SUMMARY ON LABOUR LAW CHANGES IN HUNGARY AS OF 1ST JULY 2012
The new Hungarian Labour Code, adopted as Act I of 2012 is to enter into force on July 1, 2012. It intends to be a completely new code with a number of new institutions and concepts; in fact, however, it has retained the text of the actual Labour Code in many respects. In what follows, we try to give an overview of the text while highlighting the most important differences from the Labour Code actually in effect.
Trial period
As before, the trial period has to be defined in the employment contract and the upper limit is three months, or six months if a collective agreement so provides. The parties may prolong the trial period within this limit, even though no such prolongation is possible under the current rules.
Accepting part-time work request of the parents until age 3 of the child
A substantial change concerns parents (mothers) returning to work. In these cases, when the parent returns to work after maternity leave, until the 3rd birthday of the child, the employer must accept to employ her (him) part-time (instead of the normal full-time arrangement), if she (he) so requests.
Termination of the employment relationship
The rules on the termination of the employment relationship were also modified. The first change is a terminological one: the former “ordinary termination” is now called “termination”, the former “extraordinary termination” is called “termination with immediate effect”. The three main grounds for (“ordinary”) termination remain the same: the behaviour of the employee, his/her abilities and organisation issues of the employer. (Naturally, mutual consent also remains an option.) Moreover, the parties may agree that the employment contract cannot be terminated (by “ordinary” termination) for one year after its signature.
Protected employees
The new Code provides for more clarity with respect to the termination of some protected employees. Under the current rules, the employment relationship of persons within 5 years of the retirement age can only be terminated in “substantially motivated cases”. Under the new rules, the same age group may be terminated on the grounds of the behaviour of the employee, but only in the case of substantial breach of the employee’s obligations. Additionally, the employment relationship may also be terminated for organisational reasons, but only if there is no suitable job for the employee within the employer’s organisation, or if the employee has been offered a suitable new job, but has declined the offer. Similar rules are in place concerning parents (mothers) returning to work, and disabled employees.
Termination of fixed term contracts
The employer may terminate the employment relationship on the grounds of the abilities of the employee (and also in case of liquidation procedures and the “impossibility” to maintain the employment relationship), without the obligation to pay the employee the equivalent of his salary due until the end of the fixed term (maximum 12 months in any case), as opposed to the current rules which make such payments obligatory. What is more, the employer has the right to “termination with immediate effect”, without any obligation to justify the dismissal. In this case, however, the salary of the employee remains payable until the end of the fixed term, but for a maximum of 12 months. The employee may also terminate a fixed-term employment relationship, but only in exceptional circumstances, when maintaining the employment relationship would be impossible.
Notice period and severance payment
The rules on notice periods and severance payment remain identical as to the present length of notice period and amounts of severance payment. However, there is a significant modification: no severance payment is due when the employee is terminated due to his behaviour to the employment relationship or his abilities (excluding health related grounds).
Strengthening the employer’s position in the event of unlawful termination
The reinstatement of the employee is no longer the general remedy to the unlawful termination, it has been replaced by an indemnity payable to the employee. In any event, the compensation for unpaid salary as a result of unlawful termination cannot exceed the value of 12 months’ salary of the employee. Under the current rules, the courts remedy the unlawful termination by reinstating the employee, and thus make the (former) employee entitled to payments from the unlawful termination onwards until the final judgement – which period may be longer than 12 months. Under the new Labour Code, the reinstatement remains an option only in specific serious cases (e.g. discriminatory behaviour of the employer). This provision considerably limits the amounts due in the event of an unlawful termination.
Furthermore, the new Labour Code provides that an employee, who has terminated his own employment contract unlawfully, will have to pay back the salary he received during his notice period. Not handing over the job properly is also considered as unlawful termination.
Working time and rest time
The new Labour Code entirely rewrites the chapter on working time and rest time. The reference period arrangement is maintained, and there are specific provisions on how to proceed if the employment is terminated before a reference period has expired. There is a new notion called “working time accounting period”, which allows employers and employees some flexibility in arranging working time, even if they do not use the somewhat complicated reference period arrangement. It means that the daily / weekly working hours can be performed in a period longer than the actual calendar week.
There is a new section on work performed on Sundays and on national holidays. The rules are quite similar to the ones before, i.e. work on these days is limited to specific circumstances or specific persons, but these (under the new rules) include persons in jobs which provide services to clients abroad and persons working abroad (practically posted workers).
The yearly limit of overtime has been raised to 250 hrs per year, or 300 hrs/year if a collective agreement so provides (it is currently 200 hrs/year, or 300 hrs/year if a collective agreement so provides). It is a new provision that this limit has to be made proportionate for part-time workers or for persons who have started to work during the year.
