(Judgment of the Supreme Court of 22 July 2026, File No. 21 Cdo 3270/2025)
The Supreme Court addressed whether an employee’s lack of direct financial gain from a competing activity and the one-off nature of the conduct reduce the severity of a breach of employment duties enough to preclude valid termination by notice. The court examined the case of an employee who entered into a transaction on behalf of his employer under an evident conflict of interest and subsequently engaged in competing activity directly related to that very transaction.
In the case at hand, a leasing company issued a notice of termination to an employee for a serious breach of employment duties. The employee had arranged a commercial vehicle loan at the leasing company where he worked for a business owned by a close personal contact. e secured management approval for a substantially discounted interest rate while concealing his personal relationship with the client. A few days after signing the contract, he sent the client a loan of 140,000 CZK from his personal account and later another 30,000 CZK for operating expenses. He was also listed on the client’s company website as a team member and forwarded work emails to his private address. Crucially, the claimant began publicly advertising this newly acquired vehicle for rent under his own name, personal phone number, and residential address across several websites and social media platforms, while also renting the vehicle himself for a fee. The appellate court concluded that the conduct in question did not reach the level of severity necessary to justify termination. It based this conclusion primarily on the grounds that the competing activity was a one-time occurrence on the part of the employee, that he derived no personal gain from it, and that the employer suffered no quantifiable financial loss from this conduct.
The Supreme Court rejected this more lenient interpretation by the lower courts. It emphasized that assessing the validity of a termination does not depend on whether the underlying transaction ultimately generated a profit for the employer or caused specific harm. The decisive factor is whether the employee acts loyally and in compliance with Section 301(d) of the Czech Labour Code, which imposes a statutory duty to safeguard the employer’s property and refrain from acting contrary to the employer’s legitimate interests.
The Supreme Court also reaffirmed a key rule for assessing culpability: where an employee’s competing activity directly involves the subject matter of a transaction previously concluded on the employer’s behalf under a conflict of interest, that substantive nexus fundamentally amplifies the severity of the breach. In the appellate court’s view, neither the one-time character of the activity, the lack of personal profit, nor the absence of actual impact on the employer mitigates the gravity of such conduct. In practice, the decision therefore strengthens employers’ position when addressing disloyal conduct and the prioritization of personal ties over the company’s interests.
Legal Update 09/2026 download here.