Friday, December 21, 2012

Hungary - The New Labor Code

By Orsolya Görgényi and László Pók[1]
    (1)    Introduction
Hungarian employment law has gone through significant changes this year since a new Labor Code[2] entered into force on July 1, 2012.
The main purpose of the introduction of the Labor Code was to create a labor law system, which is in line with new market conditions and has a greater acknowledgement of the needs of the service industry and SMEs.
(2)    More flexibility for the parties
The new Labor Code offers more flexibility to the parties in negotiating the terms of the employment relationship.  The general rule concerning employment agreements remained the same - that deviation from the Labor Code is only allowed in favor of the employees.[3]  However, the Labor Code provides more possibilities compared to the Old Labor Code[4] for the parties to deviate from the provisions of the Labor Code, even to the detriment of employees.  On the top of this, in collective agreements, the parties are free to agree on the conditions (even if such conditions are not favorable for the employees) except if there is a provision to the contrary.  It is important to note that, in each chapter, there is a list of paragraphs where deviation from the main rules is prohibited or, in the case of collective agreements, where the deviation is allowed only in favor of the employees.  In the case of executives[5], parties are free to deviate from the Labor Code.
(3)    Promotion of atypical forms of employment
There is no general definition of atypical forms of employment in the Labor Code.  However, we can speak about atypical employment if some characteristics of the typical forms of employment are missing.  The basic characteristics of typical forms of employment are an indefinite term, the full-time working order and that the place of employment is the office of the employer.  
The spread of atypical forms of employment (e.g. part-time employment, fixed-term employment etc.) is quite low in Hungary.  The Labor Code introduced more flexible rules with respect to atypical terms of employment to create a legal environment where the parties can find forms of employment that can better suit to their needs.
One of the leading examples is related to the termination of employment relationships governed by fixed-term employment contracts.  The Old Labor Code did not provide the possibility of (ordinary) notice for fixed-term employment contracts.  However, according to the Labor Code, fixed-term contracts can also be terminated by (ordinary) notice if one of the following reasons exists:  (i)  the employer is under liquidation or bankruptcy proceedings;  (ii)  in case of the incapacity of the employee;  or (iii)  if the employment relationship cannot be maintained due to reasons out of the parties' control.[6]  
Employees may also terminate fixed-term employment contracts by (ordinary) notice if the maintenance of the employment becomes impossible or disproportionally difficult with respect to the employee’s circumstances.[7]
Another example of promoting the atypical forms of employment is that the Labor Code now obliges employers to amend employment agreements to a 4-hour per day part time agreement upon the request of employees until the third birthday of the employee’s child.[8]  This provision is also intended to help employees to come back to work after maternity leave.
In addition to the above, new forms of atypical employment were introduced, like employment on call[9], job sharing[10] etc.
(4)    Consequences of unlawful termination
One of the big achievements of the Labor Code is that it makes the costs of a potential unlawful termination more calculable, therefore it highly reduces the risks for employers in the case of the termination of employment relationships. 
One of the new rules is that the employment terminates with the original notice and not with the final and binding judgment.  In addition to this, compensation to be paid by the employer to the employee for the arrears of salary will be limited to an amount equal to a 12 months' absence fee.[11]
(5)    Conclusion
A more business-friendly employment law environment was introduced in Hungary this year.  The new legislation may help companies to be more competitive and, consequently, to create jobs in Hungary.   

[1] Partner and associate respectively at Szecskay Attorneys at Law, Budapest, Hungary (
[2] See Act I of 2012. Hereinafter referred to as the "Labor Code".
[3] See section 43 of the Labor Code.
[4] See Act XXII of 1992. Hereinafter referred to as the "Old Labor Code". 
[5] Executive employees are the head of the employer and his/her deputies. In addition to these executives, by law the employment agreement may classify other employees as executives if they are in key positions and their basic salary exceeds the mandatory basic salary sevenfold. (Please see Section 208 of the Labor Code.)
[6] Section 66 (8) of the Labor Code.
[7] See section 67 (2) of the Labor Code.
[8] See section 61 (3) of the Labor Code.
[9] See section 193 of the Labor Code.
[10] See section 194 of the Labor Code.
[11] See section 82 (2) of the Labor Code.