Hungarian profile - employment

General Background

The principal sources of legislation are the Labour Code and Act IV of 1991 on Job Assistance and Unemployment Benefits, which deal with redundancy and labour administration issues. These are supplemented by a number of minor regulations issued by the Government or particular Ministries, like the newly reformed Ministry of Labour and Employment Affairs Laws or regulations dealing with taxation and social security position of employees and other related areas, like the Act XCIII of 1993 on work safety, for example also have impact on employment matters. In addition to the various statutory provisions, a further source of regulation of the employment relationship is derived from collective agreements that may be in force between the employer(s) and any trade unions. The role of collective agreements and the considerations of employee representation will vary depending on the number of employees at a particular enterprise.

Application of the Labour Code

The Labour Code, in principle, applies to all employment where work is carried out I the territory of Hungary. An employee of a foreign employer working in the Republic of Hungary through delegation or temporary transfer or secondment is not regarded as a "Hungarian employee". Employers must be aware that certain basic rules of the Labour Code (minimum time for rest, conditions of safety at work, minimum wage, etc.) apply in relation to foreign employees if they are more favourable to the employee than the foreign law which otherwise applies to the employment relationship. The Labour Code contains detailed provisions relating to a variety of issues including, among others, the statutory rights of employees, the establishment of employment, the dismissal of employees, holidays and sick pay. Unless otherwise stated in an individual employment contract or collective agreement, the provisions of the Labour Code are deemed to apply.

Legal succession

(Transfer of Undertakings)

Under the Labour Code, the transfer and take-over of the employer's separate and organised group of material and nonmaterial resources (e.g. business unit, plant, business, shop, site, workplace working hours) shall constitute a transfer of undertaking from the perspective of the Labour Code. In practical terms, this means that sale, exchange, lease of assets or acquiring a quota of a company may qualify as "legal successorship". In this case the employment contracts from the legal predecessor employer to the legal successor employer at the time of the transfer are deemed to be transferred with the same terms and conditions. The predecessor is obliged to inform the successor about these rights and obligations, however, the employees' rights to enforce claims are not affected if the predecessor does not meet this obligation. In case of a transfer of business, the employees of the former employer must be transferred to the legal successor employer and the employment of the transferred employees will be continuous. If the transferor employer had a collective agreement, this will be applicable to the legal successor employer, in respect of the employees affected by the legal succession for at least one year following the date of transfer. These rules are a consequence that Hungary implemented the Acquired Rights Directive of the European Communities.

Contents of the employment contract

The employment contract must be in writing and must specify, as a minimum formal requirement, the name of the parties, the employee's salary, the structure of the salary (i.e. basic salary and supplemental payments for working shifts, for instance), official tasks, place of work and the applicable work order. In addition to the statutory minimum content of the employment agreement, in practice it is important to incorporate certain additional terms. It is useful to stipulate a variable place of work and to define the employee's job description in as wide manner as possible, as these cannot subsequently be unilaterally amended. Furthermore, the individuals who may instruct and exercise employers rights over the employee should be named. Unless otherwise provided, the employee will be employed for an indefinite period of time. Contracts for a definite period may not exceed five years. Even if, after expiry of an employment contract for a definite term, the parties agree upon a further definite term, the total duration of all the subsequent employment contracts for a definite term cannot exceed five years. The same parties may establish fixed-term employment repeatedly or extend the fixed-term employment if it is justified by the employer's rightful interest and it is not aimed at the impairment of the employee's rightful interest. This rule requires that employers should have a valid economic justification for extending a fixed term contract for an other fixed period of time.

Trial period

Employment contracts may stipulate a trial period, the length of which is thirty days unless otherwise specified, subject to a statutory maximum of three months The trial period cannot be extended. During the trial period either party can terminate the employment with immediate effect without any obligation to provide reasons.

Working hours

Unless expressly agreed otherwise, working hours are eight hours a day, that is forty hours a week. It is possible to determine the working hours on a weekly or monthly, possibly even on a bi-monthly basis (timeframe). Notwithstanding this flexible time-frame, in any event, the working time may not exceed twelve hours in one day, and the weekly working hours cannot exceed forty-eight hours together with overtime.

