Important decision of the Supreme Court: compliance with work discipline can be a condition for granting a variable wage component

The Supreme Court of the Czech Republic, in its recent decision (Case No. 21 Cdo 3471/2024), confirmed the possibility for employers to condition the award of a non-monetary variable wage component on the employee's compliance with work discipline.

This decision provides an important clarification of a long-discussed question: can an employer take into account compliance with work obligations in the context of the non-premium incentive component of wages? The answer is now clear - yes, he can!

In what way is the decision groundbreaking?

Until now, it was not entirely clear whether the two areas (performance indicators and compliance) could be linked. It has sometimes been argued that this is ‘mixing apples and pears’. However, the Supreme Court has now confirmed that the determination of the conditions for the incentive component of pay may include not only performance criteria but also compliance with the employee's obligations.

The Court emphasized that a reduction in a variable wage component for breach of duty is not a monetary sanction prohibited by the Labor Code (§ 346b) if it forms part of the predetermined conditions for entitlement to that wage component.

What must be observed?

To set up such a system correctly, it is important to:

• Have a sophisticated appraisal system 

• Violations must be directly job-related 

• The impact of the violation on the reduction of the variable component must be reasonable 

• The rules must be clearly stated (e.g. in a collective agreement)

What does this mean for the employer?

This decision gives employers an effective tool to motivate employees not only to achieve results but also to comply with all work procedures and safety regulations. 

To quote directly from the decision, "Employers have an interest in ensuring that employees, in the performance of their work, comply with the legal and other regulations applicable to the work they perform... and that they do not achieve the desired quantity and quality of work at the expense of those regulations (by violating them)." 

If you are thinking of introducing or modifying a variable pay system, we will be happy to help you set the terms and conditions so that the system is legally compliant and workable - as noted above, the decision continues to impose a number of requirements and restrictions. Contact our labour law team.