Are you liable for damage to a company car in an accident?

Employers very often provide their employees, whether they are professional drivers or drivers for clerical purposes, with a vehicle for business purposes. However, a moment’s inattention can cause damage. Does their liability and possible compensation vary depending on whether the vehicle is used only for business or also for private purposes?

An employee’s liability for damage to a company car arises when an accident or other damage to the car occurs while on business. If the employee causes damage through his or her own negligence – for example, by failing to follow traffic laws – he or she must pay the employer for the damage. However, they do not have to worry about unlimited costs, as the law sets a clear financial limit. This protects the employee and therefore the assessment is always made whether the damage occurred in the course of work or in the private use of a company vehicle.

The concept of strict liability is often mentioned in this context. This refers to the situation where the employee would be liable for the damage regardless of whether he acted culpably. However, in employment law, strict liability does not apply across the board to company cars. In order for the damage to be attributable to the employee, there must be a breach of his or her employment duties. The exception may be where the employee knowingly continues to drive the defective vehicle and thereby causes further damage to the employer.

Damage caused to the employer in a company car accident is assessed according to whether the driving was work-related or private. When the employee is on business travel, he or she is liable under employment law and is entitled to the protection of limited compensation. Conversely, in the case of private use of a vehicle, liability shifts to civil law and the employee pays the full amount of the damage if he or she caused it. It is therefore important to always distinguish in which mode the car was being used at the time of the accident.

The internal rules and the vehicle use agreement are important

As part of the employee benefit, some employees may also use the vehicle for private purposes. It should be added that despite the obligation to tax this non-monetary benefit, it is a very popular and sought-after employee benefit.

However, the use of the vehicle, whether for business purposes only or for private purposes, also entails the employee’s liability for any damage caused to the employer. It makes a crucial difference whether the vehicle is used for business or private purposes. In the former case, the obligation to compensate the employer for damage is governed by the Labour Code, in the latter case by the Civil Code. This should not be underestimated by the employer or the employee using the vehicle. Good quality accident insurance should be taken out as a matter of priority. The conditions for the use of the vehicle, such as liability, maintenance, parking, security, etc., should be part of the internal regulations and, if the vehicle is also used for private purposes, a negotiated agreement on the use of the vehicle for private purposes.

Vehicle for business use only

Here, the employee’s liability for damages is governed by the Labour Code. It is certainly not possible to negotiate an agreement on liability for entrusted values. The car cannot be locked in a safe, similar to the case of money and valuables. In this case, there is only a general obligation to compensate the employee for damage incurred or damage caused by failure to comply with the obligation to prevent damage. Three situations are relevant:

• Damage caused by negligence – for example, an employee causes damage to the employer by violating traffic regulations while driving a car. According to the Labour Code, the amount of damages may not exceed for an individual employee an amount equal to four and a half times his average monthly earnings before the breach of duty that caused the damage. Of course, this is the part not covered by the accident insurance policy, the so-called deductible.

• Damage caused intentionally, by drunkenness or substance abuse – in contrast to damage caused by negligence, there is no limitation for damage caused intentionally, by drunkenness or substance abuse. Thus, the employee is obliged to compensate the employer for the actual damage (i.e. in the amount actually incurred by the employer). Damages are primarily paid in money, but restitution by way of restoration to the previous state is also an option, if possible. If the damage was caused intentionally, the employer may claim compensation for loss of profit in addition to the actual damage.
• Failure to comply with the duty to prevent damage – the employee knowingly failed to warn a superior manager of the damage threatening the employer or to take action against the threatened damage. The amount of damages is limited to only three times the employee’s average monthly earnings. For example, the employee failed to warn of the poor technical condition of the vehicle and continued to use the vehicle, which caused damage to the engine.

Vehicle for private use

If your employer allows you to use your car for private purposes, you may encounter two options. Either the free use will be part of your non-cash income, which, in accordance with the Income Tax Act, is 1% of the purchase price of the car per calendar month (minimum CZK 1,000). This amount is usually used, for example, for car insurance or tyre replacement. However, what matters is not whether you actually drive the car, but that you have it at your disposal. The other option is to rent a car. This is less common, but it’s good to know that it is an option. The rental price is usually much better than the market price for a car of similar quality.

It is then (usually) up to the employer to pay for the costs associated with the operation of the car, i.e. mainly the purchase of fuel, parking fees or car cleaning.

However, as mentioned above, if you cause damage while using the car in this mode, liability for this damage is governed by the Civil Code. In particular, the damage limit of four and a half times your salary does not apply.

Take the test

Take a quick test now to get an idea of whether you are liable to your employer for damages if you are involved in an accident in their car and under what conditions.

1. Was there any personal injury or property damage in the accident?
Damage occurred –
No damage – you are not liable.
2. Were you at fault for the accident?
Were you at fault –
Not at fault – You are not liable.
3. Did the accident occur in the course of your employment or not?
While performing work tasks-
During a private journey-
4. Did the accident occur because you violated traffic regulations or internal regulations (e.g. work rules) of your employer?
Yes, you did –
No, we did not violate anything-you are not responsible for the damage.
5. Did you violate the regulations due to negligence or intent?
Negligence –
Intent-you are liable for the full extent of the damage caused.

Summary

An employee who has a company car is liable for damages caused by the use of the car, depending on whether the employee uses the car only for business or also for private purposes. In the case of business use, liability is governed by the Labour Code – if the damage is caused by negligence, he or she is liable up to a maximum of 4.5 times his or her average monthly earnings (or three times if the failure to prevent damage is attributable to negligence), whereas in the case of intent, drunkenness or ingestion of addictive substances, he or she is liable for the full amount of the damage without limit. If the car is also provided for private purposes, liability is governed by the Civil Code and no limit applies. Therefore, both employer and employee should have clear internal rules and accident insurance arrangements in place. For tax purposes, private use is treated as non-cash income (usually 1% of the purchase price of the car per month).