Can reduced protection of workers’ rights contribute to economic development?

Chapters of the article

• How and why to change the Czech Labour Code
• Is Czech labour law inflexible?
• What is the Danish model and what are its advantages?
• What advantages and disadvantages can be expected from the application of the Danish model to our situation?

The Danish labour market is characterised by flexibility, including low levels of protection against dismissal, but with high unemployment benefits and an effective social security system. There is a strong emphasis on tripartite cooperation between trade unions, employers and the state, with a high degree of organisation between the two groups.High labour mobility is common and so-called functional flexibility of employees is also important.

How and why to change the Czech Labour Code

The new proposal of the National Economic Council of the Government (NERV) for the modernisation of the Czech labour law contains key reforms inspired by the Danish model. The main point is to simplify the dismissal process. NERV proposes that employers should be able to dismiss employees without having to give a specific reason. However, this would be compensated by a severance payment, the amount of which would be based on the length of the employment relationship, as is the case today. Another proposal is to extend the probationary period, which should allow employers to better assess the suitability of an employee for a given position.

This proposed change is intended to reflect the need for a more flexible labour market in the Czech Republic. It is expected that relaxing the conditions for dismissals will lead to a dynamic labour market where employers will be able to respond more quickly to changing economic conditions and company needs. This approach, however, requires a balance to ensure that employees are protected, a challenge that NERV is addressing through its proposals for severance pay and support for job transitions.

The proposed reform should also incentivise employers to invest in the development and training of their workforce, as a way to reduce the risks associated with potential redundancies while promoting the professional development of employees.

Is Czech labour law inflexible?

For a Czech employee, used to decades of enormous legal protection, with the vast majority of people essentially “non-exempt”, this may be a very harsh measure at first glance. But it is necessary to look at the issue in a comprehensive and practical way. Appearances are deceptive.

The current Czech Labour Code presents certain disadvantages for employers and capable employees, especially in the context of termination terms. Strict regulation of dismissals can lead to considerable rigidity in the labour market. Employers often face a complicated process when terminating employment, which can limit their flexibility in a rapidly changing economic environment. Paradoxically, this rigidity can also discourage firms from hiring new employees, as they fear the potential complications of having to make future layoffs.

The problem, however, is that this is how it works on paper. We know from our experience that the Labour Code will not protect the employee in the end anyway, or the employment relationship will be terminated. However, this is unfair. Those who don’t resist are “fired” without proper severance pay (sometimes even termination agreements are illegally signed right at the start of the employment relationship without specifying the date of signing). Conversely, if the employee resists, he or she may receive a large severance payment. However, this costs the employer a lot of money and legal fees.

Many employees have also found themselves performing tasks for other colleagues because “they can do it”, whereas their colleagues’ capacities and skills are limited. Thus, in workplaces, there is often a group of people who spend their days surfing the net and commenting on the latest episode of their favourite show, while other colleagues do all the work. Even for the latter, the flexibility of redundancy would be a great relief.

While employees have a high degree of formal protection, the fact that there is less mobility in the labour market in general inhibits those who could easily resign (employees in our country are not bound by any reasons when they resign). This situation may thus lead to less motivation for employees to change jobs or to further their professional development.

The above is also linked to the impact on the overall economy. Excessive protection of employees can lead to less dynamism and innovation in business, which can have a long-term negative impact on the country’s economic growth and competitiveness.

Thus, the current form of the Czech Labour Code may become a barrier not only for employers, but also for employees themselves and the economy as a whole, which needs a more flexible and adaptable labour market.

What is the Danish model and what are its advantages?

The Danish model, also known as ‘flexicurity’, is characterised by its flexible labour policy, which combines easy dismissal with a high level of social protection and active employment policies. This model allows employers to easily change their workforce in response to economic changes. However, it does not make employees fearful creatures who worry every day about their jobs. It also provides them with strong social security and support when looking for a new job. This includes generous social benefits and active employment support measures such as retraining courses and counselling. This enables the workforce to adapt quickly to the needs of the market and promotes employee mobility.

The advantages of this model lie in its ability to promote high employment rates while maintaining social cohesion. It thus seeks to strike a balance between the needs of enterprises and the protection of workers. Flexibility in the labour market helps innovation and competitiveness, while strong social security and support for employees when they change jobs contribute to economic and social stability.

What advantages and disadvantages can be expected from applying the Danish model to our situation?

By comparing the ills of the current Czech market and the advantages of the Danish market, we can conclude that the transformation of Czech labour law in the outlined direction could bring a number of advantages to the Czech Republic. First of all, it would increase the flexibility of the labour market, which would allow companies to react faster to changes in the economy and increase their competitiveness. This could also support innovation and overall economic growth. For employees, this model would mean greater mobility and the possibility of changing jobs more quickly, which could lead to better job search.

It would also remove the administrative costs mentioned above (for example, for us lawyers).

On the other hand, there are also potential drawbacks. Increased flexibility in the labour market may lead to less job security, which could be stressful for some employees. It would also be essential to strengthen the social system and ensure adequate support for those who lose their jobs, which could require significant investment and reorganisation of existing social services. However, this is needed anyway. There is a shortage of people in the offices!

Overall, adopting the Danish model would require a careful balance between ensuring flexibility for companies and protecting the social rights of employees, which could pose a significant challenge for the Czech legislative and social system.