A recent amendment to the Hungarian Labor Code, as a result of the implementation of 2014/67/EC Directive (Enforcement of the Posted Workers' Directive), significantly impacts on cross-border service contracts under which work is performed in Hungary by individuals employed by foreign service providers or their foreign subcontractor(s).

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In these cases, the Hungarian Labor Code already includes provisions protecting the private individual actually performing the work. Under these protective rules, even if the employer of the private individual is a foreign legal entity and the parties have concluded the employment contract under foreign law, Hungarian law will apply to the underlying employment relationship in terms of:

a) maximum working time and minimum rest periods;

b) minimum duration of annual paid leave;

c) the amount of minimum wage (including overtime payments and wage supplements);

d) the conditions for temporary agency work;

e) occupational safety;

f) the conditions of employment or work by pregnant women, or women who have recently given birth, and of young people; and

g) the principles of equal treatment

including the respective provisions of the collective bargaining agreement.

These protective rules have been part of the Hungarian Labor Code since July 2012. However, the recent changes to the Labor Code now mean that the Hungarian undertaking for which the work is in fact performed, is now also liable for compliance with the rules (as well as the actual foreign employer of the private individual).

There is also a new obligation for the Hungarian undertaking, for which the work will be performed, to inform the foreign employer in writing about the work conditions listed in points (a)- (g) above, prior to concluding the civil law agreement with that foreign employer. If the Hungarian entity fails to provide that information it will be liable as a direct surety, together with the foreign employer, in relation to any employee claims based on a failure to provide the prescribed work conditions.

Importantly, if the Hungarian entity knew or, if it had exercised due care, could have known, that the foreign employer has not met its salary (and contribution) payment obligations during the term of employment, the Hungarian entity will be jointly and severally liable with the foreign employer for any unpaid salary (and contributions).

These recent amendments to the Hungarian Labor Code establish significant liabilities for Hungarian customers in case of cross-border service contracts or cross-border assignments (in some aspects more severe than required by 2014/67/EC Directive). It is therefore important to thoroughly consider the terms of cross-border transactions in order to incorporate appropriate warranties into the contractual documentation.