmen, warehousemen, masons and people who in general carry out activities outside the scope of management duties (see Sections 13 and 89 of the Act on Employment, No. 435/2004). It is difficult to estimate at the time of writing in December how the foreigners are going to cope with the new situation and whether the new act will force some foreigners to leave the Czech Republic or remain in the country illegally. All this will depend on the interpretation and implementation of the act by individual Labor Offices and the Foreigners and Border Police units as well as on the approach and strategies on the part of migrants.

The reasons for introducing the new provision requiring partners in businesses ventures and statutory representatives to obtain a work permit under certain circumstances may be summed up as follows: prevention of hidden employment, protection of the Czech labor market based on work permits and introduction of labor and remuneration standards. According to Petra Boušková from the Ministry of Labor and Social Affairs, “the new provision is designed to prevent undesirable phenomena on the labor market. In real life, special-purpose business partnerships and cooperatives are often established with a large number of partners or coop members with foreign passports. By doing so, these foreigners are trying to evade the requirement to obtain a work permit and are as a result circumventing the Act on Employment“. Radim Matoulek, who works at the Labor Office in České Budějovice, sees the change as follows: “Before, they paid them a share of the profits once in a while. But no one knew how much was it. Now, on the other hand, when they will be employees, they must be given an employment contract and a regular monthly salary.”

As stated above, statutory representatives and partners are required to apply for a work permit if they intend to carry out day-to-day work. According to the Labor Office in České Budějovice, the procedure is basically the same as the one that foreigners must undergo when applying for a standard work permit. Jobs available to unemployed Czechs are on record at Labor Offices. If, within one month, no Czech applicants are found for the job, foreigners may obtain a work permit for that particular job. “We are currently in such a phase that most businesses come in to probe and obtain information. Some of them have already applied, some of them have not,“ says Mr. Matoulek concerning the situation in mid-November. Foreigners have until the end of December (end of a 3-month transition period) to submit their applications. In 2005, checks will be carried out to determine whether partners or statutory representatives carry out day-to-day work without work permits or not. If they are found to be carrying out such work without a work permit from a labor office, they face a fine or even deportation. As of the beginning of December, work permit applications had been filed by over 70 partners and statutory representatives, of which 28 were processed so far with none having been rejected. November estimates of hundreds of applications have so far proven to be unfounded. It is possible that some businesses have chosen a strategy different from applying for a work permit on behalf of partners. In November, three companies applied in České Budějovice to employ foreigners for the purpose of lending them to fill a total of 370 jobs, mostly menial. They may have been afraid that issuing a work permit would automatically stipulate a specific job. If lending of staff is approved, these companies can continue to flexibly offer their employees/partners provided they obtain work permits. The change lies in that the partners will no longer function as “partners,” but as standard employees.

While the Labor Office in České Budějovice will determine in certain cases whether to issue a work permit or not, Dušan Povec from the City of Prague's Labor Office believes that no application can be turned down: “The issue here is that coop members or partners who are citizens of the Czech Republic may carry out day-to-day tasks and we are not dealing with the proverbial Schwarz system here (so called after a Czech businessman named Schwarz who required his staff to sign recurrent contracts for limited periods of time as self-employed individuals so as to eschew the legal duty to pay insurance on behalf of the staff and observe the legal notice period in the case of layoffs). This of course means that it is not possible to prevent a partner from carrying out day-to-day tasks and replace him by any job applicant. The permission to work is more or less a formality”. In Prague, an estimated 1,000 applications on behalf of partners or statutory representatives had been filed before the beginning of December, of which 600 to 700 were approved so far. Another 1,000 applications are expected to arrive before the end of 2004.

It is clear from the above information that the procedures used by labor offices to determine whether to grant statutory representatives or partners a work permit are not always identical. A key question in this respect is what precisely is a “work permit”. Does it mean that an employment contract should be signed? We may deduce from the comments of people from labor offices that the Ministry of Labor and Social Affairs will have to take a position on this issue. The act in its present wording does not offer an unambiguous answer to the question whether we are dealing with “employment” or not. If not, the role of labor offices in this respect would be purely formal and therefore nonsensical. This is confirmed by the approach of labor offices in Prague. A legal analysis of Section 89 of the Act of Employment carried out by Pavel Čižinský also gives support to the opinion that the act does not specify the requirement to enter into an employment contract. In his analysis, Čižinský also states that answering this question could have a major impact on the purpose of residency which one must provide when applying for a visa for over 90 days or when applying for an extension of a long-term residency permit.