Holidays

The basic paid holiday is twenty working days in a calendar year and this minimum may not be validly reduced. This must be increased in line with the employee's age and extra days are awarded on the basis of certain other factors, like maternity.

Termination of employment

Automatic termination

The employment contract is automatically terminated upon the employee's death, the expiry of an employment contract for a definite term, and certain special events, which may be stipulated in the employment contract.

Termination of employment contract for definite period

An employment contract for a definite period can only be terminated by mutual consent or by extraordinary notice; no ordinary notice may be given. There is a qualification to this rule: the employer may terminate an employment contract for a definite term subject to an obligation to pay to the employee his/her average earnings for a one year period, or if the outstanding term of the employment contract is less, then for such outstanding period.

Ordinary notice

Both the employee and the employer can terminate in writing an employment contract for an indefinite period by ordinary notice.

Letter of termination

The employer must justify the dismissal by giving a valid cause, unless the employee has reached retirement age, , or will receive a special pension. The justification must indicate the cause for the dismissal, which must relate to the employee's abilities or his/her behaviour relating to the employment or the employer's operation, and must include a notice regarding remedies, and their time limits, which are available to the employee.

Notice period

The period of ordinary notice must be at least thirty days, subject to longer periods stipulated in the contract, but it cannot exceed one year. The thirty day notice period is prolonged depending on the total length of employment of the employee in question. If an employee is dismissed with ordinary notice, the employee must be exempted from performing work for half of the notice period.

Extraordinary notice

The employer or the employee can terminate the employment with immediate effect if the other party wilfully or negligently violates his/her significant employment obligations or otherwise demonstrates behaviour, which makes the continuation of the employment impossible. The right to terminate on extraordinary notice must be exercised within fifteen days of the day on which the individual entitled to exercise the employer's rights over the employee becomes aware of the cause for the termination, but this cannot be later than one year of the actual occurrence of such cause. If the employment rights over the employee are exercised by a body such as the Board of Directors, then the fifteen day deadline starts running on the date on which such body is expressly informed of the reason for the termination.

Mass redundancy

The dismissal of a certain number of employees due to a reason related to the employer's operation is subject to special rules. In the case of a Mass redundancy, the Labour Code prescribes various obligations for the employer to have consultations with the employees' representatives and to inform the employees and the labour office about the circumstances of the mass redundancy.

Senior executives

Under Hungarian law there are two types of employees: ordinary employees and senior executives. By law, the head of the employer and his deputy are statutory senior executives. The employer may determine that other employees in important positions are to be treated as senior executives in certain circumstances. The provisions to be applied for the senior executives are less protective than the average provisions. In addition, the Labour Code imposes strict, special non competition and conflict of interest rules on the senior executives. The employer must inform its employees of their categorization as designated senior executives at the time the employment contract is concluded, as subsequent changes are subject to the agreement of the employee.

Foreign employees

The foreign employers' employees working in Hungary through delegation temporary transfer or secondment are not regarded as employees falling under the Labour Code. However, some provisions of the Labour Code setting out minimum rights may apply also to these foreign employees. Foreigners are considered as resident for tax purposes if their "place of abode" or "usual place of residence" is in Hungary. If this is the case, Hungarian tax is applicable on their world-wide income. If a foreign employee is employed by a Hungarian company, neither the employer nor the employee is required to make contributions to Hungarian social security, provided that provision has been made for the health insurance of the individual. The employee will require both a residence visa and a work permit unless he/she is a managing director of a company with several employees, in which case he/she will only require a residence visa. If the foreign employee works without such work permit and visa, a fine may be imposed to his/her domestic employer and the employee may be expelled from Hungary. After Hungary's accession to the European Communities, the situation will be changed to a considerable extent: a special regime will be placed where citizens from EU countries that opened up their labour market to Hungary will be free to work without obtaining a work permit.

For further information please contact Gabriella Ormai.

Employment in relation with the EU

Harmonization of labour law