The new Labour Code
Act No. LXXXVI of 2012 (the Mht), the main purpose of which is to bring into force the new Labour Code (Act No. I of 2012) (the new LC) was published in the Hungarian Gazette (volume 80) on 28 June 2012.
The Mht. also amends other legislation, including the Acts on Labour Inspection, Labour Safety, and Order of Taxation, and those amendments mostly took effect from 1 July 2012.
The Mht. also substantially amends the text of the new LC, published in January 2012, and sets out transitional provisions for the new LC. The major changes resulting from the Mht. are highlighted below.
Entry into force
General rules: Although there are some exceptions, both the new LC and the Mht. come into force on 1 July 2012.
The provisions of the new LC automatically apply to all legal relationships in existence when it comes into force, including employment contracts and collective agreements. Conversely, the new LC affects neither non-compete agreements nor study contracts which concluded before it came into force. In relation to those, it is the provisions which were in force at the time that agreement or contract was entered into which will apply. However, the Mht. provides that for studies which were commenced before July 1 2012 the rules of the old Labour Code (old LC) regarding days of absence apply. This remains the situation for the duration of the studies provided they are concluded within the prescribed time frame.
- Unilateral acts
The legislation in force at the time of the act, for example the giving of notice of termination, applies.
- Internal rules and policies
Even if they are published before 1 July 2012, the provisions of the new LC apply.
Old Labour Code provisions still in force
Some provisions of the new LC do not come into force yet, including those in relation to the following.
- Holidays, sick leave and maternity leave
The old LC applies this year. The new regulations apply from next year.
- Unpaid leave
The Mht. states that, in respect of unpaid leave approved before the new LC came into force, the relevant provisions of the old LC apply.
- Payment for untaken leave
Holidays accrued during the first six months of maternity leave can be paid in lieu until 31 December 2012. From 1 January 2013, any such untaken holiday can only be paid in lieu on termination of employment.
- Overtime and reference period
As a compromise between the new LC (which permits 250 hours of overtime) and the old LC (200 hours of overtime permitted), the maximum overtime allowed during the transitional period this year is 225 hours. The old LC also applies to any reference period or working time schedule published, or commenced, before June 30, 2012.
- Collective redundancy
The provisions of the new LC relating to collective redundancy apply if the Works Council was notified of potential redundancies after 30 June 2012. Consequently, where the Works Council was notified prior to 30 June 2012, the provisions of the old LC apply.
- Changes to employment terms
The rules in the new LC governing any change to employment terms and conditions, for example as regards job description, place of work or employer come into force on 1 January 2013. The provisions of the old Labour Code apply to any such changes which occur during 2012.
Changes arising from the new LC
- Contracts of employment
As noted above, once the new LC is in force, its provisions will automatically apply to existing employment relationships. As such, a review of all existing contracts is recommended, as some clauses may become invalid.
If the contract contains the expression "variable place of work," without an exact indication of the employee's place of work, the Mht. declares that the place where the employee regularly works will be the place of work for contractual purposes.
Problems may also arise if the employment contract defines working time as 40 hours per week. In light of the provisions of the new LC, it is advisable to define "working time" as 8 hours per day.
Clauses relating to probationary, or trial, periods should also be reviewed. According to the new LC, the maximum probationary period is 3 months. However, if the parties agree to a shorter period, a probationary period can be extended to the maximum 3-month period.
Under the old LC, employees were responsible for any damage caused to their employer, for example by their negligent behavior, up to a maximum of half a month's earnings. This amount could be increased to one and a half months' earnings if there was express provision in the employment contract. The new LC sets the maximum level of compensation in these circumstances to 4 months' salary, and so it is advisable to amend, or delete clauses which limit damages to one and a half-months' pay. Of course, employee agreement may be required to effect any such change.
The new legal concepts of "employee guarantee" and "disciplinary liability" should be included in new employment contracts. The aim of the "employee guarantee" is to give the employer some security in case the employee causes damage. The guarantee can be imposed on two types of employees: those who are entitled to receive, either from colleagues or third parties, any kind of money or valuables; and those who directly supervise the receipt of money or valuables. The maximum amount claimed by the employer must not exceed one month's pay.
Prior to the new LC, disciplinary action could only be taken if it was appropriate under the terms of a collective agreement. Now, it is advisable to include a disciplinary procedure in the employment contract. In the absence of a relevant collective agreement, the employment contract can stipulate what disciplinary sanctions will apply. The transitional provisions mean that the provisions in force at the time of the employee's action apply.
- Notifications (information sheets)
The employer must hand over to the employee a notification within 15 days (instead of the previous 30 days) from the date of the commencement of the employment relationship, rather than from the date the contract is signed, as was previously the case.
The Mht. also makes it compulsory to include information on the employee's line manager in the notification.
The new LC remains silent on the question of whether employers need to issue a new notification in order to comply with these changes and, if so, when. It is therefore advisable to amend existing notifications so that they comply with the new LC.
- Executive employment contracts
There is a significant change, in that the new LC automatically makes the executive's employment contracts (based on the provisions of paragraph 188/A of the old LC) invalid.
Also, the distinction between executives under paragraphs 188 and those under 188/A of old LC disappears, so employees of 188/A no longer enjoy protection from dismissal.
Significantly, whereas previously employers could unilaterally decide whether the employee was an employee or an executive under 188/A, it is now necessary for the parties to agree. Other conditions must also be satisfied: the position must be a crucial one for the employer, it must necessitate a high level of trust, and the salary must be at least seven times greater than the national minimum wage.
As a result of the changes, "188/A employees" automatically become "regular" employees and a new executive employment contract exists if the conditions of the new LC, referred to above, are met.
The Mht also amended other legislation, including Act IV of 2006 on Companies (the AC). Consequently, the provision of the AC which provided that an employer's obligations towards its employees were exercised by the executive officer of the company, unless otherwise stated by the Articles of Association, is now void. Therefore, it is essential to ensure that the Articles of Association, or any other relevant document is consistent with reality.
- Internal rules & "unilateral commitments"
The provisions of the new LC apply to internal rules and procedures published prior to 1 July 2012 and regulate how internal rules are communicated and their legal effect. Any obligations to which the employer is committed, such as a bonus arrangement, can be enforced regardless of whether the employee has accepted them.
In light of this change, employers are advised to:
- revisit the terms of any bonus scheme to ensure that eligibility criteria are clearly set out;
- ensure that any entitlement is stated to be valid for a fixed term only; and
- retain the right to change the terms of any entitlement as and when it is appropriate to do so.
The new LC - clarification
Paragraph 85 of the Mht clarifies the new LC, primarily by making minor technical and grammatical changes. But there are also some more substantial amendments regarding the following.
- Sunday work
In contrast with the provisions of the new LC, employees working for employers engaged in commercial activities can work regular hours on a Sunday, thus solving the problem of opening hours and regular working hours on Sundays. A fifty percent wage supplement is to be paid for regular work on Sundays.
- Wage supplements
The Mht has clarified that employees are entitled to a 30% shift premium if there are regular changes to the time at which they commence work, and their working hours are between 6pm and 6am. The change is to be considered "regular" if it affects at least one third of the working days per month, and there is at least four hours difference between the earliest and the latest starting time.
- Flexible working time arrangement
The Mht clarifies the definition of "flexible working time." Working time is considered flexible if the employer allows the employee to decide when he works in respect of at least half of an employee's hours of work. Such an agreement must be in writing and it is essential that the nature of the position justifies the need for flexibility.
- Additional holidays
According to the modified text of the new LC, a collective agreement may provide for additional holiday to be given to older workers, provided only that holidays may not be decreased in the future to compensate.