Czech Republic: What changes will impact your business in connection with COVID-19?

20 March 2020 | newsletters

General overview of the coronavirus pandemic and current safeguards

Over the last couple of days the Czech Republic joined the ranks of countries in which day-to-day life has been markedly disrupted not only by the occurrence of COVID-19 ("coronavirus"), but in particular by the crisis measures adopted by public authorities to prevent further spread of the disease. Among the first measures to be adopted was mandatory two-week quarantine for every person returning from Italy (7 March), followed by restrictions adopted on 10 March on artistic, cultural, sporting, religious and other public events with at least 100 people (the current restrictions have reduced this number to 30 people) and the closure of schools effective 11 March.

Subsequently, the Czech government declared a 30-day state of emergency, during which, according to the Emergency Act, the government has the authority to requisition the assets of Czech companies and individuals permanently residing in the Czech Republic (including foreign nationals) to deal with the emergency situation or to order them to participate in the preparation or implementation of emergency plans (i.e. work conscription). The government may also restrict anyone’s proprietary rights to assets located in the Czech Republic in return for adequate compensation, restrict freedom of residence and movement (the closure of borders and mandatory quarantine for persons returning from high-risk countries, to regulate gatherings as well as business activities that could impact the emergency measures taken to combat the coronavirus (e.g. restrictions on "retail and retail services").

The above-mentioned measures were at times adopted hastily or later exposed to pressure from various lobbyists. Therefore, they are prone to various further specifications, for instance, that the activities of small garages or delivery services are not restricted, which we usually learn about later. The Ministry of Health also has similar powers at its disposal. According to the Act on the Protection of Public Health, it is permitted to declare a state of emergency independently.

The government has ordered all gyms, swimming pools, solariums, saunas, music clubs, libraries, galleries and casinos to close and conscripted all students in certain fields of study to provide care in social services facilities. Initially, restaurants were allowed to operate between the hours of 6:00 a.m. and 8:00 p.m., but they were later ordered to close entirely. All international bus and train transport has been terminated and most stores have been ordered to close, with the exception of grocery stores, pharmacies and some others. Finally, quarantine for all persons in the Czech Republic was declared, with the exception of travel to work, shopping for necessities and visits to medical facilities.

Impacts on customers 

Although many service businesses had to close their establishments completely, unlike in other EU Member States they were not required to report their potentially infected customers to the public authorities.

Even after the state of emergency was issued, with the exception of the medical service providers, nobody is legally obliged in the Czech Republic to determine the health status of others and subsequently report it to the public authorities.

Infected persons may now be liable for committing a criminal act if they knowingly disseminate the virus, because the coronavirus was recently classified as a contagious disease. The same description applies to the similar SARS, although somewhat surprisingly, the not so distant relative MERS is missing from the list of contagious diseases. It is also conceivable that law enforcement authorities may request testimony from businesses or their employees in the course of criminal investigations, for example, as regards the actions of specific infected persons. Intentional concealment or misrepresentation of relevant information by the witness may lead to incarceration of up to 10 years. 

Impacts on contracts with business partners

Certain entrepreneurs have undoubtedly wondered whether the coronavirus pandemic might relieve them of a burdensome contractual obligation or whether, on the contrary, key suppliers might refuse to deliver to them.

These hopes and fears are generally legitimate, though to a limited extent, since Czech law contains the institute of obligations that cannot be fulfilled as a result of force majeure. The Civil Code does not precisely define force majeure, but it is consistently described as unforeseeable circumstances whose consequences (although temporary) could not be avoided. Since the World Health Organization has declared coronavirus a pandemic, it may be considered force majeure in the above sense.

However, the party in question will have to prove that it could not prepare for its impact on its employees even within three months after the media began to regularly report on the disease. Conversely, the counterparty would argue that the timely purchase of protective equipment and the adoption of appropriate measures could have completely prevented the spread of coronavirus in the affected business.

Thus, for example, restaurant owners or gym operators whose businesses have been shut down by the government, despite the fact they did not fail to act and the disease itself did not occur in their premises at all, will be in a better position to argue. However, this obstacle will not arise at a time when the contracting party is already in default. Therefore, the coronavirus cannot be used retroactively to remedy a breach of contract that occurred prior to its impact on a particular entrepreneur.

Due to possible confusion, some forward-thinking entrepreneurs dealt with this issue contractually by clearly defining the situations they considered to be force majeure. Therefore, there should be no doubt now that they can rightfully refuse to fulfil their obligations with reference to the occurrence of a contagious disease. If the contract is silent in this regard, the party concerned is not entirely relieved of its obligations but may not be liable for damages resulting from late performance. However, the contractual termination of the obligation to negotiate can be, and therefore this procedure can now be recommended when contracting with partners from high-risk areas.

Finally, the coronavirus pandemic can also be seen as a material change of circumstances that could result in a gross disadvantage for one party. This party could invoke the right to negotiate a contract change or ask the court, under certain conditions, to change or terminate a contract. However, it must show that it could not reasonably have assumed or influenced such a change in circumstances and that it occurred only after the conclusion of the contract.

In practice, under this provision we can imagine that a certain increase in the purchase price could be demanded, for example by the manufacturer of currently inadequate goods (masks or coronavirus tests)[1] or by a producer of goods that experienced a surge in input prices. Similarly, downward pressure on agreed prices can also be expected where the price of raw materials (e.g. fuel) falls dramatically. Again, these efforts can be countered by contractual exclusion or a significant reduction of this possibility (the "hell or high water" clause).

Impacts on employees 

You have already received detailed information about the effect of coronavirus on employees and employers and this area will continue to be addressed and updated separately.

Sanctions

Penalties of up to CZK 3m may be imposed for non-compliance with the above-mentioned extraordinary epidemiological measures ordered by the Ministry of Health to protect public health. Individuals face fines of up to CZK 2m for breaches of emergency measures announced by the government under the Emergency Act, which is increased to CZK 3m for legal entities.

Due to the inclusion of the new coronavirus as a contagious disease according to the relevant government regulation, its deliberate and even negligent dissemination in the Czech Republic (probably also by Czech citizens abroad) can be considered a criminal offence with a maximum sentence of up to 12 years.

Finally, the declaration of the state of emergency also has other criminal consequences. For example, the commission of some crimes during a state of emergency is considered to be an aggravating circumstance and therefore the perpetrators are subject to stricter penalties. This includes, for example, the offences of spreading a contagious human disease, threatening health with harmful food, theft, embezzlement, fraud or the spread of an alarming message.

The employer may face a fine of up to CZK 200,000 for breaching the above-mentioned obligation when ordering the taking of leave.

Sources of information 

Regularly check the websites of the Czech authorities:

National Institute of Public Health: www.szu.cz
Government of the Czech Republic: www.vlada.cz
Ministry of Health: www.mzcr.cz
Ministry of Foreign Affairs: www.mzv.cz
Ministry of Labour and Social Affairs: www.mpsv.cz
and the World Health Organization: www.who.org

 

This article is part of our coronavirus-focused legal updates – visit our coronavirus infocorner to get more info


[1] Although a certain corrective in this sense is the possible introduction of price regulation for certain goods in case of extraordinary market situations, as allowed by the Act on Prices. Indeed, the Ministry of Finance has already set maximum prices for facemasks for end consumers at CZK 175 (manufactured in the EU) and CZK 350 (manufactured outside the EU) plus VAT.

Stanislav Bednář

Attorney at Law

T: +420 225 996 500
s.bednar@schoenherr.eu

Eva Bajáková

Attorney at Law

T: +420 225 996 500
e.bajakova@schoenherr.eu

country:

czech republic