Hungarian law differentiates between general employees and executives. The biggest difference between the two is that many provisions of the Hungarian Labour Code which protect "ordinary" employees and restrict the kinds of agreements which can be made with them do not apply to executives. This means that the law is less protective and more flexible towards executives.
Executives can be subdivided in two different categories. The first consists of those who are actually on the top of the organization, i.e. the managing director and those direct subordinates entitled to substitute for said director should the director be absent. When substituting, the subordinate need not be authorized to exercise all rights of the managing director; it is sufficient if the subordinate is authorized to a limited degree, such as, for example, HR or procurement matters. If the company has several managing directors ("ügyvezető") or is led by a board of directors ("igazgatóság"), each of the directors and each of their direct authorised subordinates will automatically qualify as executives without the need to be defined as such in a shareholders' resolution or in their employment contracts.
While it is usually easy to identify the very top management level, there can be some uncertainty as to who should be regarded as an authorized subordinate for the top management if no clear organizational chart or detailed job descriptions exist. The substance over form rule applies here: It does not matter whether the position is called, for example, "Vice Director"; only the actual scope of work and the rights and obligations of an employee will determine whether he or she is an authorized subordinate.
The second category of executives consists of employees who are expressly declared to be executives. Only employees who work in either a position which is of special importance for the operations of the employer, or in a position which involves working with highly confidential information may be declared as executives. In addition to the special nature of the position, the employee's agreed gross monthly salary must be at least seven times the statutory minimum wage (in 2015: HUF 735,000). Although there is still very little judicial insight on who can be classified as an executive, so broad a definition leaves open the possibility that even the managing director’s secretary may be so classified if she checks the director's emails, has access to confidential information and has a salary which exceeds the above threshold.
Interestingly, although the law recognizes two different categories of executives, there are no differences in the rules that apply to them; both receive the same treatment. The law does, however, draw a distinction between employment contracts for general employees and executives, where contracts for the former may not deviate from the statutory rules if it is less favourable for the employee than the law provides. In contrast, employment contracts for executives may contain provisions that are less favourable to the employee than the law would normally allow (with a few exceptions). An example is that while executives are authorised to set their own work schedule, they are not entitled to any additional payments for overtime. This increases the performance character of the employment of executives. As long as the executive completes all tasks and the affairs within the executive’s scope of authority are taken care of satisfactorily, the executive may not be held accountable for coming to work only at 10 A.M. It goes without saying that this most probably means the executive will occasionally stay at work after normal working hours without additional financial compensation.
Another important difference between general employees and executives is that an employer does not need to indicate any reasons should it decide to terminate an executive’s employment (for general employees, a reason must be provided) and an executive will have unlimited liability for any loss or damage that he or she may cause negligently to the employer (the liability of an general employee is limited to one and a half months salary).
Being an executive is, on the one hand, a privilege that usually entails a higher salary, but, on the other, it has downsides and additional risks. Given that the success of a company largely depends on its executive(s) and that it is often difficult to find a good leader for a company, the differentiation between executives and general employees is certainly justified. Executives are usually able to make use of the flexibility provided by the law: Their contracts are usually individually tailored with details negotiated. During the negotiation process, it is not uncommon for executive candidates to make use of professional legal support. In contrast, the standard practice for general employees is that employment contracts are based on templates not subject to detailed negotiation.