Contractual penalty in the employment contract
12. apríl 2016 News
In practice, parties of the contract often agree on a contractual penalty which serves as a security institution. The objective is mainly to achieve that the obliged party shall properly fulfil the secured obligation under the threat of material damage. The contractual penalty is provided for in the Civil Code and the Commercial Code. A typical example is an agreement on a contractual penalty between the entrepreneurs which shall be applied in case the party is delayed with delivery of goods or services.
Pursuant to section 20 of the Labour Code, there are three types of security institutions which may be agreed upon in writing between the employer and employee in order to secure the rights and obligations resulting from the labour relations. These are an agreement on wage deductions, a surety and the establishment of right of lien.
In the employment law, it is not possible for the employer and the employee to agree on a contractual penalty for employee´s breach of duties. This refers to employment contracts as well as agreements on work performed outside the employment relationship.
The only exception permitted by the Labour Code is the possibility to agree on a reasonable monetary compensation pursuant to section 83a (5) that the employee is obliged to pay if he/she breaches a competition clause, i.e. the commitment not to work for competitors for a certain period of time after termination of employment. Such an agreement on a reasonable monetary compensation is special and the only form of contractual penalty allowed in the employment law.
However, if you have agreed on a contractual penalty in your employment contract for other cases of breach of duty, such an agreement on a contractual penalty is invalid and the employer has no right to demand its payment.
If you need assistance with your legal problem, please feel free to contact our law firm in Liptovský Mikuláš.