Supreme Court: Variable pay and work discipline

In its judgment of 30 April 2025 (file no. 21 Cdo 3471/2024), the Supreme Court of the Czech Republic (“Supreme Court”) dealt with the case of whether an employer may make the granting of a variable component of wages conditional on the fulfilment of work obligations.

The case involved a driver whose employer had repeatedly cut his variable pay due to violations of work duties, safety regulations and the driver’s manual. The employee therefore went to court and sought the payment of the variable wage component. The employer pointed out that the variable component of the salary was non-entitlement in nature, and that its non-payment was a consequence of failure to meet pre-determined objective conditions for entitlement.

In its decision, the Supreme Court took into account the prohibition in the Labor Code on imposing financial penalties in the form of retroactive reductions of salaries already earned. However, the court accepted that the requirement of compliance with work obligations could be included in the set of conditions for entitlement to variable pay. In such a case, it is not a sanction, but a denial of entitlement if the employee does not meet all the criteria. In the specific case, the Supreme Court further emphasized that the variable wage component may be reduced only for those months, in which the employee actually committed misconduct.

What are the implications of the decision for practice?

• Employers may include a requirement to comply with work obligations in the remuneration system without this being considered an impermissible sanction.
• However much disciplinary or safety standards may be taken into account among the conditions of entitlement, it is impossible to retrospectively reduce an already accrued right to wages. Once the employee has fulfilled all the conditions set out, he or she is entitled to a benefit which cannot be changed later.
• All conditions for entitlement to the variable component must be clearly, objectively and measurably stated.
• Performance evaluations must be conducted within the timeframe, for which wages are paid (typically monthly). The results of one period must not adversely affect the entitlement in another period.

When drawing up collective agreements, wage supplements or bonus programmes, all evaluation criteria, including disciplinary criteria, must be consistently defined and transparently communicated to employees. A clear separation of the accrual of entitlement from potential sanctions minimises the risk of invalid pay deduction arrangements and significantly reduces the scope for disputes over unjustified pay cuts.