The new Labour Code (published in the Hungarian Official Gazette No. 2 of 2012 on 6 January 2012) entered into force on 1 July 2012, on the 20th anniversary of the implementation of the 1992 Labour Code No. XXII.

There is a significant policy change in the new Labour Code, when compared to the previous Code. The new Code aims to adapt to the needs of the employment market, reflecting the trend for flexibility in EU labour regulation, while at the same time aiming for greater employee security. Comprehensive coverage of this policy change is beyond the scope of this article, therefore we have only covered, below, the main points of the change which are of general interest to all sectors, including employers in industrial engineering.

The changes in the new Labour Code intend to implement a new legal-political objective in relation to the regulation of contracts, in particular allowing parties to enjoy greater contractual freedom in both employment contracts and collective agreements.

The new Code introduces a new form of contract, called the “works agreement”, which can be concluded between an employer and a works council in circumstances prescribed by the Code.

Several new legal principals have appeared in the Code, some of which are entirely new. However, the majority have been developed by judicial practice in the past and have only now been turned into written law by the Code. For example, the Code has general rules governing when declarations have legal effect in employment. These are significant, particularly when determining the legal status of employers’ policies which have been issued unilaterally.

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 with exceptions set forth by the law. As such, a review of all existing contracts is recommended, as some clauses may become invalid. For instance, if the contract contains the expression “variable place of work,” without an exact indication of the employee’s place of work, then the place where the employee regularly works will be the place of work for contractual purposes. Further, 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.

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. However, 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.

There are further changes in relation to employees, including the opportunity to include sanctions in the employment contract against an employee found guilty of a breach when handling money or other valuables. 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 Code extends the range of atypical forms of employment, for example, by establishing a new type of “call-on” contract whereby part-time employees can be called-in to work when required, providing he/she is informed at least 3 days in advance.

New general conduct rules, replacing the introductory provisions of the current Labour Code, will play an important part in the legal interpretation of the Code in the future. They set down more comprehensively the general behaviour expected from each party and the requirement to act with due diligence, as well as with fair and reasonable consideration of the employee in particular cases, are both new. They also encompass employees’ behaviour outside working hours and more precisely define the possible interpretation of confidentiality obligations.

There are also changes to terminating employment relationships under the new Code. For example, employee protection from termination is categorised differently with the Code making a distinction between periods during which the termination cannot be communicated to the employee at all, and periods during which the termination can be communicated, but with the notice period prescribed by law starting after the expiry of the protection period.

The concept of “extraordinary termination” is replaced by “termination with immediate effect”, which also covers those cases where employment can be terminated with immediate effect without giving a reason (during probationary period or fixed term).

Rules regulating to the termination of defined period employment relationships are also modified, allowing such employment contracts to be terminated by notice, either by the employer or the employee, in circumstances as specified by law.

The legal consequences of an unlawful termination of an employment contract by the employer change as well. The amount potentially payable as damages is limited to 12 months’ salary. However, the option permitting a judge to consider re-instating the employment relationship has gone from the new Code although the employee can request, under certain circumstances specified in the Code, to be re-instated to his or her original position.

Liability for damages has been put on a new basis as well. Although employer liability has been retained by the new Code, it has introduced a new provision for exemption, thereby narrowing the scope of the employer’s liability compared to the current rules. From the employees’ side the new LC extends the maximum level of compensation for damages to 4-month salary, and so it is advisable to amend, or delete previous clauses which limit damages to one and a half-month pay. Of course, employee agreement may be required to effect any such change.

The new Labour Code permits to extend the probationary period, but not increasing 3 months.

Further, it increases the maximum time permitted for extraordinary works ordered by the employer from 200 hours to 250 hours. It is up to the agreement of the parties again – instead of a unilateral decision of the employer – to decide if the employee is entitled to time-off or financial compensation for extraordinary work (overtime). Therefore, it is advisable to regulate the mode of compensation for overtime in the employment contract otherwise wage supplements shall be paid.

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.

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, notifications and internal company policies is recommended.

Summarizing the above, the new Labour Code is a professional, legal document in its drafting and its structure. The cross-references in the text are more precise than those which can be found in its predecessor. Nevertheless, it does not decrease the challenges which professionals working in labour/employment law field face during their daily work.