Residency permits are issued by the Foreigners and Border Police, which is examining the opportunities presented by the new act with a great deal of interest. “The expectations tied to the new Act on Employment were a source of certain hopes for us, as it could have helped us solve many problems in regard to permitting residency of foreigners involved in legal entities. However, after the act entered into force and following a series of meetings between the Foreigners Police top management and the Ministry of Labor and Social Affairs, we were faced with such problems that our hopes were shattered,“ says Aleš Benedikt from Prague's Foreigners Police. Since October, the Foreigners and Border Police requests all foreign partners in business ventures and statutory representatives applying for an extension of a long-term residency permit to contact an labor office and provide a work permit. It was only after the series of meetings that the Foreigners Police realized it was not in a position to assess whether a partner in a legal entity is required to have a work permit or not. This authority belongs solely to labor offices.

Initially, the Police worked in line with its internal regulations which interpret the new Act on Employment imprecisely; this has caused panic among some foreigners as they were not receiving clear information when it was most needed. Instructions given by the Police had reportedly changed in the course of one single day. According to Mr. Benedikt, the Regional Directorate of Foreigners and Border Police in Prague is aware of the general problem related to providing information to the general public and is therefore ready to provide basic information in Prague in a number of different languages. It is debatable, however, how up-to-date this information will be and whether it can thwart uncertainty on the part of foreigners. “Foreigners have the right to know what is going to happen to them so that they can think about it beforehand. They just want to be certain that starting on 1 January, there will not be any new regulation,“ said a Russian businessman in an interview with migraceonline.cz.

Now, the Foreigners Police acts in “the same manner as before the new Act on Employment entered into force,“ says Mr. Benedikt, adding that “foreigners have to demonstrate that they are members of a legal entity. They are not required to demonstrate that they are not carrying out day-to-day activities and tasks for their company and the Foreigners Police has no right to inquire into this matter. It is sufficient for them to advise us. We then proceed to issue a visa for over 90 days for the purpose of partaking in a legal entity.“ This means that partners and statutory representatives should no longer be automatically required to have a work permit when applying for a residency permit (or when applying for a visa for over 90 days). If foreigners state that they are not going to carry out day-to-day tasks and do not apply for a work permit, they may apply for an extension or granting of a residency permit for the purpose of partaking in a legal entity. It is not guaranteed, however, that partners will be granted a long-term residency permit or a visa solely based on the fact that they are partners. Implementation procedures have not been clearly set by the Foreigners Police. Miroslav Smetana from the Foreigners and Border Police Directorate asks the following question with respect to partners in businesses: “Does a partner need a long-term visa or is he able to carry out his work from his home country? I personally think that there is no need to remain in the Czech Republic for this reason. Such a person can come as a tourist.“ The Center for Integration of Foreigners expects that January will bring yet another bout of trouble in connection to extending residency permits by the Foreigners Police: “The transition period will expire and if a foreigner failed to apply for a work permit at an labor office because he was not aware of the need to do so or because he did not think he was carrying out day-to-day tasks for his company as an employee or he was not granted the permit, he may encounter problems when applying for an extension.“

Maria P., who provides accounting services, says: “We are curious about how is this going to end, but we are used to it after seven years. There is a new act and after a while, some absurdities are deleted from it; however, it all involves a great deal of nervousness.“ Maria and her boyfriend are the sole executive managers, partners and also accounting consultants of their company. Maria does not understand why should she apply for a work permit: “We cannot hire Czechs to do our jobs - what would we do? Why does not the new act take into consideration small and family firms?“ Many foreigners complain about the act being too wide in its scope and not allowing for certain exceptions. It seems that the Act presumes that companies established by foreigners (and especially those from the “East”) are under suspicion for abusing their business status in order to illegally hire compatriots. There is no condition regarding employment of partners applicable to companies where statutory representatives or partners are Czech. “We came here to live and to do business. And now, they are accusing all of us legally residing foreigners of cheating“, says Andrey Kroo, the chairman of the Sloven coop, adding: “OK, if we are guilty of breaking the law, punish us - if not, leave us alone and give us assurance.“