Introduction

Economic grounds for dismissal

Legal disputes surrounding reorganisations

Selection of employees for redundancy

Difficulties of anti-discrimination claims

Age discrimination in light of recent decisions

Comment

Introduction

In Hungary, employers have significant freedom to define their operational framework and establish their organisational structure. This freedom includes the right to change their organisational structure and reorganise their workforce, which includes dismissing employees.

This update examines the limitations that employers face – both generally and in the context of anti-discrimination rules – when reorganising their workforce and dismissing employees. A recent case heard by several courts shows how difficult it is to define these limits.

Economic grounds for dismissal

As in many other countries, Hungarian law generally requires employers to justify the unilateral termination of an employment relationship. The justification must clearly state why the employment relationship was terminated and the employer must be able to prove the validity and authenticity of the grounds for dismissal in the event of a legal dispute.

Hungarian employment law accepts 'economic grounds' (the Hungarian terminology for which is "reasons related to the employer's operations") as valid grounds for dismissal. Employers enjoy significant freedom to terminate one or more employment relationships on the basis of economic grounds (eg, by way of a reorganisation or lay-offs). Specifically, employers may freely decide on a reorganisation whenever they deem it necessary and do not have to offer other vacant jobs (with certain exceptions) to the employees being made redundant. If the reorganisation affects several employees, the employer may freely select who to make redundant.

Legal disputes surrounding reorganisations

In the event of a dispute following a dismissal due to workforce reorganisation, the courts may examine only the validity of the reason for dismissal (ie, whether the reorganisation took place) and cannot examine its reasonableness or economic substance. Consequently, if an employee challenges the dismissal in court, the employer must prove only that:

  • the reorganisation occurred; and
  • the employee's position was terminated and his or her tasks were allocated to other persons.

If the employer successfully proves these facts, the court generally has no authority to examine further whether the reorganisation was useful, reasonable or economically viable.

Selection of employees for redundancy

Employers enjoy significant freedom in regard to selecting employees for redundancy. For example, if an employer decided to reduce the headcount of its 20-employee sales department by 25%, it would be free to select which five employees to make redundant.

Unless specific circumstances (eg, discrimination) are raised by an employee in court, the court cannot examine why one person was made redundant instead of another in the same position.

In practice, employers tend to make lower performing employees redundant. However, they are generally not required to set out objective guidelines, performance standards or other criteria which formed the basis of the selection.

This does not mean that employers cannot take into account other considerations (eg, employees' social backgrounds) or establish social plans detailing selection criteria, but rather that they are not legally required to do so.

Difficulties of anti-discrimination claims

Anti-discrimination rules establish an important limit regarding employers' freedom to select employees for dismissal. When making their selection, employers may not act discriminatively. If an employee challenges his or her dismissal as being discriminative, a court could conclude that even though the reason for the dismissal was valid and lawful, the dismissal itself was unlawful.

If an employee challenges a dismissal as being discriminative, the employee must prove that he or she:

  • falls under a protected class (eg, with regard to age, gender, family status or sexual orientation); and
  • suffered discrimination compared with other employees due to this class.

In such case, the employer must prove that it did not act discriminatively. This can put employers in an uncomfortable position in court, as they may need to prove the non-existence of certain circumstances. This is usually difficult and may require employers to reveal their selection criteria (if any).

Court practice seems to accept employers' freedom to select employees for dismissal and awards discrimination claims only in obvious cases. However, in practice, countering a discrimination claim can be difficult and the courts can have difficulty judging them.

Age discrimination in light of recent decisions

A recent case heard by several courts is a good example of the difficulty associated with discrimination claims.

In the disputed case, the employer undertook a reorganisation by which it dissolved a specific department. Some employees (including the department head and deputy head) were made redundant, while the remaining employees were allocated to other departments.

The department head claimed that the reorganisation was not a valid ground for his dismissal, and that it masked his employer's age discrimination, as he was the oldest employee in the dissolved department and had served for the longest time. The other employee affected was also an older staff member and had a considerable service record.

The first-instance court rejected the claim, stating that the reorganisation had taken place and that the claimant could not prove the probability that the reason for the dismissal was his age, rather than the reorganisation.

The second-instance court came to a different conclusion and confirmed that although the reason for the dismissal was valid, the dismissal was unlawful as the employer could not certify that it was unrelated to the employee's age.

In the legal supervision procedure initiated after the second-instance judgment, the Supreme Court highlighted that a person's age is an objective criterion, which results in different opportunities and presents different challenges in an employee's professional life. Age does not automatically entitle an employee to legal protection. Rather, this will be the case only if the employee has objectively worse opportunities because of his or her age and therefore needs protection. This is particularly relevant in the case of young or elderly employees. Since the employee in the present case was in his forties (similar to other employees affected by the reorganisation), the Supreme Court considered that:

  • he did not fall under a different age group; and
  • therefore, discrimination compared with another group could not be established.

As regards length of service, the Supreme Court considered that it essentially depends on the concerned party's choice, and therefore cannot be considered to be an attribute protected by equal treatment laws.

Due to the above grounds, the Supreme Court declared that the employer had not acted discriminatively when dismissing the two oldest employees with the longest service records. The Supreme Court considered that the employer had had the right to choose, and that there were no reasons supporting the claim of age discrimination.

Comment

This case shows that even if the courts respect employers' freedom in organising their workforce, employers must be careful not to exceed the limits of this freedom in order to prevent similar disputes.

For further information on this topic please contact Dániel Gera at Schoenherr Hungary by telephone (+36 1 8700 700) or email (d.gera@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

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