Annual holidays
Despite the published text of the previous drafts, the annual paid leave of the employee has not been shortened in the new text. The rules on allocating the actual holidays, however, have become more flexible. The employer is only obliged to allocate a maximum of 7 days of holidays according to the wishes to the employee. Moreover, if the parties so agree, the holidays due for a given year may be taken until the end of the next calendar year. Under the current Labour Code, this is only possible in cases of overriding economic interest of the employer, or as a result of a circumstance directly affecting his operations, and in any case the holidays need to be taken until 31 March of the next calendar year (or 30 June if a collective agreement so provides).
Salaries
The new text somewhat simplifies the rules on calculating performance-based salaries and provides that a salary can only be fully performance-based if the parties specifically stipulate this in the employment contract. In such cases, a guaranteed minimum equivalent to at least the half of the minimum wage must be paid to the employee.
The most significant change here concerns the salary supplements, especially those related to shift work, as it was apparent from the previous drafts. There is no more “afternoon shift” and “night shift”, but the Labour Code contains the unified notion of “shift work”, but only for employers who operate at least 80 hours per week. Employees of such companies who work in shifts are entitled to a 30 % supplement for all work performed between 18.00 and 06.00, if the time when they begin to work changes regularly. There is also a supplement for night work of 15 %, but only for employees who do not receive supplements for shift work. To simplify the calculation, the Labour Code contains the possibility for the parties to define a lump sum (or forfeit rate) equivalent to the various supplements.
The government will have the option to define several rates of the minimum wage (for example, for certain profession or for certain regions), as opposed to the single national minimum wage effective today.
Liability for damages
The new Labour Code has reformed the rules on liability. The grounds for exonerating the employer from his liability have been slightly expanded.
The employee is only liable if he has caused damage by breaching his obligations arising from the employment relationship, while not behaving in a manner that is to be expected in the given situation. His liability for damages is limited to 4 months of his “absence fee” (i.e. average salary), or to 8 months’ “absence fee” if a collective agreement so provides. This is a significant increase compared to the current rules, which provide that the liability of the employee is limited to 1.5 times his monthly average salary, unless a collective agreement defines a larger sum, which cannot exceed 6 months’ salary. In the event of gross negligence or wilful conduct, his liability covers the entire amount of the damage.
The new Code further redefines the specific cases of employee liability. A completely new institution is the “guarantee” to be provided by the employee. It means that the employer and employee may agree in a separate contract that the employee provides a “guarantee” equivalent to one months’ base salary as security for any employee liability. This is only an option if the employee (as part of his job description) receives sums of money or valuables, or if he supervises such activities. This guarantee may only be used to indemnify the employer if the liability of the employee is established.
Atypical forms of employment
Another new feature of the Labour Code that it expressly defines some atypical forms of employment. Although even the existing Code regulates fixed term-contracts, temporary agency work and teleworking, this list has been extended in the new Code. It provides express rules on part-time workers working according to the needs of the employer (in unevenly arranged working hours on the basis of a reference period), job-share arrangements, employment contract with more than one employer, outworkers (who work from home on a performance-based salary), simplified employment or seasonal work, employment relationship with a public body, and incapacitated (usually mentally handicapped) employees. The rules on executives /managers have been somewhat simplified.
Non-competition clause
The new Code has maintained the core of rules on the non-competition clause, with the difference that it provides a benchmark for the suitable consideration to be paid in exchange of the employee not taking up an employment that may compete with the employee’s activities. The benchmark is at least 1/3 of the base salary for the period concerned. Currently, the usual consideration (not defined by law) is 50 % of the base salary. The duration of the non-competition obligation has been limited to two years, instead of the current three. In the event of termination with immediate effect by the employee (i.e. due to serious breach of the obligations of the employer), the employee may withdraw from such non-competition clause. Under the current rules, this is only possible if the parties specifically agree on the possibility of withdrawal.
Industrial relations, trade unions, collective agreements
These issues were the most hotly contested questions of the new Labour Code. An important change in this respect concerns the “company agreement”, a kind of agreement that is concluded between the works council and the employer, usually regulating the cooperation between the two. Under the new rules, this agreement may regulate issues normally falling under the scope of a collective agreement, if there is no trade union that is active within the company or if there is no collective agreement within the company.
Dispute resolution, remedies
The new rules expressly provide that for claims of the employer that no not exceed three times the minimum wage, the employer may issue a request for payment, instead of initiating a lawsuit. The rules expressly provide that workers posted to Hungary can also commence proceedings before the Hungarian courts.
Moral rights of the employees
The moral rights, including the freedom of expression of the employees may be restricted if the restriction is absolutely necessary due to reasons directly related to the nature of the employment relationship.
It is a simplification of the data protection rules that the personal data of the employee may be transferred for processing to a third party even without the express consent of the employee, if the transfer is necessary for the fulfilment of the obligations of the employer in relation to the employment relationship (e.g. salary and tax calculations, accounting).
Furthermore, the new Labour Code provides that the employee may only be monitored during the performance of his duties (i.e. not in his free time). If he is to be monitored by a technical device, he needs to be informed of such a fact.
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The above information is for general purposes and guidance only and does not purport to give professional or legal advice. Should you have any further question in relation to the above, please do not hesitate to contact us.
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