Staff Leasing Regulations in Hungary

This article outlines the basic ideas and the principal rules in relation to staff leasing in Hungary.

1. Background

Recruitment and staff leasing is essentially regulated in Act XXII of 1992 on the Labour Code ("Labour Code") and Act IV of 1991 on Job Assistance and Unemployment Benefits ("Employment Act"). The specific administrative rules regarding staff leasing and recruitment agencies can be found in the Government Decree 118/2001 (VI.30.) on the operation and registration of private staff leasing and recruitment agencies ("Decree").

It is legally possible for a Hungarian-based recruitment and staff leasing agency to lease employees to a foreign company. During the course of these activities, the agency must take due care to comply with the registration rules as well as keep in mind the employee-protection rules.

Under Hungarian law a staff leasing relationship is concluded between the placement agency ("Lessor Company") and the company who actually use the services of the employee ("Lessee Company").

The Lessor Company is the employer in the strict legal sense since the employee actually has an employment agreement with the Lessor Company. However, in practice the employee works for the Lessee Company, in their premises and under their supervision. Because of this, some of the employer's rights will be exercised by the Lessee Company.

Two crucial points should be kept in mind in relation to the staff leasing relationship. First of all, the employees must receive their salary from the Lessor Company; the duty to pay a salary applies even if the Lessee Company fails to pay to the Lessor Company for the services rendered by the employee. This rule poses some risk to the Lessor Company. It is therefore advisable to stipulate some kind of security in the contract between the Lessor Company and the Lessee Company in order to minimise the risk in the case of non-payment.

Secondly, any kind of disciplinary problem with the employee should be communicated to the Lessor Company who can take proper actions against the employee. This is because of the rule that only the Lessor Company has the right to terminate the employment relationship with the employee; such a dismissal by the Lessee Company will be considered null and void.

2. The process of registration and requirements for the operation of a staff leasing and recruitment agency in Hungary

According to regulations of the Employment Act, only Hungarian limited liability companies can engage in staff leasing or recruitment activities. A company is considered to be "Hungarian" if it has its registered office in Hungary and is registered by a Hungarian Court of Registration. Since limited liability is also a requirement according to the Labour Code, a staff leasing and recruitment agency can only be a limited liability company ("Kft.") or a company limited by shares ("Rt.").

In order to pursue staff leasing and recruitment activities, the company has to be registered by the competent Labour Office. In order to obtain a licence, a staff leasing and recruitment agency must have at least one employee with the necessary qualifications (a university or college degree in human resource management) as well as appropriate offices. If the agency intends to lease or transmit employees to a foreign country an escrow agreement with a bank is also necessary. The escrow will serve as financial security in case an employee makes a claim against the agency. The amount of the escrow is HUF 1,000,000 (approx. EUR 4,000) if the agency intends to engage in staff leasing to foreign firms; HUF 500,000 (approx. EUR 2,000) if the agency intends to engage in recruitment activities for foreign firms. The agency may only start its operation after having been registered by the Labour Office. The registration process will take 30 to 60 days after the filing of the request. After registration, the Labour Office supervises the operation of the agency.

2. Personnel recruitment activities

According to the Decree and the Employment Act, there are some mandatory rules for personnel recruitment activities:

• the agency cannot require any type of fees or reimbursement of costs from the person who seeks employment;
• the agency must inform the employees about all relevant facts regarding their future employment;
• the agency must inform the employee in writing about the relevant employment regulations of the country where he/she will be employed;
• the agency cannot discriminate on the basis of the gender, age, religion, trade union membership, etc. between the persons seeking employment;
• the agency can only recruit for employment which is legally permitted in the country where the employee will work.

The leasing and recruitment agency must observe these rules while pursuing recruitment activities. As mentioned, the Labour Office can launch investigations in order to check whether the operation of the leasing and recruitment agency is in compliance with the legal rules in force. If the Labour Office finds a breach, they can order the agency to change its practice, impose a fine or suspend the licence of the agency.

3. Staff leasing regulations

If a company intends to engage in staff leasing operations of Hungarian citizens abroad, it is important to keep in mind a few rules in the course of such activities.

According to the Hungarian conflict of laws rules (the same as within the European Union) in the absence of the choice of law, Hungarian law must be applied to the employment relationship if the employee is working abroad under a staff leasing arrangement. Even if the agency and the employee stipulate the application of a foreign (i.e. non-Hungarian) jurisdiction, this choice of law cannot deprive the employee from the protective rules of the Labour Code.

In practical terms, this means that the Labour Code is applicable if it has more favourable rules than the chosen law of a foreign jurisdiction regarding the following employee protection provisions:

• maximum working time and minimum rest periods;
• minimum annual paid leave;
• minimum wages;
• conditions for the leasing of workers;
• occupational safety;
• access to employment by pregnant women, women returning from maternity leave, children and young people; and
• the principle of equal treatment for men and women and non-discrimination regulations.